Opinion ID: 2056376
Heading Depth: 1
Heading Rank: 7

Heading: Clear and Convincing Evidence Standard Adopted)

Text: At the close of all the evidence, the defendant moved for judgment on the evidence upon the issue of punitive damages; and we turn now to a consideration of that issue. As hereinbefore related, the dispute between the parties arose over the monetary extent of the defendant's liability under the contract. Also, as hereinbefore determined, the issue was one of law, not of fact, and the law was unsettled in this state. It is, therefore, difficult to imagine circumstances more repugnant to an award of punitive damages. In Vernon Fire & Casualty Insurance Co. v. Sharp, (1976) 264 Ind. 599, 349 N.E.2d 173, this Court first recognized that an award of punitive damages could be upheld in contract actions, even though the facts would not support an independent action in tort,  when it appears from the evidence as a whole that a serious wrong, tortious in nature, has been committed   . and  that the public interest will be served by the deterrent effect punitive damages will have upon future conduct of the wrongdoer and parties similarly situated.  264 Ind. at 608, 349 N.E.2d 173. (Emphasis added). It was pointed out that the evidence warranted the conclusion that Vernon's conduct was intentional and wanton, oppressive, and in no way privileged and was motivated by self interest, i.e., to extract from Sharp a consideration to which it was not entitled. Vernon was followed by Hibschman Pontiac, Inc. v. Batchelor, (1977) 266 Ind. 310, 362 N.E.2d 845, in which we held that the evidence warranted a finding that malice, fraud, gross negligence, and oppressive conduct mingled in the breach of warranty. While Vernon, supra, was pending on a petition for rehearing in this Court, our Court of Appeals, in Jones et al. v. Abriani, (1976) 169 Ind. App. 556, 350 N.E.2d 635, determined that the evidence supported a finding that Jones' conduct attending his breach had been fraudulent and oppressive. 169 Ind. App. at 580, 350 N.E.2d 635, and in Jos. Schlitz Brewing Co. v. Central Beverage Co., (1977) 172 Ind. App. 81, 359 N.E.2d 566, that Schlitz's conduct had been oppressive, and in bad faith, hence tortious in nature. 172 Ind. App. 103-04, 359 N.E.2d 566. In all of the aforementioned cases, it was also determined that the evidence warranted a finding that the public interest would be served by the award of punitive damages. But in Prudential Ins. Co. v. Executive Estates et al., (1977) 174 Ind. App. 674, 369 N.E.2d 1117 and in First Federal Savings & Loan Ass'n. v. Mudgett, (1979) Ind. App., 397 N.E.2d 1002, our Court of Appeals reversed the awards of punitive damages, while affirming the awards of compensatory damages. In each of these cases, it was determined that the evidence did not sustain findings of elements of fraud, malice, gross negligence or oppression mingled with the breaches. In Vernon, supra, the tortious conduct was economic duress  the refusal to pay or negotiate the insurance policy proceeds until the insured procured a release from an associate on an unrelated claim, a service to which the insurer was not entitled. In Hibschman, supra, the breaching party concealed its breaches and deceived and verbally abused the customer, from which it was inferred that its actions were a deliberate attempt to delay performance and ultimately to escape liability through expiration of the warranty period. Jones v. Abriani, supra , was another case of economic duress. Jones accepted a substantial payment upon the purchase price upon execution of a contract for a mobile home. Upon delivery of the home, which was defective in many respects, and upon Abriani's justified reluctance to accept it, Jones informed the Abrianis that if they did not accept the home they would forfeit their advance payment and simultaneously agreed to rectify the defects. The Abrianis accepted the home, believing that they had no choice, but the defects were never adequately rectified. In Schlitz, supra, the brewer apparently desired, in its own interest, to terminate its contract with the distributor, which it could not do directly. Schlitz had sought to have all its distributors keep certain records but did not enforce the policy generally. Ultimately, it terminated its contract with the distributor, purportedly because of the distributor's failure to follow the record keeping policy, although it was not then enforcing such policy against other distributors similarly situated. The bad faith and oppression of the breaching parties and the public interest in each of those cases is readily apparent. By contrast, Prudential, supra, and First Federal Savings & Loan Ass'n., supra, presented situations wherein it would be difficult, although not categorically unreasonable, to infer bad faith from the conduct of the appellants and public benefit from an award of punitive damages. Yet, under our preponderance standard, it was difficult to set aside the jury awards. In Prudential, the mortgagor (Appellee) contended, and the jury agreed, that by reason of local custom and the special relationship of mortgagor and mortgagee, it was incumbent upon Prudential, when disbursing the mortgage proceeds to obtain complete releases from lienholders. The mortgagor had been refused permission to receive and disburse the mortgage funds, because it was Prudential's policy to handle such matters; whereupon, the mortgagor advised that it desired to be present at the closing. The mortgage documents were pre-signed by the mortgagor, who was assured by Prudential's agent that liens, etc. would be taken care of. The Mortgagor's representative, McCain, appeared for the closing, gave his card to the receptionist and announced his purpose in being present. Nevertheless, Prudential's closing attorney proceeded to complete the matter and did not see McCain until after the proceeds had been disbursed and the desired releases were not procured. The Court of Appeals held that the evidence most favorable to the judgment resulted, at best, in liability based upon negligence, which it acknowledged might be characterized as a heedless or reckless disregard of consequences and, in turn, more accurately characterized as a conscious and intentional wrongdoing better described by such words as oppression or malice. (Emphasis added), citing Bob Anderson Pontiac, Inc. v. Davidson, (1973) 155 Ind. App. 395, 400, 293 N.E.2d 232, 235. It stated that the trial court had erred in instructing that punitive damages could be awarded if the jury found that Prudential's wrongful acts had been committed in  a willful, or wanton disregard of the rights of  the mortgagor. It then proceeded to state: Rather the conduct supporting punitive damages must be of a more reprehensible character, e.g., malice, gross fraud, oppressive conduct, or heedless disregard of the consequences.  Prudential, supra, 174 Ind. App. at 697, 369 N.E.2d 1117. We are left to wonder when a heedless or reckless disregard of the consequences will support an inference of oppression or malice so as to warrant an award of punitive damages and when it will not. The court in analyzing cases where punitive damages were sustained upon evidence of conduct labeled by the court as the heedless disregard of consequences, said that in those cases, a more conscious and direct type of behavior was nevertheless included. Prudential, supra, 174 Ind. App. at 698, 369 N.E.2d 1117. Thus we are inclined to believe that the court was struggling with a factual situation susceptible of producing alternative inferences, one warranting punitive damages and the other not. The issues produced by the punitive damages concept are inherently issues of degree, i.e. was the conduct slightly negligent, negligent, very negligent, grossly negligent, wanton or heedless? Was the conduct malicious or merely inconsiderate or impolite? Was the relationship one of trust giving rise to a duty or was it merely one of unilaterally imposed reliance? Or was the consideration sought slight, reasonable, high, excessive, exorbitant or unconscionable? In First Federal, etc., supra, the appellant acknowledged that it had breached the loosely drawn contract to make repairs to the residence which it sold to the appellee, but the Court of Appeals disagreed with the jury and with the trial judge in their conclusions that bad faith was inferable from evidence that the house had many more defects than those enumerated in the agreement, that the air conditioning unit was not only inoperable but was undersized and could not be rendered satisfactory and conflicting evidence as to whether the work was to be done to the satisfaction of the appellee or to the satisfaction of a competent third party. The court rather summarily held that the evidence did not rise to the sufficiency required for punitive damages. First Federal, supra, at 1009. As in Prudential, supra, it made no attempt to articulate the level of evidence required or the shortfall. It found an absence of evidence upon a requisite element, and it made no mention of preponderance or weight. We find no fault with the end result in these cases, but it becomes apparent, from them, that the advent of punitive damages in contract cases, absent evidence of an attendant full blown tort of a nature which would permit punitive damages in and of itself, has given rise to a need for the adoption of an evidentiary standard not heretofore required, lest the public policy favoring such awards be subverted. Clear and convincing evidence, a stricter degree of proof than a mere preponderance of the evidence is required in some jurisdictions with respect to such issues as fraud, specific performance, forfeiture, etc. 30 Am.Jur.2d 344, Evidence § 1167. In ordinary civil actions a fact in issue is    sufficiently proved by a preponderance of evidence. However, clear and convincing proof is a standard frequently imposed in civil cases where the wisdom of experience has demonstrated the need for greater certainty, and where this high standard is required to sustain claims which have serious social consequences or harsh or far reaching effects on individuals to prove willful, wrongful and unlawful acts to justify an exceptional judicial remedy,   . So, in a number of cases where an adverse presumption is to be overcome, or on grounds of public policy and in view of peculiar facilities for perpetrating injustice by fraud or perjury, the degree of proof required is expressed in such terms as `clear,' `clear and conclusive,' `clear precise and indubitable,' `convincing,' `clear and convincing,' `satisfactory,' `entirely satisfactory,' `strong,' `clear, strong and convincing,' `clear, distinct and convincing,' `clear, positive and credible,' and `unequivocal,' and the phrase `preponderance of evidence' has been expressly disapproved as an insufficient measure of the proof required, as has also the phrase, `a fair preponderance of the evidence.' 32A C.J.S. Evidence, § 1023, pp. 663-65. (Emphasis added) (Citations omitted). Although we find no Indiana civil case in which the standard higher than the preponderance of the evidence has been clearly adopted, higher standards have been clearly recognized and perhaps subtly applied. This is particularly apparent in matters of equity. Where the rights of a party are clear    a court of equity may properly issue a temporary or preliminary injunction. Watson v. Burnett, (1939) 216 Ind. 216, 224, 23 N.E.2d 420. (Emphasis added). Here a mandatory injunction is prayed, which should be allowed in a proper case, but as a rule, courts will not grant an extraordinary remedy unless the complainant makes out a clear case. Evansville, etc. Ry. Co. v. Evansville, etc., Ry., (1912) 50 Ind. App. 502, 514, 98 N.E. 649. In another injunction case, this Court hinted that a preponderance of the evidence might not, in all cases, be sufficient. It is a familiar law, too familiar to need the citation of authority, that the decree of a chancellor is of grace, not of right, and that he is not bound to make a decree which will do far more mischief and work far greater injury than the wrong which he is asked to redress. (Citation omitted) Nor ought the process of injunction to be applied but with the utmost caution. It is the strong arm of the court, and to render its operation benign and useful, it should be exercised with great discretion, and only upon necessity. (Emphasis added) (Citation omitted) The principles upon which mandatory and prohibitory injunctions are granted do not materially differ. Courts are, however, more reluctant in granting the mandatory writ.  (Emphasis added) Schwartz v. Holycross, (1925) 83 Ind. App. 658, 663-64, 149 N.E. 699. In The Continental Insurance Company v. Jachnichen, (1886) 110 Ind. 59, 10 N.E. 636, Appellee sued upon a policy of fire insurance, and Continental answered that the appellee had burned the building with intent to defraud it. The trial court gave an instruction advising that Continental, in order to maintain the defense, must establish the truth of such charge beyond a reasonable doubt. This Court reversed, saying in civil actions the rights of the parties are to be determined by a preponderance of the evidence and that since the action was a civil one, it was subject to all the rules belonging to actions of that class,  without regard to the fact, that the matter in issue may involve the imputation of a crime.  Id. at 64-65, 639, 10 N.E. 636. (Emphasis added). Curiously, however, the court, at the same time, acknowledged that when an infamous charge is preferred, whether it be in a civil or criminal case, the same presumptions of innocence attach in favor of the party assailed, and doubtless the jury should scrutinize the evidence with greater caution before coming to a conclusion in favor of guilt;   . Id. at 63, 638, 10 N.E. 636. (Emphasis added). It then proceeded to say, To create a preponderance, the evidence must overcome the opposing presumptions, as well as the opposing evidence. (Citation omitted). Preponderance of the evidence, when used with respect to determining whether or not one's burden of proof has been met, simply means the greater weight of the evidence. Great Atlantic and Pacific Tea Co. v. Custin, (1938) 214 Ind. 54, 61, 14 N.E.2d 538. To say, then, that in some cases the evidence must overcome opposing presumptions as well as opposing evidence is to acknowledge that more persuasive evidence may be required in some cases than in others. Although declining to apply it in the case before it, our Court of Appeals, Second District, recently recognized that in some cases, due process required proof in excess of a mere preponderance of the evidence. The trial court expressly stated that the preponderance of the evidence standard was used in arriving at the determination of neglect and order of permanent wardship. Appellants contend that the applicable standard is `clear and convincing' proof, citing Alsager v. District Court, supra, 406 F. Supp. 10 [D.C. 1975]. We decline to follow Alsager insofar as it suggests that the preponderance of the evidence test does not pass constitutional muster with respect to termination of parental custody. The `clear and convincing' standard has been employed in various quasi-criminal proceedings in recognition of the fact that some civil proceedings are significantly different from the ordinary economic case where `we view it as no more serious in general for there to be an erroneous verdict in the defendant's favor than for there to be an erroneous verdict in the plaintiff's favor.' In re Winship (1970) 397 U.S. 358, 371, 90 S.Ct. 1068, 1076, 25 L.Ed.2d 368. The stricter standard is utilized when fundamental rights are involved and the legal and social ramifications of the civil proceeding are serious. So, for example, in cases of involuntary commitment of persons to mental hospitals, our Supreme Court has held that in view of the fundamental liberty interests at stake and the stigma accompanying commitment, due process requires that the fact finder be persuaded by clear and convincing evidence. Addington v. Texas (1979), 441 U.S. 418, 99 S.Ct. 1804, 60 L.Ed.2d 323. The standard of proof employed reflects society's assessment of where the risk of factual error should fall. Illustrative is the criminal standard of `beyond a reasonable doubt' which indicates our value determination that it is better to acquit a guilty person than to convict an innocent one. In a proceeding to establish wardship, we must balance the competing interests of the parents, the child, and the state and consider the comparative damage done to each if the fact finder errs. Tucker v. Marion County Dept. of Public Welfare, (1980) Ind. App., 408 N.E.2d 814. (Footnotes omitted) And of particular note are the words cogent and convincing proof utilized by Justice Hunter in affirming an award of punitive damages in Art Hill Ford, Inc. v. Callender, (1981) Ind., 423 N.E.2d 601, 604. In determining whether or not we should stray from the traditional preponderance of the evidence standard, it should be particularly noted that there is no right to punitive damages Indianapolis Bleaching Co. v. McMillan, (1917) 64 Ind. App. 268, 272, 113 N.E. 1019. We have repeatedly said that such damages may be awarded in an appropriate case, as a punishment for the offense and to deter similar misconduct. It has never been implied that a plaintiff has any entitlement to such damages. Rather, he is merely the fortunate recipient of the windfall. It cannot be said, therefore, that a plaintiff seeking such a bonus is denied any right, if he be held to a degree of proof higher than is required in other actions. In fact, it is incongruous to permit a recovery of that to which there is no entitlement upon evidence that barely warrants a recovery of that which is the plaintiff's absolute right. Yet, that is precisely what may occur when the inference of obduracy, from which punitive damages may flow, is permissible, but not compelled, from the same conduct from which compensatory damages flow, as a matter of right. To avoid such occurrences, punitive damages should not be allowable upon evidence that is merely consistent with the hypothesis of malice, fraud, gross negligence or oppressiveness. Rather some evidence should be required that is inconsistent with the hypothesis that the tortious conduct was the result of a mistake of law or fact, honest error of judgment, over-zealousness, mere negligence or other such noniniquitous human failing. For, just as we agree that it is better to acquit a person guilty of crime than to convict an innocent one, we cannot deny that, given that the injured party has been fully compensated, it is better to exonerate a wrongdoer from punitive damages, even though his wrong be gross or wicked, than to award them at the expense of one whose error was one that society can tolerate and who has already compensated the victim of his error. The public interest cannot be served by a policy that favors the latter over the former. And, just as the requirement of proof beyond a reasonable doubt furthers the public interest with respect to criminal cases, a requirement of proof by clear and convincing evidence furthers the public interest when punitive damages are sought. The propriety of the clear and convincing evidence standard is particularly evident in contract cases, because the breach itself for whatever reason, will almost invariably be regarded by the complaining party as oppressive, if not outright fraudulent. Neither should it be assumed that one who stands to reap the harvest of a punitive damage award will, in all cases, himself be reasonable and forthright. Yet, as acknowledged in Vernon Fire, etc. v. Sharp, supra, the social cost of a rule which would make claims nondisputable would result in prohibitive social costs. As stated by Justice Hunter, who authored that opinion, Where the facts surrounding the promisor's breach indicates substandard business conduct, the promisee may also enjoy a limited sense of requital in taking his business elsewhere in the future, but he is not entitled to mulct the promisor in punitive damages.  264 Ind. at 608, 349 N.E.2d 173. (Emphasis added). A rule that would permit an award of punitive damages upon inferences permissibly drawn from evidence of no greater persuasive value than that required to uphold a finding of the breach of contract  which may be nothing more than a refusal to pay the amount demanded and subsequently found to be owing  injects such risks into refusing and defending against questionable claims as to render them, in essence, nondisputable. The public interest cannot be served by any policy that deters resort to the courts for the determination of bona fide commercial disputes. The infliction of this damage has generally been regarded as privileged, and not compensable, for the simple reason that it is worth more to society than it costs, i.e., the insurer is permitted to dispute its liability in good faith because of the prohibitive social costs of a rule which would make claims nondisputable. Vernon Fire, etc. v. Sharp, supra, 264 Ind. 609, 610, 349 N.E.2d 173. Plaintiff and a Mr. Bognar, an employee of the defendant, met promptly after the fire loss was reported and, together with a repair contractor, surveyed the damage. The contractor estimated the cost of restoring the house at $8,729.62. Approximately one week later, on November 13th, Mr. Bognar contacted Plaintiff, by telephone and advised her that, based upon the repair estimate, Defendant would pay $6,497.22 if the house was to be repaired and that otherwise it would pay $4,200.00. When asked for an explanation of the offer, Mr. Bognar acknowledged that he did not fully understand it himself but that there were percentage requirements provided in the policy which governed the matter and that the property had been under-insured. The plaintiff, not being satisfied with Mr. Bognar's explanation and believing that Defendant was trying to cheat her, told Mr. Bognar as much and subsequently related the problem to her son, who recommended that she turn the matter over to a lawyer, which she did. The lawyer contacted Mr. Bognar by telephone on November 21st and by letter on November 22nd and advised of his representation. The complaint, seeking compensatory damages in the full amount of the repair estimate plus punitive damages in the sum of $25,000.00 was filed April 19, 1974. To support the claim for punitive damages, it was alleged that the defendant's conduct in offering less than the full repair estimate and in representing that a co-insurance provision of the policy controlled the amount of the offer, sought to hold this umbrella of deceit, fraud, and oppressive conduct to shield itself from Plaintiff's legitimate claim. Plaintiff's allegations of fraud, deceit and oppressive conduct simply have not been borne out by clear and convincing evidence. Conceivably, although doubtfully, under a less stringent standard, a fraudulent intent might be inferable from Mr. Bognar's representation that the basis for offering to pay less than the cost of repairs was a percentage requirement in the policy. It was the Court of Appeals opinion that a fraudulent intent could be inferred because Although Travelers claims the misrepresentation was a mistake, there is no evidence which shows that the mistake was admitted or corrected. 384 N.E.2d at p. 618. There are several reasons why the judgment cannot rest upon such a conclusion. First, the burden was not upon the defendant to prove that it was a mistake. Rather, it was incumbent upon the plaintiff to present evidence from which it could be clearly and convincingly inferred that the defendant knew such representation to be false. The mere fact that a representation is false does not raise a presumption that the person charged with making it had knowledge of its falsity. Moreover, an intent to defraud is not presumed from the mere fact that a motive may have existed  or did exist. 37 Am.Jur.2d, Fraud and Deceit § 446. Secondly, Plaintiff did not ever rely upon Mr. Bognar's representation, but immediately sought the advice of legal counsel. In this respect, it appears that she used good judgment  considering his candid admission that he did not fully understand the matter himself. Thirdly, although there are certain legal and domestic relationships in which the law raises a presumption of trust and confidence on one side and a corresponding influence on the other, such as the relationship of attorney and client, guardian and ward, parent and child, as well as others, Keys v. McDowell, (1913) 54 Ind. App. 263, 269, 100 N.E. 385, we are aware of no instance where it has been held or even urged that the relationship between an insuror and the insured entitles the insured, after a dispute has arisen, to rely upon the insuror's interpretation of the contract. This is not to say that the insuror is under no duty to refrain from making fraudulent representations and to act in good faith but only that it is not bound to be correct. Were it otherwise, there simply could be no direct adjustment of claims. Finally, the Court of Appeals was in error in writing that there was no evidence to show that the mistake was admitted or corrected. Mr. Bognar testified that the offer was the product of his error in erroneously assuming that the liability was to be determined under the cost of repair or replacement (without deduction for depreciation) provision of the policy; whereas it was, in fact, governed by the actual cash value provisions. This error accounts for the dual or alternative offer of one amount if the building was restored and a lesser one if it was not, which was also inappropriate. Under the actual cash value provisions, the insured is entitled to be reimbursed for the actual cash value of the loss, without regard to whether or not the damaged premises are repaired or restored. Under the cost of repair or replacement provisions, the insured is entitled to recover such cost if, and only if, they are in fact, repaired or restored. An additional condition of liability under this provision is that the building be insured for 80% or more of its full replacement cost. If it is not, the insuror's maximum liability is reduced in proportion to the deficit. This would account for the initial and erroneous offer of $6,497.22 if the building was repaired, although the repair estimate was $8,729.62, and Mr. Bognar's attempted explanation, as related by Plaintiff: The percentage or something or other. There was something he said in the policy that was percentage wise and the insurance wasn't high enough, that they hadn't insured the property high enough to take care of this. That Mr. Bognar gave misinformation to Plaintiff is consistent with the hypothesis of a fraudulent intent. However, as previously noted, standing alone it is not sufficient because it is not inconsistent with the hypothesis of honest, human error. And it does stand alone. No other evidence augments a hypothesis that Mr. Bognar knew that what he said was wrong. The Court of Appeals was also incorrect in writing that the error was never corrected. On June 1st, Mr. Bognar's superior, wrote to Plaintiff's attorney and enclosed a check for $6,497.22 as an offer of full settlement without regard to whether or not the building was repaired. The letter correctly explained why the offer was for less than the estimated cost of repairs and expressed the belief that the depreciation factor of 25% was very just and fair under an actual cash value policy and considering the age of the building. Although this offer was for less than the jury ultimately found to be owing, it was well within the range allowable under the broad evidence rule. The Court of Appeals upheld the award of punitive damages because it erroneously concluded that Plaintiff was clearly entitled to recover the full cost of repairs, without depreciation. We, on the other hand, have upheld the jury's award of compensatory damages, not because Plaintiff was entitled to recover the full cost of repairs but rather because the jury was entitled, not bound, to award that amount under the evidence. The award of punitive damages is, therefore, ordered vacated, as unsupported by clear and convincing evidence.