No. 88-337

IN THE SUPREME COURT OF THE STATE OF MONTANA
1989

SIDNEY E. WARD, Plaintiffand Respondent,-vsVIBRASONIC LABORATORIES, INC., a corporation,
Defendant and Appellant.

APPEAL FROM: District Court of the Fifth Judicial District, In and for the County of Jefferson, The Honorable Frank Davis,Judgepresiding.
COUNSEL OF RECORD:
ForAppellant: Roger Tippy, Helena,Montana
For Respondent: Jardine & Grauman; John J. Jardine,Whitehall, Montana



### =! CCI LL C'4 Filed:

# , W Submitted on Briefs: Dec. 9, 1988

. . ~~~id~d: February 28, 1989

* J9 

### * <.

) .'I

-t 

# "

llJ + 

### -

# - "C. 0 .r 

### ...-Mr. Justice John C. Sheehy delivered the Opinion of the Court.

Vibrasonic Labs. Inc., appeals from a judgment of the District Court for the Fifth Judicial District, Jefferson County. Trialwas held April 6, 1988, without a jury. The District Court entered judgment for the plaintiff, Ward and awarded $2,500.00 punitive damages. This Court affirms the judgment of the District Court but remands the cause for specific findingswith regard topunitive damagespursuant to § 27-1-221,MCA. There are three issues for review: 1) whether the District Court erred by allowing the plaintiff to amend his complaint to conform to the evidence presented at trial; 2) whether the District Court erred by denying defendant'smotion to vacate the trial setting;and, 3) whether the District Court erred by not presenting findings pursuant to 

### 5 27-1-221, MCA, regarding punitive damages. The plaintiff, Sidney E. Ward, entered into an purchase/lease agreement with Vibrasonic Laboratories, Inc. for thepurchase of a hearing aid on July 31, 1986. The cost of thehearing aidwas $499.00plus $100.00 fitting fee for a totalof $599.00. Ward made a downpaymentof $180.00 leaving a balance of $419.00 to be paid in monthly installments of $20 over 36 months. As the District Court noted in its findings of fact, the agreement failed to complywith several provisions of the Montana Retail Installment Act. The agreement fails to givenotice of thebuyer's right topayoff in advance the full amountand obtain apartial refund of the finance charqe as required by 31-1-231(2), MCA. Theagreement is required to state, if a separate amount for insurance is paid, the specific types of coverage and benefits, 31-1-231(5)(d)

### , MCA. It fails to state the amountof the finance chargeas required by S 31-1-231(5)(g); and it fails to state the total amount of the time balance required by 

### 5 31-1-231(5)(h), MCA. Finally, Vibrasonic itself violated S 31-1-233, MCA, by writing an insurance policy which it was not authorized to do by the state of Montana. Ward purchased this insurance from Vibrasonic's agent. Vibrasonic called the insurance a "theUltimate Hearing Aid Protection Plan." The plan provided for loss against physical damage to the hearing aid caused by "external sources such as theft, fire,accidentalhreakage,water, auto accident," plus loss by mysterious disappearance. Thisplan specifically states it is "separate and distinct from the factory warranty and 

### -- does not cover repair service normallv coveredby the factory warranty." The District Court found that "the Ultimate Hearing Aid Protection Plan" to be "insurance" within themeaning of the insurance code of the state of Montana because of termsused in the plan such as "insured's name,policies, coverage, and premiums." The District Court found that this was an attempt towrite an insurance policy by anunlicensed insurer;that a premium of $20 was collected and constituted a fraudulent, deceptive and illegal act on thepart ofVihrasonic. Ward became dissatisfied with the hearing aid despite attempts by Vihrasonic to make adjustments. Ward tried to rescind the contractbut Vibrasonic would not returnpayments already made under the contract. Nonetheless,Ward returned the hearing aid in the summer of 1987 and stopped making payments. During this time, Ward was diagnosed as having terminal cancer in the facial area and brain. Ward

### 'sphysician, Dr. Sacry, wrote a letter pursuant to paragraph three of the agreement between Vibrasonic and Ward which should have allowed Ward to rescind the contract. Paragraph three reads as follows: You may cancel this agreement if in oneyear after the deliverydate you consult a licensedphysician, or a non-competitive certified audiologist, that has no connections with a hearing aid dispenser, and suchperson advises you against thepurchase or use of a hearing aid and specifies in writing the medical or audiological reasons for such advice. Vibrasonic denied Ward's right to rescind under this clause of the contract. It was upon this basis that the District Court found that Vibrasonic breached the contractand ordered that Ward be refunded $440.00, the amountwhich he had paid. Ward filed a complaint on October 6, 1987. The complaint contained four counts upon which Ward based his claims for relief. Count I alleged the basis for recission; Count 11 was an alternative to Count I; Count I11 alleged usurious interest rates on the contract, this Countwas later dropped; and Count IValleged fraudulent misrepresentation in the sale of the insurance policy covering the hearing aid. Count IVreadsas follows: Thatplaintiffwas required topurchase "insurance" as set forth in said agreement, but plaintiff is unaware of the nature or extent of any such insurance coverage, nor was he ever furnished with a policy or other memorandum of insurance,nor was plaintiff advised that he may either accept or decline said insurance, and that the additional charge of $20.00 for "insurance"isunwarranted and unlawful and was obtained by false and fraudulent misrepresentations by defendants, and should be returned toplaintiff.
That the actions of the defendants in requiring said "insurance" or in charging the plaintiff for the same, were false and fraudulent and oppressive and defendants should be assessed punitive damages in the amount of $10,000.00, or such amount asmaybe determined upon trial of this cause, by reason of said actions. Trialwas seton February 17, 1988, forApril 6,1988,giving Vibrasonic seven week's notice to prepare for trial. On March 23, 1988, two weeks before trial,Vibrasonic moved for a continuanceand asked topresent argument on itsmotion for summary judgment on the trial date rather than try the case. On April 6, 1988 the plaintiff and his counsel appeared and were ready for trial; the defendantappeared only through counsel. Vibrasonic's motions for continuance and summary judgment were denied and the trial was held. The plaintiff presented the testimony of Ward. The defendant did not put
on a case-in-chief. The District Court entered its findings on April 18, 1988 and judgment was entered April 27, 1988 in favor of Ward. Vibrasonic moved for 

### a new trial on the grounds of irregularities in the proceedings of the District Court and surprise. This motion was denied and the d-efendant, Vibrasonic, appeals to this Court. I Did the District Court err by allowing the plaintiff to amend his complaint to conform to the evidence presented at trial? First, the appellate procedural doctrine that matters not raised at trial will not be considered on appeal.applies here.It has long been the rule of this Court that on appeal we will not put a District Court in error for a ruling or procedure in which the appellant acquiesced, participated, or to which appellant made no objection.
Green v. Green (1978), 176 Mont. 532, 536, 579 P.2d 1235, 1237. When plaintiff's counsel made the motion to amend, defendant's counsel made no objection.Second, the rule with regard to amendments to the pleadings is well-settled. As early as 1905,the position of this Courthas been:



# . .

# . the court has discretionary power to permit the amendment under such terms as it deemed just and proper. This itdid. Doraisv. Doll (1905),33 Mont. 314, 316-17, 83 P. 884, 885. The policy of the law is to permit amendments to the pleadings in order that litigants may have their causes submitted upon every meritorious consideration that may be open to them; therefore it is the rule to allow amendments and the - 

### - - exceptionto 

### -d'ieny_ them. (Emphasisadded.) Union Interchange, Inc. v. Parker (19601, 138 Mont. 348, 353-54, 357 P.2d 339, 342. In addition to settled case law,Rule 15(b), M.R.Civ.P. provides: When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects as if they had been raised in the pleadings.. 

# . . the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby 

# . .. (Emphasis added.)
The purpose of Rule 15(b) allowing amendment of a complaint to conform to the evidence presented is to "put an end to wasteful and needless litigation and have trial on the merits of the case." Reilly v. Maw (1965), 146 Mont. 145, 156, 405 P.2d 440, 447. Vibrasonic contends that to allow the amendment of the complaint on the insurance issue raises a new theory of recovery. This Court disagrees. Count IV of the complaint clearly contemplates the claim of tortious misrepresentation by Vibrasonic to Ward by requiring insurance on the hearing aid. Thepolicy purchased by Ward was an insurance policy asdefined by Montana law and not a guaranty or warranty as purported by Vibrasonic. The Montana Insurance Code, 

### 5 33-1-210, MCA, definesproperty insuranceas: Property insurance is insurance on real orpersonal property of every kind and every interest therein, whether on land, water, or in the air,against loss or damage from any and all hazard or cause, and against loss consequential upon such loss or damage, other than noncontractual legal liability for any such loss or damage. (Emphasis added.) The contract presented to Ward was indeed insurance under this definition. Vibrasonic claims thispolicy was simply a warranty. We disagree: Awarranty promises indemnity againstdefects in an article sold, while insurance indemnifies against loss or damage resulting fromperils outside of and unrelated todefects in the article itself.
State ex rel. Duffy v. Western Auto Supply Co. (0hio 1938), 16 N.E.2d 256, 259. The contract refers to a standard factory warranty which lasts for oneyear. The insurancewas sold separatelyby the Vibrasonic agent approximately three weeks after the contract

was signed, and as set out above,protected against loss or damage,not defects in thehearing aid itself. ThisCourt concludes that the DistrictCourt did not err by allowing the plaintiff to amend his complaint.to conform to the evidencepresented.

Did theDistrict Court err 

### by denying defendant's motion to vacate the trial setting? The thrust of Vibrasonic's argumentwith regard to this issue is that itwas prejudiced and surprised because of the amendment to the plaintiff's complaint and because no continuance was granted to allow the defendant to prepare a defense.Count IV of the complaint, as set out above, contains many references to insurance. It expressly refers to the issuance of insurance, the unlawful collection of a premium, that it was obtained by false and fraudulent misrepresentations by Vibrasonic, and that punitive damages should he assessed. This pleading standing alone is enough to cover the unlawful activities of Vibrasonic in the insurance business. There was no surprise, there was no change in theory, there was no prejudice to Vibrasonic. Vibrasonic employees or agentsdid not appear at trial,after seven weeks notice of a trial date and over a year's notice of Count IV. It appears such motions were filed simply for delay. Ward died soon after trial and a continuance at the timewould have been fatal toWard's case. This Court concludes that the District Courtdid not err by denyingVibrasonic's motion to continue.

Did the District Court err by not presenting findings pursuant to 5 27-1-221, MCA, regarding punitive damages? This Court agrees with both the plaintiff and defendant

on the point that punitive damages were awarded without making all the required findings pursuant to S 27-1-221(7)(b)(i-ix)

## ,MCA:

When an award of punitive damages is made by the judge, he shall clearly state his reasons for making the award in findings of fact and conclusions of law, demonstrating consideration

### of each of the followingmatters: 

### (i)the nature and reprehensibility of the defendant's wrongdoing;

(ii)the extent of the defendant's wrongdoing; (iii)the intentof the defendant in committing the wronq;(iv)the profitability of the defendant's wrongdoing, if applicable;

(77) the amount of actual damaqes awarded by the jury; (vi)the defendant's networth; (vii)previous awards of punitive or exemplary damages against the defendant based upon the same wrongful act;

(viii)potential or prior criminal sanctions against the defendant based upon the same wrongful act; and

(ix)any other circumstances which may operate to increase or reduce, without wholly defeating, punitive damages. Although the District Court did not specifically state in its findings with regard to punitive damages that the findings were being made pursuant to the above statute, the court did make partial findings in accordance with the statute. Findings of fact no. 9 and no. 10 state the DistrictCourt's findingsas related to Count IV and the sale of insurance by Vibrasonic. The findings are set out as follows:

9. That at the time of delivery of said hearing aid, the agent, Richards, sold Plaintiff an insurancepolicy thereon (whichwasprovided forby written addition in the agreement) being called "The Ultimate Hearing Aid Protection Plan" (Plaintiff's Exhibit 3)

# . The policy provided for loss against physical damage to the aid caused by 

# ".

. . external sources such as theft, fire, accidental breakage, water, auto accident, plus many others." It also covers loss by mysterious disappearance. The "policy" also provides for a 

### $75 deductible for the replacement of the hearing aid "in case of loss." The Court finds that "The Ultimate Hearing Aid Protection Plan" is "insurance" within the meaning of the insurance code of the state of Montana, there being manyterms used that are indicative of insurance policies such as the application containing the "Insured' s Name,I' the terms "policies, coverage, premiums, uninsured shipping, protection," among others, all of which clearly spell out an attempt to write an insurance policy in the state of Montana by an unlicensed insurer; that apremium of $20was collected and constituted an illegal act on the part ofDefendant,andwhichwas fraudulentand deceptive.
10. That Richards, acting on behalf of the Defendant VIBRASONICS, falsely and fraudulently sold insurance to the Plaintiff and collected a premium therefor. This act was done with the knowledge that neither he nor Defendant were authorized to sell insurance in the state of Montana. This was a wrongful, tortious act, which justifies the imposition of punitive damagesby way of example in an amounthereinafter fixed.
These findings address (i) through (iv) of the statutory requirements. Section (v) relates to amount of actual damages awarded by the jury; although this was not a jury trial; actual damages in the amount of $440 were awarded by the judge. It was subdivisions (vi)through (ix) thatwere not addressed. In order to consider these statutory requirements, evidence must be presented for the court to consider. This Court remands on this issue so that evidence may be presented to the District Court for consideration and

so that findings and conclusions may be made in accordance with S 27-1-221 (7)(b)(i-ix)

## ,MCA. With respect to subdivision (vi)

## ,as to the defendant's net worth, either party may present such evidence at trial. The plaintiff may want to introduce evidence of this kind in an effort to obtain a greater damage award and the defendant may want to present evidence of its wealth in an effort to mitigate the damage award. The purpose of punitive damages is topunish and deter theparty found liable,but not to hit

sohard as to bring about financialruin. In the usual case"a defendant which presents no evidence of financial worth cannot complain that the jury did not have such evidence." Hicksv. Lilly Enterprises (0r.App. 1980), 608P.2d 186, 189. Finally,the defendant argues that if indeed the sale of the insurance is a violation of the Montana Insurance Code, the State Auditor's office is the agencywhich should proceed against the defendant, not the plaintiff. This Court disagrees. The plaintiff has a common-law tort action against the defendant for fraud and misrepresentation. The StateAuditor's office may also proceed against the defendant under its penalty provisions for violation of the insurance code.The award of compensatory damages is affirmed and the punitive damages judgment is reversed and remanded for proceedings in accordancewith this Opinion. Costs of appeal toplaintiff.



### - i 

# - - A- ~AL 

# -2 

# ,2Jq/uu//LA L- "

### - Justice f We Concur: h 

## n


# @a#- /' Justices 

# 4

/Mr. JusticeJohn C. Sheehy, in specialconcurrence:

This case demonstrateshow silly the resultscanbe when the legislature, in the guise of "tort reform" interjects itself in matters that are properly in the province of the courts. In my opinion, the District Court was measurably conservative in assessing punitive damages against a company that took advantage of the ill and the elderly, and violated

our state's insurance laws. It is safe to predict that punitive damages awards will be larger in the future because of the ritesof passage now requiredby the legislaturetobe followed. The notion that torts can be handled in the legislative halls instead of in courts at law is prevalent now, and unfortunately it will keep muddying the legal waters.

Justice