Tynes v. Bankers Life Co.

No. 85-327
IN THE SUPREME COURT OF THE STATE OF MONTANA
1986

KELLY W. TYNES and WALTER E. TYNES,
Plaintiffs and R-espondents,
-vs-
BANKERS LIFE COMPANY,
Defendant and Appellant.

APPEAL FROM: District Court of the Eighth Judicial District,
In and for the County of Cascade,
The Honorable Thomas McKittrick, Judge presiding.

COUNSEL OF RECORD:

For Appellant:
Jardine, Stephenson, Blewett & Weaver; John Stephenson,
Jr. argued, Great Falls, Montana

For Respondent:
Linnell, Newhall & Martin; Norman L. Newhall argued,
Great Falls, Montana

Submitted: September 11, 1 9 8 6
Decided: December 1 7 , 1 9 8 6

Clerk
Mr. Justice Frank B. Morrison, Jr. delivered the Opinion of
the Court.

Bankers Life Company appeals the verdict entered in the
Eighth Judicial District Court, County of Cascade, awarding
Kelley and Walter Tynes judgment against Bankers Life. We
affirm the jury verdict, but reverse the trial judge's
decision to award the Tynes attorneys' fees.
Bankers Life is an insurance company authorized to sell
group health insurance in Montana. Walter Tynes was the
principal owner and employee of a family-owned plumbing shop
in Great Falls. Kelley is his son. Bankers Life issued the
plumbing shop group health insurance in June 1974. Kelley
was originally covered under the policy as a dependent of
Walter. When Kelley became nineteen in November of 1975, he
was not a full-time student and no longer eligible for
coverage as a dependent. Nevertheless, Walter, allegedly
ignorant of Kelley's lack of eligibility, continued paying
Kelley's premiums and Bankers Life continued accepting them.
Kelley has always worked at the plumbing shop.
Initially, he primarily cleaned and ran errands. As he grew
older, Kelley began to help at various job sites. Kelley
continued working at the shop after he dropped out of high
school. The work was seasonal and Kelley's, as well as the
other employee's, hours were flexible.
In the spring of 1977, Kelley began exhibiting abnormal
behavior. He was antisocial and lethargic. He worked at the
shop only sporadically. In early July 1977, Kelley was
diagnosed as suffering from acute schizophrenia and was
admitted to a hospital. He escaped, suffered injuries in a
car accident and was readmitted.
 At this same time, Walter learned that Kelley was no
longer eligible for insurance coverage as a dependent. The
exact details of this discovery are unclear. The records of
Laverne (Verne) Sebens, the insurance agent who sold Walter
Tynes his Bankers Life policy, indicate Sebens made a service
call to the plumbing shop on July 11, 1977, and made
telephone contact with Walter Tynes' bookkeeper on July 18,
1977. Sebens does not remember much about those calls.
Walter testified Sebens suggested he cover Kelley as an
employee of the shop. In any event, an enrollment card for
Kelley Tynes, employee, dated July 10, 1977, was received
July 19, 1977, by Bankers Life's billing department.
Coverage for Kelley's July and August 1977 medical bills
was denied in September 1977 because Kelley was an ineligible
dependent. Sebens contacted Bankers Life with respect to the
denial of coverage. Nothing happened at that time. On
November 1, 1977, Jo Scholl, a processor in the billing
department of Bankers1 Life, contacted Walter Tynes about
Kelley's attempted transfer to employee status. Per Schollls
telephone memorandum, Walter's response was that Kelley had
been attending school and. working for Walter sporadically.
Scholl agreed to transfer Kelley from eligible dependent to
eligible employee starting July 10, 1977.
Kelley's July and August bills remained unpaid. Sebens
again contacted Bankers Life per letter, advising that Kelley
was "carried" as an employee of the plumbing shop "even
though he couldn't carry his own workload." Sebens' inquiry
was directed to Lil Peterson by memo noting "there is some
question as to whether or not these bills are payable.
Please make your usual good investigation." Peterson
forwarded investigation of the problem to Jan Hatting, a
senior claims processor. Hatting, after three months,
approved payment of bills totalling more than $3,000 in April

Kelley's condition deteriorated. Walter contacted the
Constance Bultman Wilson Center in Minnesota about admitting
Kelley to the facility. Wilson Center had several
prerequisites for admission, including verification of 100%
financial coverage of the expenses incurred during treatment.
At Walter's request, Wilson Center contacted Bankers Life
about coverage of Kelley while at the Center. Wilson Center
received a letter from Bankers Life stating Kelley was an
insured and setting forth his maximum coverage. The letter
stated in pertinent part:
In reviewing the insured's claim we find that
patient Kelley Tynes is also our insured. The
insurance policy provides for $75 a day room and
board benefits payable for 365 days. Hospital
miscellaneous expense benefits are payable at 100
percent after a $25 hospital miscellaneous
deductible. The remaining charges not covered
under the basic benefits are payable under major
medical at 80 percent of the first $2000 and 100
percent of the balance after the satisfaction of a
$100 major medical deductible. All outpatient
services are payable under major medical at 50
percent. The insured's policy allows for a major
medical maximum of $250,000 per lifetime.
However, this is not a guarantee of benefits, the
insured must meet the requirements of his policy
before benefits will be payable on his claim ...
This letter, coupled with Walter's guaranty that he
would pay all remaining bills, resulted in the Wilson Center
agreeing in August of 1978 to accept Kelley. Kelley
repeatedly refused to go to Wilson Center, but was finally
admitted on January 1, 1979.
Meanwhile, Walter's bookkeeper had major surgery in
October of 1978. The plumbing shop's books fell behind. The
November and December 1978 premiums due Bankers Life were not
paid. On January 1, 1979, while Walter was at the Wilson
Center admitting Kelley, the policy was terminated for
nonpayment of premium. Walter, upon learning of the
termination, sent Rankers Life a check for the delinquent
premium payments and requested reinstatement on January 5,
1979.
Testimony at trial established that Bankers Life
considers four criteria when determining whether to
reinstate: 1) bad claims (claims exceeding premiums) ; 2)
history of late payments; 3) "non-sufficient funds" checks;
and 4) administrative problems. The plumbing shop's claims
had recently exceeded its premiums. However, evidence was
presented that this was not unusual for small businesses when
one or more employees have major problems. Documentation on
the plumbing shop's file indicated a history of late
payments. Upon closer examination, however, it was
determined that Bankers Life erroneously issued the late
payment notices. Reinstatement was denied anyway.
Walter next contacted the Montana Insurance
Commissioner's Office. Robert Abbott reviewed the policy,
noting an Extended Benefits Provision for coverage of certain
charges incurred after the date of termination. Coverage
required that the insured be totally disabled at the time of
termination and that the insured be admitted to a hospital
for treatment of the disability within 90 days of
termination. Abbott contacted Bankers Life regarding the
application of this provision to Kelley Tynes. An
investigation was commenced by Bankers Life with Verne Sebens
as the investigator. After nine months, Walter Tynes was
sent a letter September 13, 1979, denying coverage of Kelley
because he was not an eligible employee. Nothing was
resolved with respect to the Extended Coverage Provision.
Evidence was submitted at trial that a similar investigation
by a professional investigator could have been completed in
two weeks.
Upon notification of denial of coverage, Kelley was
removed from Wilson Center. Kelley's reaction was
devastating to both himself and his family. He became
withdrawn and then violent. He was unable to work or to
function. People were afraid of him. Testimony at trial
established that Kelley should have remained at Wilson for 18
to 24 months in order to achieve optimum recovery.
In 1981, Tynes' counsel demanded that Bankers Life
review their denial of benefits to Kelley. Senior personnel
conducted a review of the previous investigations and
affirmed the decision.
Thereafter, Kelley filed a complaint December 21, 1981,
against Bankers Life seeking damages for failure to pay
policy benefits (breach of contract). The complaint also
alleged that Bankers Life's actions in failing to pay were
oppressive, fraudulent and malicious and entitled insured to
exemplary damages. An amended complaint was filed May 29,
1984, adding Walter as a plaintiff and denominating three
specific counts: breach of contract; tortious breach of the
implied covenant of good faith and fair dealing; and tortious
violation of Montana's Insurance Code.
In its answer, Bankers Life denied Kelley was entitled
to benefits and claimed the new counts were barred by various
statutes of limitations. The defenses were raised by motions
for summary judgment and directed verdict. The motions were
denied.
Following trial in March 1985, the jury returned a
special verdict awarding plaintiffs $49,167.09 on the
contract claim, $100,000 for Walter's emotional distress,
$100,000 for Kelley's general damages and emotional distress,
and $200,000 in punitive damages. Thereafter, plaintiffs
filed a motion requesting over $30,000 in attorneys' fees and
costs. The motion was granted.
Numerous important issues are raised by Bankers Life on
appeal :
1. Should Walter and Kelley Tynes' claims have been
dismissed as barred by applicable statutes of limitations?
2. Is Walter Tynes barred from any action on the
contract since he is neither a party to the contract nor an
intended third-party beneficiary?
3. Was Verne Sebens the agent of Bankers Life for all
purposes?
4. Is the evidence sufficient to establish Bankers
Life's obligation to provide coverage?
5. Did the trial judge err in refusing to rule as a
matter of law that Bankers Life did not act in "bad faith?"
6. Did the trial judge erroneously submit the case to
the jury on the basis of constructive fraud?
7. Did the trial judge erroneously instruct the jury on
damages for emotional distress?
8. Did the trial judge erroneously award attorneys'
fees and improper costs to the Tynes?
I.
STATUTES OF LIMITATIONS and THE RELATION-BACK DOCTRINE
Bankers Life denied Kelley Tynes coverage on September
13, 1979. Kelley's complaint was filed more th.an two years
later, December 21, 1981. Walter was added as a plaintiff
nearly five years after Bankers Life denied coverage. Kelley
also amended his own complaint at that time to specifically
allege breach of the implied covenant of good faith and fair
dealing and tortious violation of Montana Is 1nsuran.ce Code.
Bankers Life, citing Rule 15 (c), M.R.Civ.P., concedes that
Kelleyls claims relate back to the date his original
complaint was filed, but then contends the claims are still
barred by various two-year statutes of limitations. We
disagree.
A cause of action for breach of the implied covenant of
good faith and fair dealing is a separate tort action,
independent of the underlying contract. Nicholson v. United
Pacific Insurance Co. (Mont. 1985), 710 P.2d 1342, 1348, 42
St.Rep. 1822, 1827. Therefore, the applicable statute of
limitations is that for a tort action, three years. Section
27-2-204 (I), MCA.
The claim for violation of the Unfair Claims Practices
Act arises out of a statutory scheme but consists of a
separate cause of action, again in tort. "It is the breach
of that statutory requirement, a duty independent of the
insurance contract, that gives rise to tort liability. . . ."
First Security Bank of Bozeman v. Goddard (1979), 181 Mont.
407, 420, 593 P.2d 1040, 1047. The three-year tort statute
of limitations again applies. Bennett v. Dow Chemical Co.
(Mont. 1986), 713 P.2d 992, 995, 43 St.Rep. 221, 225.
Constructive fraud was defined as fraud by this Court in
Purcell v. Automatic Gas Distributors, Inc. (Mont. 1983), 673
P.2d 1246, 1251, 40 St.Rep. 1997, 2002. Section 27-2-203,
MCA, provides:
Actions for relief on ground of fraud or mistake.
The period prescribed for the commencement of an
action for relief on the ground of fraud or mistake
is within 2 years, ...
Thus, Bankers Life argued correctly that a cause of action
premised on constructive fraud is subject to a two-year
statute of limitations.
However, Tynes did not plead constructive fraud. Nor
did the jury rule on the issue of constructive fraud. The
special verdict form referred only to breach of the implied
covenant of good faith and fair dealing. The jury
necessarily relied only on that claim in finding against
Bankers Life. The trial judge did give instructions on
constructive fraud. However, as will be discussed in part VI
of this opinion, those instructions actually incorporate
elements of constructive fraud into the implied covenant of
good faith and fair dealing. Constructive fraud was neither
pled by Tynes nor decided by the jury as a distinct claim in
this case. Therefore, there is no statute of limitations
problem with respect to constructive fraud.
Bankers Life argues Walter Tynes' cause of action
against Bankers Life cannot relate back, pursuant to Rule
15(c), M.R.Civ.P., to the date of Kelley's original complaint
because Walter alleged separate claims on his own behalf and
sought damages in his own right. Whether a second
plaintiff's cause of action can relate back to the date the
first plaintiff's complaint was filed is a question of first
impression in Montana. Our research, as well as that of the
parties, reveals a split of authority in other jurisdictions
on the issue. See 12 A.L.R. Fed. 233.
Statutes of limitations exist in order to insure that a
defendant receives adequate notice of the claim against it.
They provide a defendant with the opportunity to adequately
defend. Statutes of limitations insure fairness. They
prevent undue prejudice to the defendant. Cunningham by
Cunningham v. Quaker Oaks Co. (W.D.N.Y. 1985), 107 F.R.D. 66,
72; Williams v. United States (5th Cir. 1968), 405 F.2d 234,

12 A.L.R. Fed. 224.
Permitting Walter's claims against Bankers Life to
relate back to the date of Kelley's original complaint did
not undermine Bankers Life's ability to defend itself. The
claims of the two parties are nearly identical. They arise
from the exact same "conduct, transaction, or occurrence set
forth . . . in the original pleading" as required by Rule
15 (c), M.R.Civ.P. The pleadings contain the same causes of
action. Finally, there is a "clear identity of interest"
between Kelley and Walter. Walter was the original insured.
He agreed, as Kelley's father, to be responsible for Kelley's
medical bills incurred at Wilson Center. The only
difference in the two pleadings is damages. Under these
circumstances, we do not believe Bankers Life was prejudiced
when the trial judge allowed Walter's claims to relate back
to the date of Kelley's original complaint.

DOES WALTER TYNES HAVE AN ACTION ON THE CONTRACT?
Bankers Life contends Walter Tynes is barred from any
action on the insurance contract between Bankers Life and
Kelley because Walter is neither a party to, nor an intended
third-party beneficiary of, the contract.
Walter has causes of action against Bankers Life in his
own right, independent of the contract between Kelley and
Bankers Life. One cause of action is premised on promissory
estoppel.
In Fiers v. Jacobson (1949), 123 Mont. 242, 250, 211
P.2d 968, 972, we adopted the definition of promissory
estoppel found in the Restatement of the Law of Contracts,

A promise which the promisor should reasonably
expect to induce action or forebearance of a
definite and substantial character on the part of
the promisee and which does induce such action or
forebearance is binding if injustice can be avoided
only by enforcement of the promise.
Essentially, the amended complaint alleges that Bankers
Life promised Wilson Center and Walter they would cover
Kelley's expenses. Walter relied on the promise in
guaranteeing payment of all expenses not covered. The
reliance was to Walter's detriment as Bankers Life
subsequently refused to cover the charges, resulting in
Walter having sole responsibility for the bills. The
doctrine of promissory estoppel was invoked. (This issue is
discussed in Part IV, infra.)
Further, Walter has a cause of action against Bankers
Life in tort based on Hawthorne v. Kober Construction Co.
(1982), 196 Mont. 519, 640 P.2d 467. In Hawthorne, 196 Mont.
at 523, 640 P.2d at 469, we specifically held that privity of
contract is not required to maintain an action grounded in
negligence.
We view privity to be a concept having proper
application in the area of contra.ct law. There
seems to be no sound public policy argument for
extending its application to tort.
The rationale is aptly explained in W. Prosser, The Law
of Torts § 93 (4th ed. 1971) :
". . . by entering into a contract with A, the
defendant may place himself in such a relation
toward B that the law will impose upon him an
obligation, sounding in tort and not in contract,
to act in such a way that B will not be injured.
The incidental fact of the existence of the
contract with A does not negative the
responsibility of the actor when he enters upon a
course of affirmative conduct which may be expected
to affect the interests of another person.

". . . there are situations in which the making of
the contract creates a relation between the
defendant and the promisee, which is sufficient to
impose a tort duty of reasonable care. By the same
token, there are situations in which the making of
a contract with A may create a relation between the
defendant and B, which will create a similar duty
toward B, and may result in liability for failure
to act. "
Hawthorne, 196 Mont. at 523-524, 640 P.2d at 470.
Here, Bankers Life's contract with Kelley resulted in
Walter Tynes guaranteeing all unpaid medical bills incurred
by Kelley at Wilson Center. Bankers Life's failure to cover
Kelley's medical bills resulted in a breach of duty owed to
Walter by Bankers Life.

WAS SEBENS AN AGENT?
The trial judge gave the following instructions:
Instruction No. 10
You are instructed that in this case, Laverne
Sebens was an agent for Bankers Life Company.

Instruction No. 11
You are instructed that the knowledge of Laverne
Sebens, as agent for Rankers Life Company, is
considered to be knowledge held by Bankers Life
Company.
Bankers Life objects to these instructions. Because
Verne Sebens sells insurance for several different companies,
Bankers Life contends he is an independent insurance broker.
As such, Bankers Life contends, Sebens acts at times on
behalf of the insured and at times on behalf of the insurer,
depending on his responsibilities at any given moment. We
reject this argument.
Sebens testified that he had been employed by Bankers
Life to sell insurance for 37 years. As an independent
agent, he sold other types of insurance as well.
Nevertheless, Sebens enjoyed a fixed or permanent
relationship of over 37 years as an insurance agent for
Bankers Life. At trial, Sebens referred to himself as an
insurance agent for Bankers Life. We agree with Sebens
assessment of his position.
Bankers Life established a principal/agent relationship
with Sebens. It enlisted Sebens' aid in investigating
Kelley's claims, gaining access to Kelley's work records a.nd
communicating with Walter. All but one contact with Walter
by Bankers Life was made by Sebens.
The weight of authority, albeit primarily statutory
authority, is that "a soliciting agent of an insurance
company is the agent of the insurer and not of the insured
for the purpose of soliciting and procuring the insurance and
preparing the application." See 16 J. Appleman, Insurance
Law and Practice 8697, p. 276 (1981) and cases cited
therein. Therefore, Sebens was acting as Bankers Life's
agent when he suggested Walter enroll Kelley as an employee.
The giving of Instruction No. 10 was not error.
Instruction No. 11, that Sebens' knowledge is considered
to be knowledge held by Bankers' Life, is a correct statement
of law with respect to the acts of Sebens related to this
lawsuit.
The rule that knowledge gained by an agent of an
insurance company as to matters within the general
scope of his authority is imputable to the company
does not require the citation of authority.
Wells-Dickey v. American Alliance Insurance Co. (1924), 69
Mont. 586, 591, 223 P. 489, 490.
IV.
COVERAGE

Walter testified at trial that the insurance company
(Sebens) suggested Kelley be enrolled as an employee of the
plumbing shop. Sebens did not deny making that suggestion.
An enroll-ment card was completed. and submitted to Bankers
Life on behalf of Kelley. This application constitutes an
offer. 1 A. Corbin, Contracts S 82, p. 354 (1963). Neither
acceptance nor refusal of the offer was communicated to the
Tynes. Walter Tynes, believing Kelley had a contract for
insurance with Bankers Life, continued paying premiums.
Numerous premiums on behalf of Kelley were accepted by
Rankers Life, leaving the Tynes with the reasonable belief
that Bankers Life had accepted Kelley as an insured. Bankers
Life subsequently refused to provide Kelley coverage,
claiming he was not an eligible employee.
In response to requests from Walter Tynes and Verne
Sebens, claims personnel investigated Kelley Tynes' employee
status. It was determined Kelley was an eligible employee
after all and his medical bills were paid. The insurance
company had not only accepted Kelley's offer, but had
executed the insurance contract.
Subsequently, Bankers Life represented to Wilson Center
that if it accepted Kelley Tynes as a patient, a large
portion of the cost of his treatment would be covered by
Bankers Life. Bankers Life later reversed this
representation, alleging Kelley was not an eligible
employee.
We must examine the legal principles of estoppel, waiver
and fraud to determine if error was committed by the trial
court. This Court has defined the elements of promissory
estoppel as:

(1) a promise clear and unambiguous in its terms;
(2) reliance on the promise by the party to whom
the promise is made; (3) reasonableness and
foreseeability of the reliance; (4) the party
asserting the reliance must be injured by the
reliance. (Citations omitted.)
Keil v. Glacier Park, Inc. (1980), 188 Mont. 455, 462, 614

The jury was given this instruction on promissory
estoppel :
A promise which Bankers Life Company should
reasonably expect to induce action on the part of
Kel-ley Tynes or Walt Tynes, and which does induce
such action is binding if injustice can be avoided
only by enforcement of the promise. (Ct.Inst. No.
22)
 We find the instruction accurately states Montana law
under the authority of Keil, supra.
There was abundant evidence to support a jury finding of
promissory estoppel. Bankers Life treated Kelley as an
insured when it paid his medical bills in April of 1978. It
also represented to Wilson Center that Kelley was an insured.
By these acts, Bankers Life promised to pay Kelley's medical
bills, including those incurred at Wilson Center. Tynes
relied on this promise when admitting Kelley to Wilson
Center. Reliance was reasonable and foreseeable as Kelley's
admittance hinged on financial coverage of the costs. Tynes
were injured by this reliance when Bankers Life refused to
cover the expenses incurred at Wilson Center. Kelley was
injured because he was denied the insurance coverage he had
been promised. Walter's injury occurred because he had
guaranteed all costs incurred at Wilson Center not covered by
insurance.
Next we must determine if waiver was properly treated by
the trial court. In 1978, Bankers Life investigated Kelley
Tynes' employee status at the plumbing shop. At the close of
that investigation, Bankers Life found Kelley to be an
eligible employee.

Waiver is generally defined as a voluntary and
intentional relinquishment of a known right, claim
or privilege. ..Waiver may be proved by express
declarations or by a course of acts and conduct so
as to induce the belief that the intention and
purpose was to waive. (Citations omitted.)
Kelly v. Lovejoy (19771, 172 Mont. 516, 520, 565 P.2d 321,

The jury was instructed with respect to waiver in
Instruction No. 19:
A waiver is defined as the intentional and
voluntary relinquishment of a known right, claim or
privilege. A waiver can also arise by conduct, in
 which case it is called an "implied waiver". An
implied waiver can occur only if the party relies
on the waiver to his detriment.
If you find that Bankers Life Company, by i-ts
conduct, has waived its right to deny coverage to
Kelley Tynes, and if you find further that Walt and
Kelley Tynes relied on such waiver to their
detriment, then Bankers Life has waived its right
to deny coverage.
Bankers Life alleges it could not have waived its right
to deny coverage in 1978 because it did not know Kelley was
not an eligible employee. That might have been true had
Bankers Life not made an independent investigation of
Kelley's employee status. But, having undertaken to
determine in 1978 whether Kelley was covered and determining
that he was, Bankers Life could have been found by the jury
to have relinquished any defense it might otherwise have had.
Bankers Life claims the facts of employee status were
misrepresented. This issue was properly submitted to the
jury in Instruction No. 21.
If Bankers Life Company, claiming to have been
defrauded, makes an independent investigation of
the subject matter of the alleged false
representation, and its decision to engage in the
transaction is the result of its independent
investigation and not its reliance upon the
representation, then it may not deny coverage, even
though the representation is false.
There was sufficient credible evidence for the jury to
find that Bankers Life relied on its own investigation.
Under one or more of these theories the jury could find
coverage.
v.
BAD FAITH
Bankers Life contends there was a debatable question
whether Kelley Tynes was an eligible employee and thus
entitled to insurance coverage. Further, Bankers Life
attributes the delay in its determination of the coverage
issue to false representations by the Tynes with respect to
Kelley's employment status. Therefore, Bankers Life asserts,
it was not exercising bad faith in denying coverage. The
jury should have been so instructed as a matter of law.
Whether the issue of coverage is "fairly debatable" is a
jury question. Sparks v. Republic National Life Ins. Co.
(Ariz. 1982), 647 P.2d 1127, 1137. he court gave the
following correct instruction:
If there is a debatable question of insurance
coverage which provides Bankers Life with a
reasonable and valid ground on which to oppose
payment of the proceeds of the policy, the
insurance company has the right to have the
coverage question determined in a court of law.
Therefore even if you find that there is coverage
under the Bankers Life group policy for Kelley
Tynes, and that there are benefits due under the
insurance contract, there can be no liability for
bad faith if you find that Bankers Life had
reasonable grounds to debate the coverage in a
court of law. (Ctls. Instr. No. 32)
The jury found against Bankers Life on the issue.
Again the jury's determination is supported by amp1.e
evidence. Bankers Life had the duty to investigate Kelley's
claims and coverage promptly. Egan v. Mutual of Omaha Ins.
Co. (Cal. 1979), 598 P.2d 452, 456-457. There was amp1.e
evidence tha.t Bankers Life failed to fulfill its duty.
Bankers Life investigated Kelley's status three times,
granting coverage once, before finally denying coverage. The
final investigation took nine months. Evidence was submitted
that had a professional undertaken the investigation, it
could have been concluded within two weeks. Meanwhile, the
Tynes incurred nine months of bills at Wilson Center.
Bankers Life failed to inform the Tynes of the potential for
coverage under the Extended Benefits Provision of the policy.
Finally, Bankers Life's acceptance of premiums for Kelley and
payment of Kelley's smaller claims followed by denial of
coverage with respect to his large claims, smacked of bad
faith. We find no error.
 VI.
CONSTRUCTIVE FRAUD
The jury was instructed concerning fiduciary d-uties as
follows:
Instruction No. 26
Under the law in Montana, an insurance company owes
what is called a fiduciary duty to its insured, the
policy holder. This duty is no less than that of a
trustee. The insurance company is bound to act in
the highest good faith towards the insured, and may
not obtain any advantage over the insured by
misrepresentation, concealment, threat, or adverse
pressure of any kind.
Instruction No. 33
Constructive fraud is defined in the laws of
Montana as:
"any breach of duty which, without an actually
fraudulent intent, gains an advantage to the
person in fault or anyone claiming under him
by misleading another to his prejudice or to
the prejudice of anyone claj-ming under him."
(5 28-2-406 (1), M.C.A. )
In order to find liability for constructive fraud,
you must find that Bankers Life made false
statements of fact or withheld or concealed facts
and that such falsely stated or withheld facts
misled the plaintiffs or one of them to their
prejudice resulting in an advantage to Bankers
Life. In order to prove constructive fraud it is
not necessary to show that Bankers Life acted with
intent to deceive or mislead.
Bankers Life objected at trial and objects now to these
instructions, claiming there is no fiduciary duty between an
insured and an insurer.
The question of whether a fiduciary relationship exists
between an insurer and an insured has been the subject of
discussion by a number of appellate courts. The
jurisdictions of Wisconsin, Kentucky and California consider
most relationships between insureds and insurers to be
fiduciary in nature, although not necessarily identical to
the fiduciary relationship in a formal trust.
 I n Benke v . Mukwonago-Vernon Mutual I n s u r a n c e Co. (Wis .
App. 1 9 8 2 ) , 329 N.W.2d 243, t h e i n s u r a n c e company f i r e d i t s
own e x p e r t and r e f u s e d t o r e l y on h i s r e p o r t a f t e r t h e e x p e r t
determined plaintiffs1 arena roof collapsed d.ue t o wind,
r a t h e r t h a n t o snow. The p o l i c y c o v e r e d damage c a u s e d by

wind and e x c l u d e d damage caused by snow. Thereafter, the
i n s u r e r h i r e d a second e x p e r t who d e t e r m i n e d t h a t snow c a u s e d
the collapse. The second e x p e r t was r e l i e d on a t t r i a l . In
affirming a jury verdict f i n d i n g bad faith, the appellate

court stated:

We a r e n o t h o l d i n g t h a t an i n s u r a n c e company i s
open t o s u i t f o r bad f a i t h e v e r y t i m e i t r e j e c t s
t h e o p i n i o n o f t h e f i r s t e x p e r t r e t a i n e d and h i r e s
a second o r t h i r d i n s t e a d . An i n s u r a n c e company
may have p e r f e c t l y good r e a s o n s f o r n o t r e l y i n g on
the f i r s t expert hired . . . W e a r e simply s t a t i n g
t h e r u l e t h a t - i n s u r a n c e company -a- a f i d u c i a r y
an h s
d u t y - - - b e h a l f o f - i n s u r e d and t o
t o a c t on - t h e c a r e t h a t the
exercise - - standard - - - -
t h e same of
i n s u r a n c e company would e x e r c i s e -r-it e x e r c i s i n q
we e
o r d i n a r y d i l i g e n c e i n r e s p e c t - -s-
t o i t own b u s i n e s s .
(Emphasis s u p p l i e d . ) ( ~ i t a t i o n o m i t t e d . )
Renke, 3 2 9 N.W.2d a t 248.

I n F e a t h e r s v . S t a t e Farm F i r e and c a s u a l t y Co. (~y.~pp.

1983) , 667 S.W.2d 693, t h e i n s u r e r d e n i e d c o v e r a g e under a
f i r e i n s u r a n c e p o l i c y on t h e "reasonable b e l i e f that said
f i r e was t h e r e s u l t o f a r s o n . " Insureds f i l e d a complaint
r e q u e s t i n g r e c o v e r y f o r t h e l o s s e s under t h e p o l i c y , c l a i m i n g

b r e a c h o f " a d u t y t o a c t i n good f a i t h i n e f f e c t i n g a f a i r
and reasonable settlement . . . without harassment or
u n r e a s o n a b l e d e l a y ; " and c l a i m i n g r e f u s a l by t h e i n s u r e r t o
deal with the insured f a i r l y , r e s u l t i n g i n insured suffering
from a c u t e a n x i e t y and. mental s u f f e r i n g . I n holding a g a i n s t
t h e i n s u r e r , t h e Kentucky a p p e l l a t e c o u r t s t a t e d :
[Olnce t h e p o l i c y h o l d e r h a s s u b s t a n t i a l l y complied
w i t h t h e t e r m s and c o n d i t i o n s r e q u i r e d by t h e
p o l i c y , and t h e r e i s no s u b s t a n t i a l o r c r e d i b l e
evidence that the policyholder directly or
i n d i r e c t l y set f i r e t o h i s property f o r personal
g a i n , t h e n a t t h a t p o i n t , t h e i n s u r a n c e com.pany
 be -
-
akin
owed under - policy.
the
as to the --
becomes - - - to a fiduciary - - - sums that may
(Emphasis supplied. )
Feathers, 667 S.W.2d at 696.
The California Supreme Court has recently reaffirmed its
holding in Egan v. Mutual of Omaha, supra, stating that the
relationship between an insured and an insurer is a fiduciary
one.
In addition an insurer holds itself out as a
fiduciary. With the public trust must go private
responsibility consonant with the trust, including
qualities of decency and humanity inherent in the
responsibilities of a fiduciary.
Frommoethelydo v. Fire Insurance Exchange (Cal. 1986), 721

These courts are defining fiduciary duties applicable to
insurers in a different way from the definition that applies
to the true trust relationship. In the classic trust, the
trustee considers only the interest of the beneficiary or the
one for whose protection the trust relationship exists. The
duties of a trustee under Montana law are defined in
§§ 72-20-201, et seq., MCA. Not all of those obligations are
applicable to an insurer who is in the business of providing
insurance for a profit and must necessarily act in its own
interest as well as in the interests of its insured. There
may be times when the interest of the insurer and the insured
conflict. The provisions of § 72-20-204, MCA, would not seem
to be appropriate for regulating the relationship between
insurer and insured. That section provides:
Conflict of interest prohibited -- exceptions.
Neither a trustee nor any of his agents may take
part in any transaction concerning the trust in
which he or anyone for whom he acts as an agent has
an interest, present or contingent, a-dverse to that
of his beneficiary, except as follows:
(1) when the beneficiary, having capacity to
contract, with full knowledge of the motives of the
trustee and of all other facts concerning the
transaction which might affect his own decision and
 without the use of any influence on the part of the
trustee, permits him to do so;
(2) when the proper court, upon the like
information of the facts, grants the like
permission, the beneficiary not having capacity to
contract; or
( 3 ) some of the beneficiaries, having capacity to
contract and some not having it, the former grant
permission for themselves and the proper court for
the latter, in the manner above prescribed.
Under this statute, if applicable to the insurance
relationship, an insurer would always have to act in the best
interests of the insured disregarding the interests of the
insurer. This would not be workable. An insurance company
must consider the interests of both itself and its insured,
but must act in the highest good faith toward the insured.
Section 72-20-201, MCA, provides:
Trustee's obligation of good faith. In all matters
connected with his trust, a trustee is bound to act
in the highest good faith toward his beneficiary
and may not obtain any advantage therein over the
latter by the slightest misrepresentation,
concealment, threat, or adverse pressure of any
kind.
This statute was essentially given to the jury in
Instruction No. 26. In Instruction No. 3 3 the court told the
jury that the essence of liability under these theories
depended upon the jury finding that the insurer
misrepresented or concealed in order to gain an advantage
over plaintiffs. In doing so, the court properly instructed
the jury on the duties which are owed by an insurer to an
insured. Britton v. Farmers Ins. Group (Mont. 1986), 721

Fiduciary duties, as they have been defined in this
case, are simply a statement of the kind of good-faith duty
owed by an insurer to an in.sured. The implied covenant of
good faith and fair dealing, as recognized in numerous
insurance cases decided by this Court (see Britton v. Farmers
Ins., supra. and cases cited therein), proscribes the
misrepresentation, concealment, threat or adverse pressure,
referred to in court's Instruction No. 26. ~nstructionsNo.
26 and 33 do no more than define the good faith duty owed by
Bank.ers Life to the Tynes and the giving of those
instructions was not error.
VII.
EMOTIONAL DISTRESS
Bankers Life contends the jury was improperly
instructed on emotional distress for two reasons. First, the
jury was improperly told in Instruction No. 40 that they must
award damages for emotional distress should they find in
favor of Tynes .
If, under the court's instructions, you find that
either of the plaintiffs is entitled to a verdict
against ~ankersLife Company, you must then award
that plaintiff damages in an amount that will
reasonably compensate him for all loss or harm,
provided that you find it was suffered by him and
proximately caused by the defendant's conduct. The
amount of such award shall include:
Reasonable compensation for any pain, discomfort,
fears, anxiety and other emotional distress
suffered by the plaintiff.
No definite standard or method of calculation is
prescribed by law by which to fix reasonable
compensation for emotional distress. Nor is the
opinion of any witness required as to the amount of
such reasonable compensation. In making award for
emotional distress you shall exercise your
authority with calm and reasonable judgment and the
damages you fix shall be just and reasonable in the
light of the evidence. (Underlining supplied.)
(Court's Instruction No. 40)
The word "must" is qualified by the language "provided
that you find it was suffered by him and proximately caused
by the defendant's conduct." If the jury found Tynes
suffered emotional distress as a result of Bankers Life's
conduct, the jury was required to award damages for that
emotional distress. The instruction is correct in that
respect.
 We agree with Bankers Life's second allegation. No
instruction was given with respect to our requirement in
Johnson v. Supersave Markets, Inc. (Mont. 1984), 686 P.2d
209, 213, 41 St.Rep. 1495, 1500, that there must be a
substantial invasion of a legally protected interest causing
a significant impact upon plaintiff before damages for
emotional distress can be awarded. However, Bankers Life did
not object to the incomplete nature of the instruction at the
trial court level. Instead, it complained that the evidence
presented did not meet the standard of proof adopted in
Johnson, supra. There was sufficient evidence of significant
emotional distress. We refuse to consider appellant's
contention that the instruction was incomplete in not
requiring a substantial invasion and a significant impact
because no objection was made to this language deficiency.
The verdict with respect to damages for emotional
distress is affirmed.
VIII.
ATTORNEYS' FEES
Following trial, Tynes sought and were awarded
$30,937.39 in costs, $20,126.99 of which was attorneys' fees
and $9,585.28 of which was deposition costs, including air
fare. The attorneys' fees awarded are 11% of Tynes'
counsels' contingency fees. Eleven percent represents that
portion of the total award attributable to actual medical
costs. The attorneys' fees award is based on California's
policy of allowing attorneys' fees attributable to recovery
of the amount due under the insurance policy.
When an insurer's tortious conduct reasonably
compels the insured to retain an attorney to obtain
the benefits due under a policy, it follows that
the insurer should be liable in a tort action for
that expense.
Brandt v. Superior Court (Cal. 1985), 693 ~ . 2 d 796, 798.
 We have not adopted this policy in Montana and do not
choose to do so today. The award of $20,126.99 in attorneys'
fees is vacated.
We affirm the award of $9,585.28 for expenses associated
with the taking of depositions. Section 25-10-201(9), MCA,
allows the recovery of reasonable and necessary expenses.
The depositions were reasonable and necessary as the
witnesses were beyond the subpoena power of the court and
Bankers Life refused to voluntarily produce them in Montana
for trial. The trial judge did not abuse his discretion in
awarding the costs associated with the depositions.
Affirmed in part; vacated in part.

We Concur:

Chief Justice
Mr. Justice Fred J. Weber dissents as follows:

In part I, the majority opinion deals with the issues on
statutes of limitation. The majority points out that con-
structive fraud was defined as fraud by this Court in Purcell
v. Automatic Gas Distributors (Mont. 1983), 673 P.2d 1246,
1251, 40 St.Rep. 1997, 2002. Next, reference is made to S
27-2-203, MCA, which sets a two year statute of limitation
for actions for relief on the ground of fraud. I agree with
the conclusion in the majority opinion that Bankers Life
correctly argued that a cause of action premised on construc-
tive fraud is subject to a two year statute of limitation.
However, the majority next concludes that plaintiffs did
not plead constructive fraud and that the jury did not rule
on constructive fraud, as demonstrated by the special verdict
form which referred only to the breach of the implied cove-
nant of good faith and fair dealing. I disagree with that
construction of the special verdict form. The form stated as
follows :

SPECIAL JURY VERDICT

We, the Jury, answer the following questions as follows:
1. Do you find in favor of [check one] :
-X- Kelley W. Tynes and Walter E. Tynes, Jr.?
Bankers Life Company?
If find in favor of Bankers Life Company, do not
proceed further, but advise the Bailiff that you have reached
a verdict.
2. If you find in favor of Kelley W. Tynes and Walter
E. Tynes, Jr., what amount of damages, if any, do you assess
for the following:
For medical expenses: The sum of $ 49,167.09 ;
For emotional distress
and general damages of
Kelley W. Tynes: The sum of $ 100,000.00;
 For emotional distress of
Walter E. Tynes, Jr.: The sum of $ 100,000.00;
3. Do you fj-nd that Bankers Life Company has breached
the implied covenant of good faith and fair dealing [check
one] :
-X- Yes.
- No.
If your answer is "No", do not proceed further, but
advise the Bailiff that you have reached a verdict.
4. If your answer is "Yes", do you find that Bankers
Life Company acted with oppression, fraud or malice as de-
fined in the instructions?
-X- Yes.
- No.
If your answer is "Nom, do not proceed further, but
advise the Bailiff that you have reached a verdict. If your
answer is "Yes", what amount do you assess as punitive
damages :
The sum of $ 200,000.00
Dated this 11 day of March, 1984.
S/
FOREPERSON
The verdict demonstrates that the jury found in favor of the
two plaintiffs and assessed medical expenses, emotional
distress, and general damages for both plaintiffs at a total
of $249,167.09 without any reference to the legal theory upon
which they made that award.
Court's Instruction No. 1 3 stated in pertinent part as
follows:

Instruction No. 13
Plaintiffs seek recovery on three [sic] theo-
ries of liability as follows:
1. Breach of contract;
2. Promissory Estoppel;
3. Tort of bad faith, based upon either
(a) an alleged violation of Montana
Insurance Code; or
(b) an alleged breach of implied duty of
good faith to perform insurance contract;
4. Constructive fraud.

Court's Instruction No. 3 3 on constructive fraud was:

Instruction No. 3 3
Constructive fraud is defined in the laws of
Montana as:
 "any breach of duty which, without an actually
fraudulent intent, gains an advantage to the
person in fault or anyone claiming under him
by misleading another to his prejudice or to
the prejudice of anyone claiming under him;"
(528-2-406(1), M.C.A. )
In order to find liability for constructive
fraud, you must find that Bankers Life made false
statements of fact or withheld or concealed facts
and that such falsely stated or withheld facts
misled the plaintiffs or one of them to their
prejudice resulting in an advantage to Bankers
Life. In order to prove constructive fraud it is
not necessary to show that Bankers Life acted with
intent to deceive or mislead.
I conclude that the issue of constructive fraud was
barred by the two year statute of limitation and was improp-
erly presented to the jury under the foregoing instructions.
It is not possible to tell whether any of the damages awarded
in paragraph 2 of the special verdict form were based on a
constructive fraud theory. "Where it is impossible to say
upon what theory or under what part of the court's instruc-
tions a verdict is based, error in any one of the instruc-
tions which is prejudicial and which may influence the jury
entitles the unsuccessful party to a new trial." Roberts
Realty Corp. v. City of Great Falls (1972), 160 Mont. 144,
159, 500 P.2d 956, 964. I would therefore reverse the Dis-
trict Court and send the matter back for new trial.
In part 111, the majority deals with court's Instruc-
tions No. 10 and 11. I conclude that Instruction No. 11 is
deficient. It states:

Instruction No. 11
You are instructed that the knowledge of
Laverne Sebens, as agent for Bankers Life Company,
is considered to be knowledge held by Bankers Life
Company.
This instruction requires a conclusion by the jury that -
all
knowledge of Mr. Sebens must be considered knowledge held by
Bankers Life. I do not believe that is a correct instruction
under Wells-Dickey Co. v. American Alliance Ins. Co. (1924),
69 Mont. 586, 591, 223 P. 489, 490, in which this Court
stated the law as:

The rule that knowledge gained by an agent of an
insurance company as to matters within the general
scope of his authority is imputable to the company
does not require the citation of authority.
The jury was not required to determine whether Sebens' knowl-
ed.ge related to matters within the general scope of his
authority. Bankers Life argues that there is substantial
evidence to show that Mr. Sebens had acted as the agent
insuring the plaintiffs for many yea-rs and that he therefore
had. two hats, the one being when he acted as agent for Bank-
ers Life and the second when he acted for the plaintiffs.
Under that circumstance, the jury should have been required
to determine whether or not the knowledge being imputed to
Bankers Life related to matters within the general scope of
Sebens' authority.
In part IV, the majority addresses the question of
coverage and examines the legal principles of estoppel,
waiver, and fraud to determine if error was committed. With
regard to promissory estoppel, the majority refers to ~ e i l
v.
Glacier Park, Inc. (1980), 188 Mont. 455, 462, 614 P.2d 502,
506 where this Court defined the elements of promissory
estoppel as:

(1) [A] promise clear and unambiguous in its
terms ;
(2) reliance on the promise by the party to whom
the promise is made; (3) reasonableness and fore-
seeability of the reliance; (4) the party assert-
ing the reliance must be injured by the reliance.
(Citations omitted.)
 The majority then refers to court's Instruction No. 22
which stated as follows with regard to promissory estoppel:

A promise which Bankers Life Company should reason-
ably expect to induce action on the part of Kel-ley
Tynes or Walt Tynes, and which does induce such
action is binding if injustice can be avoided only
by enforcement of the promise.
I conclude that the instruction does not adequately address
the question of whether Bankers Life made a promise which was
clear and unambiguous in its terms. The majority suggests
that this may be found because Bankers Life treated Kelley as
an insured when it paid some of the medical bills and repre-
sented to Wilson Center that Kelley was insured.
The Rankers Life letter to the Wilson Center contained
the following statement as a last paragraph:

However this is not a guarantee of benefits, the
insured must meet the requirements of his policy
before benefits will be payable on his claim. If
you should have any further questions, please let
us know.
That paragraph is sufficient to raise a factual issue as to
whether or not there was a clear and unambiguous promise by
Bankers Life. That element was not included in court's
Instruction No. 22. I conclude that the jury instruction was
incomplete and would require a modification of the instruc-
tion so that the jury would be required to determine whether
or not all of the elements of promissory estoppel were
present.
The majority next treats the question of waiver and
concl-udes that because Bankers Life made an independent
investigation of Kelley's employment status in 1978, Ban.kers
Life could have been found by the jury to have relinquished
any defense. The majority mentions that Bankers Life claims
the facts of employment status were misrepresented. The
uncontradicted facts are stronger than that. There is no
dispute that the written application submitted on behalf of
Kelley to Bankers Life falsely stated fa.cts entitling him to
coverage. In a.ddition, the undisputed evidence was that
Kelley was not regularly scheduled to work at least 25 hours
per week and in fact worked less than 25 hours per week
during the applicable periods of time. The uncontradicted
evidence is that Kelley was not under the facts of his em-
ployment and the contract in question entitled to coverage as
a.n employee. Coverage is gained only if Bankers Life was
estopped from raising, or waived the question of coverage.
As pointed out in the majority opinion, Kelly v. Lovejoy
(1977), 172 Mont. 516, 520, 565 P.2d 321, 324, defines waiver
as follows:

Waiver is generally defined as a voluntary and
intentional relinquishment of a known right, claim
or privilege ... Waiver may be proved by express
declarations or by a course or acts or conduct so
as to induce the belief that the intention and
purpose was to waive. (Citations omitted.)
I emphasize that the foregoing definition requires a determi-
nation that there has been a voluntary and intentional relin-
quishment of a known right. The second sentence refers to
the matter of how that voluntary and intentional relinquish-
ment of a known right is proved.
Court's Instruction No. 19 stated:

Instruction No.
A waiver is defined as the intentional and
voluntary relinquishment of a known right, claim or
privilege. A waiver can also arise by conduct, in
which case it is called an "implied waiver". An
implied waiver can occur only if the party relies
on the waiver to his detriment.
If you find that Bankers Life Company, by its
conduct, has waived its right to deny coverage to
Kelley Tynes, and if you find further that Walt and
Kelley Tynes relied on such waiver to their
 detriment, then Bankers Life has waived its right
to deny coverage.
The first sentence is correct. I believe the second sentence
is an incorrect statement because it apparently allows waiver
arising from conduct which causes the plaintiffs to rely on
it, but without any reference to the intentional and volun-
tary relinquishment of a known right. The evidence demon-
strates that Bankers Life did not realize that Kelley in fact
could not qualify as a.n employee under the terms of the
policy. As a result I conclude that the giving of the in-
struction was incorrect under the facts of this case.
Section 72-20-201, MCA, sets forth the trustee's obliga-
tion towards his beneficiary. That section of course per-
tains to the situation where a trust is present. I will not
engage in an extended review of the cases discussed in the
majority opinion. It seems clear to me that the statutory
provisions set forth the standard which applies to a trustee.
Bankers Life cannot properly be classed as that type of a
trustee. I disagree with the conclusion that fiduciary
duties as defined in the statute are simply a statement of
the kind of good faith duties owed by an insurer to an in-
sured. I conclude that this instruction should not have been
given.

Chief Justice J. A. Turnage and Justice L. C.
Gulbrandson concur in the foregoing dissent.