Court Opinion

ID: 9718410
Source: CourtListenerOpinion
Date Created: 2023-08-26 07:22:50.185267+00
Date Added: 2024-06-11T18:23:58.927524
License: Public Domain

DICKSON, Justice,
dissenting.
In Vernon Fire & Casualty Ins. Co. v. Sharp (1976), 264 Ind. 599, 349 N.E.2d 173, this Court recognized two exceptions to the general rule that punitive damages are not recoverable in a contract action. The first arises when conduct of the breaching party not only constitutes breach of contract but also independently establishes the elements of a common law tort. Id. at 608, 349 N.E.2d at 180. The second occurs when the evidence reveals that a serious wrong, tortious in nature, has been committed, although the wrong "does not conveniently fit the confines of a pre-determined tort." Id.
Judicial response to the Vernon exceptions has been both positive and widespread. Not only have Indiana courts consistently endorsed the opinion,1 but other jurisdictions have also cited Vernon while recognizing recovery of punitive damages within the context of a contractual relationship.2
*986The majority opines that the second Ver-mon exception has never been applied by this Court, noting that in several cases where we have permitted punitive damages in a contract action, we have found evidence of an independent tort. Bud Wolf Chevrolet, Inc. v. Robertson (1988), Ind., 519 N.E.2d 135; Art Hill Ford, Inc. v. Callender (1981), Ind., 423 N.E.2d 601; Hibschman Inc. v. Batchelor (1977), 266 Ind. 310, 362 N.E.2d 845. Examination of these cases, however, reveals that in each, prior to finding that punitive damages were justified, we specifically made reference to fraud, malice, gross negligence, or oppression which "mingle" in the controversy-the language we emphasized in Hibschman when explaining 'the second Vernon exception. Id. at 314, 862 N.E.2d at 847. Additionally, while we did not specifically identify the second exception as the basis of our affirmance of punitive damages in these cases, neither did we expressly articulate the finding of an independent tort. These opinions do not express greater reliance upon the first rather than the second Vernon exception. I respectfully disagree with the majority's conclusion that the second exception has never been utilized by this Court.
Furthermore, the second Vernon exception has long been employed by the Court of Appeals to award punitive damages in the context of a contract breach. In Liberty Mut. Ins. Co. v. Parkinson (1985), Ind.App., 487 N.E.2d 162, punitive damages were upheld when an insurance company demonstrated bad faith in settling a claim under uninsured motorist coverage. Relying on the second exception, the court observed: "we have found no reason to adopt bad faith as an independent tort in this state and we see no need to adopt such an action now." Id. at 165. Similarly affirming punitive damages against an insurer in the absence of an independent tort, the court instructed that "a complaint which requests punitive damages in an action for breach of contract need not contain all of the elements which must be specifically alleged for actionable fraud." State Farm Mut. Auto. Ins. Co. v. Shuman (1977), 175 Ind.App. 186, 196, 370 N.E.2d 941, 950. Likewise, when punitive damages were awarded where the seller of a defective mobile home fraudulently refused to refund the buyer's deposit, punitive damages were justified even though "as is often the case, the findings do not specifically set out all five elements of the tort of fraud...." Jones v. Abriani (1976), 169 Ind.App. 556, 580, 350 N.E.2d 635, 650.
The Court of Appeals, in a case somewhat similar to that before us, determined that conduct by a brewing company, while failing to meet the common law elements of tort, nevertheless was sufficiently tort-like to sustain an award of punitive damages. Jos. Schlitz Brewing Co. v. Central Beverage Co. (1977), 172 Ind.App. 81, 359 N.E.2d 566. The brewer's breach of a distribution contract, allegedly precipitated by the distributor's refusal to adopt internal management controls required by the brewer, was found to be tortiously oppressive conduct. Id. at 103, 359 N.E.2d at 580. The court observed that punitive damages properly served the public interest inasmuch as the brewer's conduct contravened principles of free market economy which could ultimately manifest itself in higher prices for consumers. Id. at 104, 859 N.E.2d at 581.
This Court is unanimous in its recognition of the continued viability of the first Vernon exception based upon the establishment of an independent tort. Today, however, the majority abruptly seeks to modify Vernon and its progeny by relegating to dicta the exception permitting punitive damages where a contract breach attended by egregiously culpable conduct falls short of an independently actionable tort. However attractive it may be to limit an award of punitive damages to such bright-line situations, reprehensible behavior often defies strict tort categorization *987-and should not go undeterred merely because it fails to completely conform to the precise contours of pre-existing tort classifications.
The majority speculates that recovery of punitive damages under the second Vernor exception would "reopen" the floodgates of punitive damages in contract cases. I disagree. The gates have already been open for the 17 years since Vernon, and neither catastrophe nor havoc has resulted. Twin restraints of case law and statutory enactment are clearly in place. Punitive damages are appropriate only upon clear and convincing evidence showing that the defendant "acted with malice, fraud, gross negligence or oppressiveness" and that such conduct "was not the result of a mistake of fact or law, honest error o[f] judgment, overzealousness, mere negligence, or human failing." Bud Wolf, 519 N.E.2d at 137. Moreover, Ind.Code § 34-4-84-2 likewise emphasizes that facts supporting punitive damages must be established by "clear and convincing evidence." It is not surprising that, notwithstanding Vernon, there has been no flood of punitive damages judgments in Indiana courts.
Vernon's flexible and responsive application of the law to category-resistant dimensions of human behavior represents an enlightened approach to the infinite variations that elude rigid doctrinal formulations. Experience has shown this approach to be wise, effective, balanced, and just. It should not now be discarded.
GIVAN, J., concurs.

. Lawyers Title Ins. Corp. v. Pokraka (1992), Ind., 595 N.E.2d 244; Bud Wolf Chevrolet, Inc. v. Robertson (1988), Ind., 519 N.E.2d 135; Art Hill Ford, Inc. v. Callender (1981), Ind., 423 N.E.2d 601; Travelers Indemn. Co. v. Armstrong (1982), Ind., 442 N.E.2d 349; Hibschman Pontiac, Inc. v. Batchelor (1977), 266 Ind. 310, 362 N.E.2d 845; Kruszewski v. Kwasneski (1989), Ind.App., 539 N.E.2d 965; World Productions, Inc. v. Capital Improvement Bd. of Managers of Marion County (1987), Ind.App., 514 N.E.2d 634; Bank of New York v. Bright (1986), Ind.App., 494 N.E.2d 970; Liberty Mut. Ins. Co. v. Parkinson (1985), Ind.App., 487 N.E.2d 162; Hall-Hottel Co. v. Oxford Square Coop. (1983), Ind.App., 446 N.E.2d 25; Campbell v. Railroadmen's Fed. Sav. and Loan Ass'n (1982), Ind.App., 443 N.E.2d 81; Shelby Fed. Sav. and Loan Ass'n v. Doss (1982), Ind.App., 431 N.E.2d 493; Southern Sch. Bldgs. v. Loew Elec., Inc. (1980), Ind.App., 407 N.E.2d 240; Peterson v. Culver Educ. Found. (1980), Ind.App., 402 N.E.2d 448; Owen County Farm Bureau Coop. Ass'n v. Waeger (1980), Ind.App., 398 N.E.2d 713; First Fed. Sav. and Loan Ass'n v. Mudgett (1979), Ind.App., 397 N.E.2d 1002; United Farm Bureau Life Ins. v. Fultz (1978), 176 Ind.App. 217, 375 N.E.2d 601; State Farm Mut. Auto Ins. v. Shuman (1977), 175 Ind.App. 186, 370 N.E.2d 941; Prudential Ins. v. Executive Estates, Inc. (1977), 174 Ind.App. 674, 369 N.E.2d 1117; Jos. Schlitz Brewing v. Central Beverage (1977), 172 Ind.App. 81, 359 N.E.2d 566; Jones v. Abriani (1976), 169 Ind.App. 556, 350 N.E.2d 635.

. McCullough v. Golden Rule Ins. Co. (1990), Wyo., 789 P.2d 855; Romero v. Mervyn's (1989), 109 N.M. 249, 784 P.2d 992; McCutchen v. Liberty Mut. Ins. Co. (N.D.Ind.1988), 699 F.Supp. 701; *986Roberts v. Western-Southern Life Ins. Co. (N.D.Ill.1983), 568 F.Supp. 536; Canada Dry Corp. v. Nehi Beverage Co. (7th Cir.1983), 723 F.2d 512; Central Armature Works, Inc. v. American Motorists Ins. Co. (D.D.C.1980), 520 F.Supp. 283; General Motors v. Piskor (1977), 281 Md. 627, 381 A.2d 16.