No. 14279 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

1979 

FIRST SECURITY BANK OF BOZEMAN, a 

Montana Banking Corporation, 

Plaintiff and Respondent, 

-vsJOHN M. GODDARD and CLEO C. GODDARD, 

Defendants and Third Party Plaintiffs, 

-vsBANKERS UNION LIFE INSURANCE COMPANY, 

Third Party Defendant and Appellant. 

Appeal from: District Court of the Eighteenth Judicial 

District, 

Honorable W. W. Lessley, Judge presiding. 

Counsel of Record: 

For Appellant: 

Bolinger and Wellcome, Bozeman, Montana 

Roy Andes argued, Bozeman, Montana 

For Respondents: 

William Douglas argued, Libby, Montana 

Landoe, Brown, Planalp, Kommers & Lineberger, 

Bozeman, Montana 

James M. Kommers argued, Bozeman, Montana 

Submitted: February 2, 1979 

Decided : APR 2 5 1979 App 1 (-- i; 

Filed: 
Mr. Justice John C. Sheehy delivered the Opinion of the 

Court. 

This is an appeal by third party defendant, Bankers 

Union Life Insurance Co. (BULIC) from a judgment in the 

District Court, Eighteenth Judicial District, Gallatin 

County, finding BULIC liable on a policy of credit disability 

insurance issued by it to John M. and Cleo C. Goddard, third 

party respondents. The District Court sitting without a 

jury found BULIC liable to Goddard for disability benefits 

in the amount of $4,227.95, and further liable to Goddard 

for exemplary damages in the sum of $5,000.00. 

We affirm the District Court for the reasons following. 

First Security Bank of Bozeman is a Montana banking corporation operating in Bozeman, Montana. In the conduct of its 

ordinary business, the bank acted as an agent for BULIC, 

whereby the bank issued credit life and disability insurance 

policies for BULIC to insure payment of monies owing to the 

bank in case of the untimely demise or disability of the 

borrower. 

On October 2, 1975, an officer of the bank prepared a 

note and security agreement for execution by the Goddards 

and on that same date mailed the instruments to the Goddards 

in Libby, Montana. The face amount of the note was $5,529.96, 

which sum included a premium of $248.84, financed by the 

bank and payable to BULIC, for credit life and credit disability insurance for the Goddards. 

The Goddards received the instruments by mail on either 

October 4 or 5, 1975, and upon receipt of them, the Goddards 
executed the instruments, and placed them in the mail, with 

postage prepaid, addressed to the bank. The bank physically 

received the instruments on October 7, 1975. 

A written application by the Goddards for disability 

insurance is not a part of the appellate record, but in the 

District Court, the parties stipulated that an application 

for disability insurance was made by the Goddards to BULIC 

contemporaneously with the execution of the note and security 

instrument. Thereafter, it is stipulated, the insurance 

company accepted the application for disability insurance on 

October 7, 1975 and issued its policy no. 848208, providing 

such insurance to the Goddards. 

The Goddard note of October 2, 1975 to the bank was a 

renewal note covering a prior existing note indebtedness 

from Goddard. All interest on the preexisting note was 

computed up to and including October 1, 1975 and stopped on 

that date. The interest on the renewal note commenced on 

October 2, 1975. 

On October 5, 1975, John M. Goddard experienced some 

physical discomfort, which he initially attributed to some 

minor flu or other minor malady, for which he felt rest and 

aspirin would provide a cure. The discomfort however grew 

in intensity so that on October 7, 1975, Goddard went to Dr. 

William T. Matthews of Libby for examination. Dr. Matthews 

diagnosed the condition of Goddard at that time to be one of 

"coronary disease" which totally disabled Goddard until June 

1, 1976. 

The credit insurance policy contained,under the heading 

"Exceptions," the following language: 
". . . No benefits shall be payable under the 

Disability portion of this policy, listed 

in section E if Total Disability is caused 

by, or results from: . . . (3) A preexisting illness, disease or physical 

condition which manifested themselves 

to the insured debtor by requiring medical 

diagnosis or treatment, or would have caused 

a reasonably prudent person to have sought 

medical diagnosis or treatment within six 

months preceding the taking of the application 

for insurance and which caused loss within 

the six months following effective date of 

the insurance policy, provided, however, that 

disability commencing thereafter resulting 

from such conditions shall be covered, . . ." 

Policy no. 848208, issued by EULIC had an effective 

date of October 7, 1975, a termination date of October 7, 

1978, and provided a monthly indemnity for disability in the 

sum of $153.61 with benefits payable from the 31st day of 

total disability to the beneficiary, First Security Bank of 

Bozeman. 

Goddard made written claim to BULIC for disability 

benefits on November 5, 1975. In his statement of claim, 

he indicated he had last worked on October 5, 1975, and that 

he had been continuously disabled from that date. 

Dr. Matthews' written report to the insurance company 

states that Goddard ceased work because of disability on 

October 5, 1975. 

Goddards made no payments on the note indebtedness to 

the bank after October 2, 1975. They repeatedly demanded 

BULIC make such payments out of the credit disability insurance 

policy, but BULIC refused. The court found that as a direct 

result thereof the bank declared a default by the Goddards 

in the payment of the note indebtedness. In January 1976, 

the bank accelerated the payments due under the note, 

repossessed the Goddards vehicle and sold it at a distress 

sale. On February 2, 1976, the bank filed this action in the 

District Court against the Goddards to collect a deficiency 
from the Goddards in the amount of $2,452.95, plus interest, 

attorney fees and costs. Goddards appeared in the action, 

and brought a third party complaint against BULIC for the 

insurance coverage, and for punitive damages for refusing to 

pay the Goddard claim. As we indicated, the District Court 

entered judgment in favor of Goddards against BULIC, and 

separately entered judgment in favor of the bank against 

Goddards for the deficiency amount due on the note, plus 

attorney fees. No appeal is taken from the bank judgment 

against Goddards. 

The several issues presented by appellant can be resolved 

by the answers to the following questions: 

(1) What is the effective date of the disability 

insurance provided by BULIC? 

(2) What is the date of onset of Goddards' disability? 

(3) Is Goddard estopped to deny disability beginning 

at an earlier date, based on a misrepresentation? 

(4) Should the court have limited Goddards damages to 

the amount due on the obligation? 

(5) Should consequential damages have been awarded in 

this case? 

(6) Are exemplary damages in this case proper and if 

so, are they supported in the evidence? 

EFFECTIVE -- DATE OF DISABILITY INSURANCE 

BULIC's contention on this point is that since the 

insurance policy was issued effective October 7, 1975, and 

since it is clear that Goddards' disability began on October 

5, 1975, his disability preexisted the insurance date on the 

policy and the claim for disability is thereby excluded. 

This contention requires consideration of the provisions 

of section 40-4207, R.C.M. 1947, now section 33-21-203 MCA, 

which provides in part: 

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"The term of any credit life insurance 

or credit disability insurance shall, 

subject to acceptance by the insurer, 

commence ----- on the date when the debtor 

becomes obligated -- to the creditor . . ." 

(Emphasis added.) 

There is no question that the insurance company accepted 

the risk on October 7, 1975. BULIC contends however that 

Goddard could not have become obligated to the bank until 

October 7, 1975, because the note and security agreement 

from Goddard was not received by the bank until October 7, 

1975; and because on that date, the bank, having received 

the note, cancelled the previous note and its indebtedness, 

and then in fact accepted the new obligation. 

BULIC further contends that on October 4 or 5, when 

Goddard signed and mailed the note, he was not "obligated" 

upon the note. BULIC bottoms this contention upon an examination 

of the Uniform Commercial Code provisions, relating to the 

rights of the bank. BULIC contends that the bank as a 

holder under section 87A-3-301, R.C.M. 1947, now section 30- 

3-301 MCA, or as a holder in due course under section 87A3-305, R.C.M. 1947, now section 30-3-305 MCA, could not 

enforce the note because a "holder" is defined in section 

87A-1-201(20) , R.C.M. 1947, now section 30-1-201 (20) MCA, 

as one in possession of the note. Section 87A-1-201(20) , 

R.C.M. 1947, now section 30-1-201(20) MCA, identifies a 

holder as: 

". . . a person who is in possession of . . . an instrument . . . drawn, issued or 

endorsed to him or to his order or to 

bearer or in blank." 

It is BULIC's contention that since the bank was not in 

possession of the note until October 7, 1975, it could not 

enforce the note before that date under section 87A-3-301, 

R.C.M. 1947. 

or section 87A-3-305k and BULIC claims that Goddard cannot 

be said to have become "obligated" on the note until October 
This contention of BULIC goes against the grain of the 

legislative intent that is evidenced in the statutes relating 

to credit life and disability insurance. We have quoted 

previously the provisions of section 40-4207, which fixes 

the beginning term of credit disability insurance. In 

addition, section 40-4209, R.C.M. 1947, now section 33-21- 

204(2) MCA, relating to the delivery of the policy provides 

that if the policy is not delivered at the time the indebtedness is incurred, an application shall be taken from the 

debtor. The provisions of section 40-4209, with respect to 

the application require that: 

". . . The application or notice of proposed 

insurance shall state that, upon acceptance 

by the insurer, the insurance shall become 

effective as of --- the date the indebtedness 

is incurred."(~m~hasis added. 

Such statutory provisions are as much a part of the 

credit disability insurance policy as though they were 

written therein. McIntosh et al. v. Hartford Fire Insurance 

Company (1938), 106 Mont. 434, 78 P.2d 82; Lee v. Providence 

Washington Insurance Company (1928), 82 Mont. 264, 266 P. 

The District Court took the position that the Goddards 

became obligated to the bank on the date that they signed 

the note in Libby and mailed it to the bank. We hold this 

position to be correct. Under section 55-216, R.C.M. 1947, 

(since repealed) every contract on a negotiable instrument 

was deemed incomplete and revocable until delivery of the 

instrument had been accomplished, especially as regards a 

remote party. 

Under the Uniform Commercial Code appears that nondelivery 

is no defense as to a holder in due course (section 87A-3- 

305, R.C.M. 1947), but is a defense as to one not a holder 

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in due course. (Section 87A-3-306, R.C.M. 1947.) With 

respect to the liability of a maker of a negotiable instrument, 

section 87A-3-413, R.C.M. 1947, now section 30-3-413 MCA 

provides in part: 

" (1) The maker or acceptor engages that he 

will pay the instrument according to . . . its tenor ----- at the time of his engagement." 

(Emphasis added.) 

When is the "time of his engagement" at which a maker 

of a promissory note becomes liable? Surely it is when he 

issues and delivers the promissory note. Under section 87A3-102(1) (a), R.C.M. 1947, now section 30-3-102(1) (a) MCA, he 

issues the instrument upon the first delivery thereof to a 

holder. Under section 87A-1-201(14), now section 30-1- 

201(14) MCA, the maker accomplishes delivery of the instrument 

when he voluntarily transfers its possession. Negotiable 

instruments have no validity until delivered. This is still 

true under the UCC. Rex Smith Propane, Inc. v. National 

Bank of Commerce (U.S.D.C. Texas 1974), 372 F.Supp. 499. 

"A note takes effect from the time of 

its delivery and not from its date. Until 

the maker of the note parts with the 

possession and control of the instrument, 

he may cancel it or dispose of it as 

he pleases and a note is not executed until 

it is delivered . . ." 

"When the note and trust deed were so deposited 

[in the mail] . . . the maker, parted with the 

possession of and lost control over the papers 

and all right to retake or reclaim them. Under 

such circumstances, the delivery was complete . . ." Birrer v. Beckler (Ill. 1914), 106 

N.E. 206. See also: Investors Commercial 

Corporated v. Metcalf (Ill. 1957), 140 N.E.2d 

924. 

Thus, the promissory note was deemed delivered at the 

time it was mailed to the bank. The note thereupon became the 

property of the payee when it was posted to the bank. It 

was beyond the control of the makers at that time. The 

time of mailing therefore became the "time of his engagement" 
under section 87A-3-413, now section 30-3-413 MCA fixing the 

liability of the maker. It was at that time that Goddard 

became obligated to the creditor under the terms of section 

40-4209, R.C.M. 1947, now section 33-21-204(2) MCA. 

---- DATE OF ONSET OF GODDARDS DISABILITY 

The District Court found that at the time Goddard 

mailed the promissory note to the bank there was not existing 

such illness, disease or physical condition for which he had 

a medical diagnosis of a totally and permanently disabling 

nature, or which would have caused a reasonably prudent 

person to have sought diagnosis or treatment. That finding 

is a negation of the conditions which would exclude coverage 

under the BULIC policy. 

Under Rule 52(a), Mont.R.Civ.P., findings of fact made 

by the District Court shall not be set aside unless clearly 

erroneous, and due regard is to be given to the opportunity 

of the trial court to judge the credibility of the witnesses. 

Here the evidence is that the date of mailing of the 

promissory note was on October 4 or 5, 1975; that the onset 

of Goddards discomfort did not occur until October 5; and:that 

he did not go to a medical doctor until October 7, 1975. In 

fact the evidence is uncontroverted. Since the District 

Court accepted the credibility of the Goddards with respect 

to these matters, and nothing in the record makes such 

evidence inherently incredible,there is substantial evidence 

to support the findings of the court. See Arrowhead, Inc. 

v. Safeway Stores, Inc. (1978), Mont . , 587 P.2d 

411, 35 St-Rep. 1830, and cases cited therein. 
ESTOPPEL BY - VIRTUE OF - MISREPRESENTATION 

Under this contention, BULIC argues that Goddard 

misinformed the insurance company as to the date of the 

beginning of his disability and is therefore estopped to 

claim any other date of onset. Goddards statement of claim 

to BULIC indicated that he was totally disabled on October 

5, 1975 and was his last day of work. He was examined by 

Dr. Matthews on October 7, and in Dr. Matthews' report, it 

is stated that Goddard was totally disabled from October 5. 

Goddard testified that he asked Dr. Matthews to "backdate" 

the onset of his disability. When he was testifying however, 

he stated that he worked until October 7, 1975. BULIC 

claims that the initial statement that his disability began 

on October 5, 1975 is fraudulent and by virtue thereof 

Goddard is estopped from claiming any other time of disability. 

The District Court found that Goddard's coronary disease 

was diagnosed on October 7, 1975. 

The elements of equitable estoppel (section 93-1301-6, 

R.C.M. 1947, now section 26-1-601 MCA) which BULIC claims 

apply here include the contention that BULIC denied Goddard's 

claims because of his representation that the disability 

began on October 5, 1975, and that BULIC returned his premium 

based upon such representation. What this argument of BULIC 

disregards is that it denied the claim because of its mistaken 

impression that the effective date of the insurance was 

October 7, 1975. BULIC had mistakenly concluded that the 

obligation was not incurred as far as Goddard was concerned 

until the bank had actual physical possession of the note 

and security instrument and issued the insurance policy. As 

we have demonstrated above under the first issue, this is 

not the law. Therefore the representation by Goddard, if 
false, was not material to the risk assumed by BULIC under 

its insurance policy. It requires a material misrepresentation 

by an applicant relied on by the insurer to avoid coverage 

under an insurance policy. See section 40-3713, R.C.M. 

1947, now section 33-15-403 MCA. It was not the representation 

by Goddard that his disability commenced on October 5, 1975 

that caused BULIC to change his position for the worse; 

rather, it was BULIC's mistaken position that October 7 was 

the date when Goddard became obligated to the bank that 

caused it to deny coverage. Estoppel has reference to the 

conduct of the person estopped.Bagley v. Hotel Florence 

Company (1974), 165 Mont. 145, 526 P.2d 1372. Estoppel has 

no application where the omissions of the party claiming 

estoppel brought about the problem. 

THE PROPER MEASURE OF - DAMAGES AND - CONSEQUENTIAL DAMAGES 

Under these issues, BULIC claims that the amount of 

damages awarded by the District Court, $4,227.95, was excessive. 

BULIC contends that the insurance contract was an 

agreement for payment of money only and therefore the proper 

measure for damages for a breach of the agreement is section 

17-303 R.C.M. 1947, now section 27-1-312 MCA, which provides: 

"The detriment caused by the breach of an 

obligation to pay money only is deemed 

to be the amount due by the terms of 

the obligation with interest thereon." 

BULIC further contends that under the Insurance Code, 

section 40-4206(2), R.C.M. 1947, now section 33-21-202 MCA, 

states that the amount payable under a credit disability insurance 

plan shall equal the aggregate of the periodic unpaid 

scheduled installments "in the event of disability". Since 

Goddard was disabled for seven months, BULIC contends the 

maximum statutory benefit payable will be seven times $153.61, 

which equals $1,075.27. Any amount in excess of that for 

direct damages BULIC contends is improper. 

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Moreover, BULIC also contends that Goddard is not 

entitled to consequential damages and that the only amounts 

which the court may properly award over the seven unpaid 

installments is such interest as may be found due. Goddard 

answers this issue claiming that section 17-301, R.C.M. 1947, 

now section 27-1-311 MCA is applicable and that Goddard is 

entitled to receive "the amount which will compensate the 

party aggrieved for all the detriment proximately caused 

thereby." Goddard further contends that section 17-303 is 

intended only as a guide to the estimation of damages under 

the cases of Zook Brothers Construction Company v. State of 

Montana (1976), Mont. , 556 P.2d 911, 33 

St-Rep. 809; Wyatt v. School District No. 104 (1966), 148 

Mont. 83, 417 P.2d 221; and Orford v. Topp (1959), 136 Mont. 

227, 346 P.2d 566. Goddard also relies on Wiseman v. Holt 

(1973), 163 Mont. 387, 517 P.2d 711, but this case was 

overruled in Whitney v. Bails (1977), Mont . I 

560 P.2d 1344, 34 St.Rep. 134. 

Neither of the positions taken by the opposing parties 

here quite hits the mark as to the proper measure of damages 

recoverable in such a case as the one at bar. 

Under the pleadings of the parties, and the findings of 

the court, the claim of Goddard is one sounding in tort 

involving a breach of contract. In their third party complaint, 

Goddards allege that BULIC "wrongfully refused to make payment 

of the insurance benefits to which [Goddard] were entitled, 

with the result that [Goddard's] automobile was repossessed" 

by BULIC. No breach of contract as such is alleged in the 
third party complaint. The District Court did not make a 

finding that a breach of contract, as such, existed here. 

Rather it found that BULIC had "failed and refused" to make 

the payments under the disability insurance policy to Goddard 

and as a direct consequence, the bank declared his default, 

accelerated the payments due under the note, and thereafter 

repossessed Goddards vehicle and sold it at a distress sale. 

Thereafter, the court found, the bank commenced the instant 

case to collect a deficiency sum from Goddard. 

In its conclusions, the District Court found that BULIC 

had violated the provisions of Chapter 42, Title 40, R.C.M. 

1947. It is on this basis that the court founded its award 

of damages and punitive damages. 

A cause of action may sound in tort although it arises 

out of a breach of contract, if a defaulting party, by 

breaching the contract, also breaches a duty which he owes 

to the other party independently of the contract. This 

distinction was carefully noted in Battista v. Lebanon 

Trotting Association (U.S.C.A. 6th 1976), 538 F.2d 111, 

where the Sixth Circuit Court applied Ohio law. There the 

court noted that under Ohio law a tort arises out of a 

breach of contract if the party also breaches a duty which 

he owes to another independently of the contract, and which 

duty would exist even if no contract existed. It is this 

factor that determines whether an action of this kind is one 

of contract or of tort. The federal court noted that two 

cases in Ohio had recently allowed tort damages in breach of 

contract cases and said: 
"These cases are the first in Ohio to 

recognize the legal trend toward punishing 

an insurance company for willful refusal 

to pay a valid claim. Such a tort claim, 

however, is founded upon a legal duty 

rather than a contractual duty. 

"'An insurer owes its insured an impliedin-law duty of good faith and fair dealing 

that it will do nothing to deprive the 

insured of the benefits of the policy. 

(Fletcher v. Western National Life Insurance 

Company, 10 Cal.App.3d 376, 89 Cal.Rptr. 

78, 47 A.L.R.3d 286, 305 (1970).) ' 

". . . This special duty, enforced through 

tort liability, is necessary because of 

the relationship between the parties and 

the fact that in the insurance field the 

insured usually has no voice in the preparation 

of the insurance policy and because of the 

great disparity between the economic positions 

of the parties to a contract of insurance; 

and furthermore, at the time an insured 

party makes a claim he may be in dire 

financial straits and therefore may be 

especially vulnerable to oppressive tactics 

by an insurer seeking a settlement or a 

release. 

"The special considerations existent in 

a consumer-held insurance contract do 

not apply to an ordinary contract between 

businessmen . . ." 538 F.2d at 117, 118. 

In Montana, insurance companies insuring credit disability 

risks have a statutory duty that exists beyond the insurance 

contract itself. Their statutory duty under section 40- 

4213, R.C.M. 1947, now section 33-21-105 MCA, is that all 

claims shall be settled as soon as possible and in accordance with the terms of the insurance contract. Thus, BULIC 

not only had a contractual duty to make payment of a valid 

claim to Goddard, but it had the statutory duty to do so as 

soon as possible. It is the breach of that statutory requirement, a duty independent of the insurance contract, that 

gives rise to tort liability in the case at bar. 

Thus, the insurer's duty of good faith and fair dealing 

with its insureds in the payment of claims has statutory 

blessing and authority. Accordingly, the measure of damages 

in such a case as the one at bar is provided in section 17- 

401, R.C.M. 1947, now section 27-1-317 MCA which allows 
compensation "for all the detriment proximately caused 

thereby whether it could be anticipated or not." 

This Court recognized that a breach of contract might 

also give rise to an action in tort in State ex rel. Larson 

v. District Court (1967), 149 Mont. 131, 136, 423 ~.2d 598, 

600, when it said: 

"Thus, in the insurance contract we have 

a unique situation; that is, some acts 

may be both breaches of contract and 

violations of the laws of Montana." 

- THE ISSUE OF - PUNITIVE DAMAGES 

BULIC makes a two-pronged attack on the $5,000.00 

punitive damages awarded by the District Court. BULIC 

contends that there is no authority for punitive darriages in 

this case because of breach of contract and that in any 

event the evidence is insufficient to support an award of 

punitive damages. 

The propriety of recovery of punitive damages for 

breaches of insurance contracts where a statutory duty is 

also violated was settled in this state in State ex rel. Larson. 

Here BULIC distinguishes Larson saying a violation of 

section 40-4213, that "all claims shall be settled as soon 

as possible" is not a statute for which a penalty is assessed. 

Therefore, even under Larson, BULIC contends that punitive 

damages may not be awarded in this case. 

BULIC contends that section 40-4213, R.C.M. 1947, now 

section 33-21-105 MCA has no self-executing criminal sanction. 

To enforce it, BULIC argues that one must first get an order 

from the Commissioner of Insurance, section 40-4215, R.C.M. 

1947, now section 33-21-111 MCA. Thereafter, there should 

be a judicial review, section 40-4216, R.C.M. 1947, now 

section 33-21-112 MCA, after which penalties for violations 

of the orders of -- the Commissioner - of Insurance are set forth 

as criminal penalties. Section 40-4217, R.C.M. 1947, now 
section 33-21-113 MCA. BULIC points out there is no specific 

statute assessing a criminal penalty directly for a violation 

of section 40-4213. 

BULIC1s contentions on this point cannot be sustained, 

because a violation of section 40-4213, with respect to 

failure of prompt payment of claims in credit disability 

cases, is subject to the general penalty provided by section 

40-2617, R.C.M. 1947, now section 33-1-104 MCA. That section 

provides : 

"Each violation of any provision of this 

code, with respect to which violation a 

greater penalty is not provided by other 

applicable laws of this state, shall, 

- in addition -- to any administrative penalty 

otherwise applicable thereto, upon conviction 

in a court of competent jurisdiction of 

this state be punishable by a fine of not 

less than $50 or more than $1,000 

or by imprisonment in the county jail for 

not less than 30 days or more than 90 

days or by both such fine and imprisonment." 

There being a criminal penalty available for a violation 

of section 40-4213, this case is within the rule set forth 

in Larson, and in Paulson v. Kustom Enterprises, Inc. 

(1971), 157 Mont. 188, 483 P.2d 708. We distinguish State 

ex rel. Cashen v. District Court (1971), 157 Mont. 40, 482 

P.2d 567 because in Cashen no criminal penalty was involved. 

BULIC next contends that even if punitive damages could 

be awarded here, there is no evidence that BULIC acted 

wantonly, maliciously or oppressively so as to entitle 

Goddard to such punitive damages. 

The findings of the District Court noted the failure 

of BULIC to make the payments, the direct consequence of 

the acceleration of Goddards' note, the subsequent 

repossession of Goddards' vehicle to be sold at a distress 

sale and finally, the filing of the deficiency action against 

Goddards. The District Court also noted that BULIC was 

repeatedly requested by counsel for Goddard "and implored to 

make payment of the disability benefits" and that the 
failure and refusal of BULIC to make payment of the disability 

benefits was an oppressive act or omission on the part of 

BULIC. The court'concluded that by virtue of the violation 

of section 40-4213, and the distress which resulted therefrom 

to Goddard, that Goddards were entitled to exemplary damages. 

It is not necessary to show actual malice to recover 

punitive damages. Harrington v. Holiday Rambler Corporation 

(19781, Mont. , 575 P.2d 578, 35 St.Rep. 46. Fraud 

or malice may be actual or presumed. Section 17-208, R.C.M. 

1947, now section 27-1-221 MCA. Inplied malice may be shown 

by proof that defendant engaged in a course of conduct 

knowing it to be harmful and unlawful. Ferguson v. Town 

Pump, Inc. v. Wallace Diteman (1978), Mont . I 

580 P.2d 915, 921, 35 St.Rep. 824, 831; Miller v. Fox (1977), 

Mont. , 571 P.2d 804, 34 St.Rep. 1367; Cashin 

v. Northern Pacific Railway Company (1934), 96 Mont. 92, 28 

"Malice-in-law" is implied where the defendant's conduct 

is unjustifiable. Cherry-Burrell Company v. Thatcher 

(U.S.C.A. 9th 1939), 107 F.2d 65, 69 (applying Montana law). 

Here, BULIC's conduct was both harmful to Goddard and 

unlawful because it violated a statute. Its malice will 

therefore be implied because its actions were unjustifiable. 

BULIC claims it was acting in good faith in denying the 

disability benefits because Goddard and his doctor had 

reported Goddard to be continuously disabled from October 

5, two days before BULIC claims insurance coverage commenced. 

Again, it is not the claim of Goddard or his doctor as to 

the commencement of the disability, but BULIC's incorrect 

position that the coverage commenced on October 7, that 

brought about the denial. BULIC has persisted in insisting 
that the coverage began on October 7 even through this 

appeal, in the face of sections 40-4207 and 40-4209 which 

provide that the term of credit disability insurance shall 

become effective when the indebtedness is incurred. 

No issue is raised by BULIC as to the amount of exemplary 

to 

damagedhe awarded. The office of an award of exemplary 

damages is to punish the defendant for malicious and wrongful 

acts, be the malice actual or presumed, where the defendant 

should suffer some additional penalty for the wrongful 

conduct and where the exemplary damages will serve as a 

warning to others and as a deterrent and punishment to the 

defendant. See Kesler v. Rodgers (Utah 1975), 542 P.2d 354. 

The judgment of the District Court is affirmed. 

C&k-.-.-&bq-Justice 

We Concur: 

Chief Justice 

/ Justices /