Linscott v. Rainier Nat. Life Ins. Co.

• Decision Date: 09 January 1980
• Docket Number: No. 12401,12401
• Parties: Norman F. LINSCOTT and Lillian E. Linscott, husband and wife, Plaintiffs- Respondents, v. RAINIER NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellant.
• Court: Idaho Supreme Court

Page 958

606 P.2d 958

100 Idaho 854

Norman F. LINSCOTT and Lillian E. Linscott, husband and wife, Plaintiffs- Respondents, v. RAINIER NATIONAL LIFE INSURANCE COMPANY, Defendant-Appellant.

No. 12401.

Supreme Court of Idaho.

Jan. 9, 1980.

Rehearing Denied March 17, 1980.

Jack L. Curtin of Clark, Curtin & Creason, Lewiston, for defendant-appellant.

Joseph J. Ganz of Sharpe, Twigg & Ganz, Spokane, Wash., Thomas A. Mitchell, Coeur d'Alene, for plaintiffs-respondents.

McFADDEN, Justice.

On April 21, 1972, plaintiffs-respondents Norman F. and Lillian E. Linscott purchased three policies of insurance for their 26-year old daughter Laurelie. Each of these policies included among its benefits $25 per day for hospital room expenses. Laurelie died almost a year later, on April 9, 1973. Both parties to this suit now concede that in the interim before her death Laurelie spent 57 days in various hospitals for which the policies made Rainier Life liable to Mr. and Mrs. Linscott (as named beneficiaries) in the amount of $75 per day, for a total of $4,275.

Because Rainier Life initially refused to acknowledge its liability, however, the Linscotts filed this action, asking that Rainier's liability under the policy be adjudged, and that it also be assessed $125,000 in punitive damages, $15,000 in damages for mental anguish, and reasonable attorney's fees. Before trial (but after the complaint was filed) Rainier admitted its liability under the policies and tendered $4,575 into court. ¹ Trial was had on the mental anguish, punitive damages, and attorney fees issues.

The evidence at trial showed that Rainier first indicated it did not intend to honor the policies about eleven months after it issued them. Early in March 1973, the company wrote Laurelie to say that it had learned that she had had epilepsy at the time of her application for the insurance, that the company did not insure against epilepsy and that Laurelie had not mentioned it as a preexisting condition in her applications. It stated that it therefore could not honor the policies and asked their return. It stated that upon the policies' return the company would refund all premiums paid.

This was the opening letter in a correspondence which lasted some six months and is chronicled in plaintiffs' exhibits 4-19. Throughout this time it was the position of Laurelie's doctors (who so informed Rainier Life), the agent who sold her the policies, and the Washington State Insurance Commissioner (with whom the Linscotts lodged a complaint), that Rainier Life's grounds for refusing to honor the policies were erroneous. Letters from the doctors, while far from clear, suggest that Laurelie's condition was not epilepsy, as the term is commonly understood, but rather a "seizure disorder" which resulted from the removal of her pituitary gland in a 1965 operation. Yet no evidence, aside from the doctors' letters, was offered at trial to define "epilepsy" or to determine whether Laurelie actually suffered from it. Epilepsy is not listed as an exclusion in the policies or on the application forms, nor does the word or any reference to it appear anywhere on the policies or the application forms. Laurelie did not list epilepsy as a preexisting condition, but she did disclose her high blood pressure and diabetes, and the 1965 pituitary gland removal.

After the Linscotts filed suit to compel payment under the policies and to recover the other damages which are the subject of this suit, Rainier answered, alleging that it had employed proper business practices in evaluating the Linscotts' claims. Since the answer came after the company had admitted liability under the policies, it included a counterclaim which stated that the Linscotts' pursuit of the claim after the admission amounted to "vexatious" litigation, and prayed for $5,000 punitive damages. The counterclaim was dismissed on Rainier's motion shortly before trial.

At trial the Linscotts placed in evidence the series of letters discussed above and the policies. Mr. and Mrs. Linscott also testified that they did not believe that their daughter had misrepresented her physical condition at the time of the application. Rainier Life called no witnesses, only placing in evidence ten documents. Two of them are a request for documents made by Linscotts' counsel which Rainier honored, and eight of them chronicle the settlement negotiations. All are offered solely to show Rainier's good faith in initially denying the claim.

The trial judge denied the Linscotts' claim for damages for mental anguish, but awarded them $1,800 as reasonable attorney fees under I.C. § 41-1839, ² and $20,000 punitive damages. ³ On this appeal Rainier argues that the evidence did not support an award of punitive damages and that, in any case, the award of punitive damages was excessive.

I

Punitive or exemplary damages are a peculiarity in the law of damages. Unlike other damages awards, their purpose is not to compensate the plaintiff, but to express the outrage of society at certain actions of the defendant. As such, they act as punishment, and serve to deter the defendant, and others in a similar position, from engaging in like conduct in the future. In Idaho the punishment rationale is disfavored. As this court said in a recent case:

"(W)e feel that the courts in these civil cases should be motivated primarily by a purpose of deterrence and not by a purpose of punishment. In other words, the assessment of exemplary damages should be prompted by the court's or jury's desire to assure, to the extent possible via the imposition of a monetary penalty, that similar conduct does not occur in the future. Punishment, per se, should be left to the criminal law." Jolley v. Puregro Co., 94 Idaho 702, 708-9, 496 P.2d 939, 945-6 (1972). (Citations omitted.)

Even for deterrence, punitive damages "are not a favorite of the law, and the power to give such damages should be exercised with caution and within the narrowest limits." Jolley, supra, 94 Idaho at 709, 496 P.2d at 946; Williams v. Bone, 74 Idaho 185, 189, 259 P.2d 810, 812 (1953). Punitive damages, then, are awarded only in the face of conduct on the part of the defendant which society considers so reprehensible as to require an extraordinary remedy. The standard for recognizing such conduct was first stated in 1911 in a case involving tortious conduct:

"As we understand the rule of exemplary or punitive damages, they cannot be recovered unless the evidence shows clearly that the action of the wrongdoer is Wanton, malicious, or Gross and Outrageous, or where the facts are such as to imply Malice and Oppression . . . ." (Emphasis added.) Unfried v. Libert, 20 Idaho 708, 728, 119 P. 885, 891 (1911).

Almost every punitive damages case decided in Idaho since has quoted this language. See, e. g., Jolley v. Puregro Co., supra; Zollinger v. Big Lost River Irrig. Dist., 83 Idaho 411, 418, 364 P.2d 176, 179 (1961); Klam v. Koppel, 63 Idaho 171, 180-1, 118 P.2d 729, 733 (1941).

There is perhaps potential for confusion in this array of adjectives surrounding the area of punitive damages, and we have given them liberal construction in the past to avoid injustice. Thompson v. Dalton, 95 Idaho 785, 788, 520 P.2d 240, 243 (1974). The activity which this court has sought to reach with an award of punitive damages, however it is phrased, requires an intersection of two factors: a bad act and a bad state of mind. To describe the former the court has used at various times the following terms: ⁴ "deceit," Prudential Federal Sav. & Loan Ass'n v. Johnson, 93 Idaho 850, 853, 476 P.2d 786, 789 (1970); acting "to violate another's legal right," Village of Peck v. Denison, 92 Idaho 747, 752, 450 P.2d 310, 315 (1969); or "for purpose of injuring plaintiff," Williams v. Bone, 74 Idaho 185, 189, 259 P.2d 810, 812 (1953); or "to oppress," White v. Doney, 82 Idaho 217, 224, 351 P.2d 380, 384 (1960); or acting "(in) disregard . . . of the known property rights," Cox v. Stolworthy, 94 Idaho 683, 685, 496 P.2d 682, 684 (1972); and "fraud," Morrison v. Quality Produce Inc., 92 Idaho 448, 450, 444 P.2d 409, 411 (1968); Boise Dodge, Inc. v. Clark, 92 Idaho 902, 907, 453 P.2d 551, 556 (1969).

To describe bad state of mind the following terms have been used: "deliberate," White v. Doney, supra, 82 Idaho at 224, 351 P.2d at 384 (1960); "gross negligence," Morrison v. Quality Produce, supra, 92 Idaho at 450, 444 P.2d at 411 (1968); Gunnell v. Largilliere Co., 46 Idaho 551, 560, 269 P. 412 (1928); Cox v. Stolworthy, supra, 94 Idaho at 685, 496 P.2d 682, 684 (1972).

In two cases involving breach of a contract, this court even held that it was proper to award punitive damages when there was "other sufficient reason," Prudential Fed. Sav. & Loan Ass'n v. Johnson, supra, 93 Idaho at 853, 476 P.2d at 789; Boise Dodge, supra, 92 Idaho at 907, 453 P.2d at 557.

Simply invoking these words is never enough in itself, of course, to justify an award of punitive damages it is the act complained of and the attendant state of mind which are crucial. As a leading authority in the law of damages puts it,

"(S)ince courts have not been at all concerned with any shades of difference that might be found, between, say, malice and recklessness, almost any term that describes misconduct coupled with a bad state of mind will describe the case for a punitive award." D. Dobbs, Law of Remedies § 3.9 at 205 (footnote omitted) (1973).

In Idaho, then, so long as the evidence shows that there has been an injury to the plaintiff from an act which is an extreme deviation from reasonable standards of conduct, and that the act was performed by the defendant with an understanding of or a disregard for its likely consequences (in the words of prior cases, with fraud, malice or oppression), it is appropriate for the trier of fact to award punitive damages.

Initially it was also the rule in most American jurisdictions, whether established by statute, See, e. g. Cal.Civ....