Opinion ID: 878567
Heading Depth: 1
Heading Rank: 3

Heading: public policy in light of judicial decisions

Text: As noted above, a major aim of awarding punitive damages is punishment of the defendant for oppressive, fraudulent or malicious conduct. We have also recognized that an award of punitive damages can serve as a deterrent to like conduct by other individuals. First Security Bank v. Goddard (1979), 181 Mont. 407, 423, 593 P.2d 1040, 1049; Butcher v. Petranek (1979), 181 Mont. 358, 363, 593 P.2d 743, 745. Whether both goals will be served adequately by permitting insurance coverage of punitive damages has been the principal concern of courts that have already addressed the coverage question. Several courts have followed the lead of the Court of Appeals of the Fifth Circuit and have concluded that the mutual goals of punishment and deterrence are defeated if coverage is permitted. In Northwestern Nat'l Cas. Co. v. McNulty (5th Cir.1962), 307 F.2d 432, Circuit Judge John Minor Wisdom made this oft-quoted observation: Where a person is able to insure himself against punishment he gains a freedom of misconduct inconsistent with the establishment of sanctions against such misconduct. It is not disputed that insurance against criminal fines or penalties would be void as violative of public policy. The same public policy should invalidate any contract of insurance against the civil punishment that punitive damages represent. The policy considerations in a state where ... punitive damages are awarded for punishment and deterrence, would seem to require that the damages rest ultimately as well as nominally on the party actually responsible for the wrong. If that person were permitted to shift the burden to an insurance company, punitive damages would serve no useful purpose. Such damages do not compensate the plaintiff for his injury, since compensatory damages already have made the plaintiff whole. And there is no point in punishing the insurance company; it has done no wrong. In actual fact, of course, and considering the extent to which the public is insured, the burden would ultimately come to rest not on the insurance companies but on the public, since the added liability to the insurance companies would be passed along to the premium payers. Society would then be punishing itself for the wrong committed by the insured. 307 F.2d at 440-41. For similar views, see City Products Corp., supra; Ford Motor Co. v. Home Ins. Co. (1981), 116 Cal. App.3d 374, 172 Cal. Rptr. 59; Hartford Acc. & Indem. Co. v. Village of Hempstead (1979), 48 N.Y.2d 218, 397 N.E.2d 737, 422 N.Y.S.2d 47; First Nat'l Bank of St. Mary's v. Fidelity & Deposit Co. (1978), 283 Md. 228, 389 A.2d 359, 367 (Levine J., dissenting); Harrell v. Travelers Indem. Co. (1977), 279 Or. 199, 567 P.2d 1013, 1022 (Holman, J., dissenting). Upon reflection, we grant the intellectual appeal of Judge Wisdom's reasoning, and recognize that it has been both praised and followed in other jurisdictions. Nevertheless, we find that this reasoning does not address the substance of punitive damages law as applied in Montana. To determine public policy concerning insurance coverage of punitive damages solely on deductive conclusions like those articulated by Judge Wisdom is to lean upon a slender reed. Missouri v. Holland (1920), 252 U.S. 416, 434, 40 S.Ct. 382, 384, 64 L.Ed. 641, 648. Oregon Supreme Court Justice Hans Linde correctly observed in his concurring opinion in Harrell, supra, that [a] court-made public policy against otherwise lawful liability insurance can be defended, not because the purpose of punitive damages is always deterrence and because insurance will always destroy their deterrent effect, but only when these considerations apply. (emphasis his). 279 Or. 199, 567 P.2d at 1029. Empirical observation informs us that many kinds of willful and wanton conduct are never successfully deterred by punitive damage awards. This is especially true in automobile accident cases. See, e.g., the discussion in Lazenby v. Universal Underwriters Ins. Co. (1964), 214 Tenn. 639, 383 S.W.2d 1, concerning the failure of civil and criminal sanctions to deter wrongful conduct on the highways. We have few doubts that the deterrent impact is minimal in cases involving other types of tortious conduct. This leaves punishment as perhaps the only effectively realizable goal of awarding punitive damages. However, as will be pointed out in the discussion infra, punishment in the context of punitive damages may come as a wholly unanticipated aspect of one's conduct, thus weakening the case against permitting insurance coverage of all punitive damage awards. In the instant dispute, First Bank fears that its insurance contract with Transamerica will become virtually worthless if it is exposed to punitive damage awards without the possibility of coverage. The Bank also claims that such a fine line exists between conduct justifying imposition of punitive damages and conduct not justifying such damages that permitting coverage is not in violation of public policy. Both arguments warrant serious attention. The contract issued by Transamerica to First Bank is not unlike many insurance agreements. It includes coverage for false arrest, detention, or imprisonment, malicious prosecution, wrongful entry or eviction, libel and slander, racial or religious discrimination, and wrongful repossession. All of these torts give rise to claims for punitive damages; on this there is no dispute. In many cases involving these torts, actual damages may be minimal, but the punitive damages extremely high. Indeed, many claims for relief are not made financially worthwhile without the prospect of recovering punitive damages. See Harrel, supra, 279 Or. 199, 567 P.2d at 1029 (Linde, J., concurring). Assuming that coverage was deemed contrary to public policy, and in the event of minimal, if any compensatory damages, an insured facing a significant award of punitives would receive little solace from what would amount to a worthless insurance policy. The fine-line problem raised by First Bank also suggests that a public policy against coverage would have less than desirable results, especially where the defendant is again assessed a particularly large punitive damage award. A consistent theme running through cases holding that public policy does not forbid insurance coverage is that juries and judges typically award punitives for a broad range of conduct not often described as willful or wanton, but as merely reckless or unjustifiable. When combined with the possibility that different fact finders in similar fact situations may reach differing conclusions as to the availability of punitive damages, the argument for denial of coverage becomes difficult to sustain. See Skyline Harvestore Systems, Inc. v. Centennial Ins. Co. (Iowa 1983), 331 N.W.2d 106; First Nat'l Bank of St. Mary's, supra; Harrel, supra; Lazenby, supra. See also Comment, Insurance Coverage of Punitive Damages 84 Dick.L.Rev. 221, 231-33 (1980). First Bank also emphasizes, and not without good reason, that a defendant may be subject to a punitive damage award for conduct not considered or known to be wrongful prior to imposition of the award. See, e.g., Gates v. Life of Montana Ins. Co. (Mont. 1983), 668 P.2d 213, 40 St.Rep. 1287 (reinstating punitive damage award against defendant for conduct which at time committed was not actionable). In these instances, forbidding coverage after the fact may work an injustice to unsuspecting defendants. We have recently attempted to come to grips with the problem of uncertainty in the area of punitive damages. In Owens v. Parker Drilling Co., (Mont. 1984), 676 P.2d 162, 41 St.Rep. 66, this Court acknowledged the expanded availability of punitive damage awards based on concepts like gross negligence, recklessness and unjustifiability. With respect to presumed malice as a ground specified in Section 27-1-221, MCA, for imposing exemplary or punitive damages, this Court adopted the following standard: When a person knows or has reason to know of facts which create a high degree of risk of harm to the substantial interests of another, and either deliberately proceeds to act in conscious disregard of or indifference to that risk, or recklessly proceeds in unreasonable disregard of or indifference to that risk, his conduct meets the standard of willful, wanton, and/or reckless to which the law of this State will allow imposition of punitive damages on the basis of presumed malice. Owens, supra, 676 P.2d 162, 41 St.Rep. at 69. Although we have described this standard as more definitive and perhaps more stringent than those of the past, Owens, supra, 676 P.2d 162, 41 St.Rep. at 69, we acknowledge that fact-finders may still wrestle with concepts like recklessness and reasonableness, such that defendants may not know that their conduct constituted presumed malice until after trial, and that a defendant in one case may never know the sting of punitive damages while another defendant in a similar case may be faced with financing a sizeable award. Similarly, we have yet to work out a definitive standard for oppression within the meaning of Section 27-1-221. Even though we are further down the road to refining the concept of punitive damages than are many other state courts, the law is still in such a state of flux as to warrant caution on the issue of whether public policy prohibits coverage of punitive damages in all cases. We therefore decline the opportunity to define limits for insurance coverage of punitive damages. Insurance companies are more than capable of evaluating risks and deciding whether they will offer policies to indemnify all or some conduct determined by judges or juries to be malicious, fraudulent or oppressive. A likely response to this opinion by some carriers may be the drafting of specific exclusions of coverage of punitive damages. However, the fact that some individuals may be willing to pay higher premiums for such coverage may convince carriers to extend coverage in some situations. It is conceivable that a combination of different approaches by insurance companies may result in a delineation of the limits of coverage better than anything this Court could establish.