Opinion ID: 878567
Heading Depth: 1
Heading Rank: 2

Heading: public policy as expressed in the constitution and statutes

Text: We find nothing in the Montana Constitution declaring a public policy on the question before us. We therefore turn to relevant statutes and case law construing the same. Prior to adoption of this state's comprehensive insurance code, Sections 33-1-101 et seq., MCA, the law of Montana provided that [a]n insurer is not liable for a loss caused by the willful act of the insured; but he is not exonerated by the negligence of the insured, or of his agents or others. Section 40-604, R.C.M. 1947 [repealed 1959]. This statute was based on Cal.Ins.Code Section 533 (West 1972), which has been construed to prohibit insurance coverage of punitive damages in most instances in California. See, e.g., City Products Corp. v. Globe Indem. Co. (1979), 88 Cal. App.3d 31, 151 Cal. Rptr. 494. See generally Comment, Insurance for Punitive Damages: A Reevaluation 28 Hastings L.J. 431, 446-58 (1976) (discussion of California public policy against insurance coverage of punitive damages). Section 40-604 is no longer law in Montana, having been repealed upon adoption in 1959 of the insurance code. Transamerica argues that repeal does not mean that the legislature intended to bless the sins of cheats, frauds, and oppressors, and absolve them from wrongdoing. While there is some truth in this assertion, we conclude that not even Transamerica would argue that a repealed statute has a life beyond the grave. If there is a public policy against permitting coverage, it must flow from an existing statute. Our attention is also directed to the punitive damages law, Section 27-1-221, MCA, which provides that: [i]n any action for a breach of an obligation not arising from contract where the defendant has been guilty of oppression, fraud, or malice, actual or presumed, the jury, in addition to the actual damages, may give damages for the sake of example and by way of punishing the defendant. There is nothing in this statute amounting to an express statement on the public policy issue before us. Nevertheless, Transamerica reasons syllogistically that, because punishment is an explicit aim of applying punitive damages, and because punishment, to be such, must cause its recipient to suffer, there can be no punishment if a defendant is permitted to, in effect, shift the financial burden of the imposed punishment to his or her insurance carrier. Transamerica thus concludes that a public policy against coverage emanates from the concept of punishment as embodied in the statute. This is the conclusion reached by courts in some states with the same or similar punitive damage laws, see, e.g., City Products, supra (construing Cal.Civ. Code Section 3294, which contains virtually the same language as Section 27-1-221). Although we are impressed with the reasoning behind Transamerica's argument, we reject it, for reasons discussed infra, as an inaccurate expression of the practical consequences of applying punitive damages law in some cases in Montana. Transamerica also directs our attention to Section 28-11-302, MCA, which provides that [a]n agreement to indemnify a person against an act thereafter to be done is void if the act be known by such person, at the time of doing it, to be unlawful. Transamerica reasons that, because insurance is a contract of indemnity, Section 28-11-302 operates as an express policy against coverage for tortious acts warranting imposition of punitive damages. We reject this interpretation. Modern insurance contracts typically provide coverage for a host of tortious activities, with the assurance that the insured will be indemnified at least for compensatory damages arising from unlawful conduct by the insured; e.g., libel and slander, malicious prosecution, etc. Even Transamerica would not argue that Section 28-11-302 erects a bar to liability insurance for compensatory damages, be they awarded for ordinary negligence or malicious, fraudulent or oppressive conduct. The need to reduce financial risks and promote economic stability in modern society has rendered this statute applicable only to conduct defined as criminal. In summary, we find no express policy by the legislature on the subject of insurance coverage for punitive damages. Although reasoned arguments can be made for reading some kind of prohibition into the language of the punitive damages statute, we decline to do so without first examining judicial construction of that statute and then considering the practical consequences of awarding punitive damages.