Harris v. American General Life Ins. Co. of Delaware, 82-219

CourtUnited States State Supreme Court of Montana
Citation658 P.2d 1089,40 St.Rep. 164,202 Mont. 393
Docket NumberNo. 82-219,82-219
Parties, 40 A.L.R.4th 1 Alton P. HARRIS, Plaintiff and Respondent, v. AMERICAN GENERAL LIFE INSURANCE COMPANY OF DELAWARE, Defendant and Appellant.
Decision Date09 February 1983

Berg, Coil, Stokes & Tollefsen, Gig A. Tollefsen argued, Bozeman, for defendant and appellant.

Nash & Nash, Donald Nash and Mike Nash argued, Bozeman, for plaintiff and respondent.

HASWELL, Chief Justice.

Defendant insurance company appeals from a judgment entered in the District Court of the Eighteenth Judicial District assessing $30,000 in punitive damages against defendant. We affirm.

On September 8, 1970, defendant issued a $10,000 life insurance policy with a $10,000 accidental death benefit rider to plaintiff's son, Tom Harris. The policy number was B 697,465. Plaintiff, Tom's father, was the beneficiary. The accidental death rider provided:

"The Accidental Death Benefit provided by this supplementary agreement will not be payable if the Insured's death:


"2. Results directly or indirectly from any of the following causes:


"(c) Suicide or any attempt thereat, while sane or insane;


"(f) Voluntary or involuntary

"(i) Asphyxiation from or inhalation of gas except in the course of the Insured's occupation, or

"(ii) Taking of any poison, drug, or sedative ..."

Tom Harris checked into the Rainbow Motel in Bozeman about 11:30 p.m. on October 10, 1979. He appeared dazed and had difficulty writing his name. The next morning (October 11) Harris paid for another day at the check-in desk and appeared normal to the hotel manager.

Harris was found dead, slumped in the shower of his room with the shower water pouring on him, at about 8:15 a.m. on October 12, 1979. There was about two inches of standing water in the room, and water was running out under the door to the outside.

On March 24, 1980, plaintiff filed a claim with defendant for benefits under the policy which was received by defendant on April 7, 1980. The death certificate accompanying the policy listed the cause of death as "pending results of studies of state lab" because an autopsy had been performed and no conclusive results received. Defendant called a local ex-agent, requesting a certificate showing the cause of death. By this time results had been obtained showing the cause of death to be an overdose of chloroform through inhalation.

On June 11, 1980, defendant sent to plaintiff a check for the benefits due on the basic life insurance policy ($10,775.28, which included a premium refund, post-mortem dividend and paid up additions) with the restrictive endorsement on the back of the check stating, "Accepted in full and final settlement of all claims against American General Life Insurance Company on Policy B 697465." The endorsement appears to be stamped on the back of the check with a blank following the word "Policy" and the policy number was handwritten in the blank.

Defendant denied accidental death benefits because of the policy language set out above and the fact that choloroform is both a gas and a drug and that the Bozeman Police Department concluded that the death was an accidental overdose or suicide.

On August 22 plaintiff (through his attorney) returned the check and demanded that defendant remove the restrictive endorsement. The following paragraph was included in the August 22, 1980, letter:

"We hereby demand that you return to this office the face value of proceeds of the policy without restrictions as to right of Harris to seek balance of double indemnity benefits, together with any accumulation of dividend and interest to date of your payment."

On September 5, 1980, plaintiff filed suit seeking the $10,000 basic benefits, $10,000 accidental death benefits and $50,000 in punitive damages. In a letter dated September 9, defendant mailed the same check back to plaintiff with the restrictive endorsement crossed out and initialed by a representative of defendant. Plaintiff then cashed the check on September 16, 1980.

Interrogatories were exchanged and in response to defendant's interrogatory requesting the names of witnesses plaintiff intended to call and what each would testify to, plaintiff listed Kent Lewis (a former agent of defendant) and stated that Lewis would testify regarding the difficulty experienced in obtaining the initial tender of money from defendant. Lewis later testified at trial about defendant's financial condition.

Eight days prior to trial plaintiff furnished defendant with an exhibit showing defendant's assets and liabilities which plaintiff had not listed as an exhibit on the pretrial order. The exhibit was later admitted at trial, over defendant's objection, as plaintiff's exhibit no. 12.

After a jury trial and instruction on punitive damages, the jury returned a verdict on special interrogatories denying the accidental death benefits but finding that defendant had acted in bad faith and awarding $30,000 in punitive damages. Defendant's motions for judgment notwithstanding the verdict (one of the grounds was plaintiff's failure to prove actual damages) and for a new trial were denied in a memorandum order where the District Court found plaintiff's actual damages to be (1) the interest from the date the claim should have been paid and (2) plaintiff's being forced to pay an attorney to collect the basic benefits.

Defendant appeals from the judgment entered and from the denial of his motions for a new trial and judgment notwithstanding the verdict and presents these issues for our consideration:

1. Was the evidence insufficient to entitle the plaintiff to punitive damages?

2. Did the District Court properly instruct the jury on punitive damages?

3. Did the District Court improperly allow the admission of evidence not listed in the pretrial order?

Regarding the first issue defendant argues that plaintiff failed to prove two things which are required for punitive damages: (1) a violation of the Montana Insurance Code for which a penalty is prescribed, and (2) actual damages. Defendant contends that the first element is required by the following line of cases: Westfall v. Motors Insurance Corporation (1962), 140 Mont. 564, 374 P.2d 96; State ex rel. Larson v. District Court (1967), 149 Mont. 131, 423 P.2d 598; State ex rel. Cashen v. District Court (1971), 157 Mont. 40, 482 P.2d 567; and, First Security Bank of Bozeman v. Goddard (1979), 181 Mont. 407, 593 P.2d 1040. Defendant concludes this aspect of its argument by claiming that there were no insurance code violations.

With regard to the second element, actual damages, defendant argues that there must be a finding of actual damages before punitive damages may be awarded. Defendant contends there was no evidence of actual damages here because the jury determined that plaintiff was not entitled to the accidental death benefits.

Appellant's arguments are not well taken. First of all, plaintiff showed a violation of the Montana Insurance Code for which a penalty is prescribed. It is uncontroverted here that plaintiff was clearly entitled to the basic life benefits of the policy and that defendant contested liability under the accidental death rider. Plaintiff filed a claim for benefits on March 24, 1980, and it was not until June 11, 1980, that defendant tendered the check with the restrictive endorsement as noted. Even though plaintiff was a layman, he wisely refused to negotiate the check and it was not until September 9, 1980, that defendant tendered a check that plaintiff could cash without forfeiting his rights under the accidental death portion of the policy. The check was introduced into evidence as plaintiff's exhibit no. 7.

Section 33-18-201(13), MCA, of the Montana Insurance Code provides "Unfair claim settlement practices prohibited. No person may, with such frequency as to indicate a general business practice, do any of the following:


"(13) fail to promptly settle claims, if liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;"

As indicated by the facts above, appellant violated this statute. The assistant vice-president and manager of life and disability claims testified regarding defendant's general business practice under questioning by plaintiff's attorney as follows:

"Q. When you sent your check, you indicated that you had stamped on the back a restrictive endorsement that, in effect, says it is payment in full of all claims against the company attributable to the death of Thomas Harris, isn't that correct? A. As is our custom, Mr. Nash.

"Q. And it is your custom when there's liability under one portion, liability to pay, that is liability, for the company to pay on the one portion and a disputed liability under the other portion, to tender the part you agree you have to pay, in full settlement? A. I'm not sure I understand what you're driving at.

"Q. That is your general practice, if there's an agreed portion and a disputed portion to a claim, you tender the agreed portion in full settlement? A. Yes."

That it is the defendant's practice to so endorse settlement checks is underscored by the fact that an examination of the check itself reveals that the endorsement has been stamped thereon with a blank after the word "Policy" with plaintiff's number inserted in handwritten form. This leads one to conclude that other policies are handled in similar fashion.

Moreover, there is a general penalty prescribed for a violation of section 33-18-201(13), MCA. Section 33-1-104, MCA, gives a penalty for each violation of "this code," i.e., the Montana Insurance Code, Title 33 (section 33-1-101 et seq., MCA) and section 33-18-201(13), MCA, is clearly in Title 33. This general penalty statute was correctly addressed and applied by Justice Sheehy in Goddard, supra.

Appellant's next contention on the first issue is that the evidence...

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