Gibson v. Western Fire Insurance

No. 83-282
IN THE SUPREME COURT OF THE STATE OF MONTANA

1984

HARRY COE GIBSON,
Plaintiff and Respondent,
-vs-
WESTERN FIRE INSURANCE COMPANY,

Defendant and Appellant.

APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead,
The Honorable James M. Salansky, Judge presiding.

COUNSEL OF RECORD:
For Appellant:
Garlington, Lohn & Robinson; Bradley J. Luck and
Sherman V. Lohn argued, Plissoula, Montana

For Respondent :
Robert P. Ryan argued, Billings, Montana

Submitted: January 16, 1984
Decided: June 4, 1984

Clerk
Mr. Justice John C. Sheehy delivered the Opinion of the
Court.

In an action against Western Fire Insurance Company for
its bad faith refusal. to sett3.e a third party malpractice
claim within policy limits, judgment was entered in the
Eleventh Judicial District Court, Flathead County, for
compensatory damages of $250,000 and punitive damages of
$300,000. Western appeals the judgment.
Western contends (I.) that the judgment against it should
not stand because improper standards determining the bad
faith of an insurer were applied; ( 2 ) that the compensatory
damages are excessive and not supported by the evidence; (3)
that the judgment for punitive damages is improper and not
supported by the evidence; and (4) that the District Court
committed instructional error.
Having considered the issues we affirm the judgment of
the District Court.
On October 16, 1975, Gibson, a Kalispell opthalmologist,
pierced Harold Frisnegger's eyeball with a needle while
endeavoring to administer a local anesthetic to his left
upper eyelid. The doctor's objective in injecting the
anesthetic was to remove a small growth, a chalazion, from
Frisnegger's left upper eyelid. The piercing of the eye was
not immediately known either to Frisnegger or to Gibson. In
a matter of only a few days a cataract formed in Frisnegger's
left eye which had the practical effect of occluding his
vision in that eye.
Gibson recognized the injury and what had happened a
short time later when the patient returned for a follow-up.
Immediately the doctor informed his patient what had happened
and that it was the doctor's fault. Then the doctor notified
his local insurance agent and on the agent's directions,
notified Western in writing of the incident, stating that "in
the case of Mr. Frisnegger there is no question of my
carelessness."
Western's end of the Frisnegger claim was handled
principally by Milton Beck, an attorney and regional claims
supervisor for Western at Salt Lake City, Utah, and by
Kenneth O'Brien, a Kalispell attorney. John Hoyt of Great
Falls was the attorney representing Frisnegger.
Suit by Frisnegger against Gibson was filed in District
Court in Flathead County on November 19, 1976. Trial before
a jury started on October 17, 1977 and resulted in a jury
verdict against Gibson in favor in Frisnegger in the sum of
$175,000. Judgment was entered on the verdict, and the case
was appealed by Gibson to this Court. We affirmed the
judgment. Frisnegger v. Gibson (1979), 183 Mont. 57, 598
P.2d 574.
Gibson's malpractice liability coverage with Western had
policy limits of $100,000. On September 4, 1979, Gibson paid
$83,750 to Frisnegger, representing the excess of his policy
limits and interest due on that date. Gibson then instituted
suit in the District Court, Flathead County, against Western
alleging negligence and bad faith on the part of Western for
refusing to settle the Frisnegger claim within Gibson's
policy limits. Judgment against Western resulted, and is the
subject of this appeal.
Further facts relative to the issues will be detailed
later in this opinion.
Dut of An Insurer - Settle Third Party Claims Within Policy
2-- to
Limits;Refusal - - Faith; Sufficiency - Evidence.
as Bad of
It is now fairly established in American jurisprudence
that an insurer which in bad faith fails to settle a bona
fide third party liability claim against its insured, within
policy coverage limits, takes the risk of a judgment by the
trier of fact in excess of the coverage limits. The effect
of such bad faith is to open the policy coverage limits to
the extent of the trial result. That degree of liability was
esta.blished in Montana in the federal district court in
Jessen v. OfDaniel. (D. Mont. 19621, 210 F.Supp. 317; afffd.
National Farmers Union Property and Casualty Company v.
OfDaniel (9th cir. 1964), 329 F.2d 60. This Court accepted
the concept of bad faith liability against the insurer in
third party liability claims in Fowler v. State Farm Mutual
Automobile Insurance Company (1969), 153 Mont. 74, 454 P.2d
76 and Thompson v. State Farm Mutual Automobile Insurance
Company (1973), 161 Mont. 207, 505 P.2d 423, although in each
state case the insurer was vindicated. Another federal case
refining bad faith liability of insurers in third party
claims is Fetter Livestock Company v. National Farmers Union
Property and Casualty Company (D. Mont. 1966), 257 F.Supp. 4.
The duty to accept a reasonable offer within policy
coverage limits arises from an implied covenant of good faith
and fair dealing that neither pa.rty will do anything which
will injure the right of the other to receive the benefits of
the agreement. One of the usual benefits of a liability
insurance policy is the settlement of claims without
litigation, or at least without trial if the cause is
litigated. The implied obligation of good faith and fair
dealing requires the insurer to settle in an appropriate
case, although the express terms of the policy do not impose
the duty. In determining whether to settle, the insurer must
give the insured's interest as much consideration as it gives
its own interest. Crisci v. Security Insurance Company
(1967), 58 Cal.Rptr. 13, 426 P.2d 173, 66 Cal.2d 425;
National Farmers, 329 F.2d at 64-65.
When a liability insurance company by the terms of its
policy obtains from the insured a power, irrevocable during
the continuance of his liability under the policy, to
determine whether an offer of compromise of a claim shall be
accepted or rejected, it creates a fidiciary relationship
between the insurer and the insured with resulting duties
that grow out of such a relationship. American Fidelity &

Casualty Company v. G. A. Nichols Company (10th cir. 1949),
173 F.2d 830, 832.
Malice on the part of the insurer is not a necessary
component to impose liability upon an insurer for bad faith
refusal to settle. This is so because the failure to settle
may have been the result of either bad faith or negligence,
and there is no clear distinction in Montana between the two
terms in such cases. In Jessen, supra, the court stated that
while there may be theoretical differences between bad faith
and negligence, the resulting neatness is highly illusory,
and the two tests have tended to coalesce. Of course,
malice, oppression or fraud is necessary to establish a basis
for punitive damages. Section 27-1-221, MCA.
Each case must be decided on its own facts, but the
parties seem to agree here that as a starting point the six
elements of bad faith set forth in Jessen, should be
considered.
 We will first set forth the facts, and then consider
them under the Jessen elements. The home office of Western
received Gibson's notice of the incident and referred it to
Beck in Salt Lake City for handling. He set up a minimum
reserve of $1,000 for the claim pending the receipt of
information, and referred the file in late December 1975 to
counsel O'Brien. At that time Frisnegger was represented by
an attorney in Spokane, Washington, and O'Brien got in touch
with him. O'Brien was advised that Frisnegger had been
examined recently and the details of the examination would be
forthcoming. In the meantime, O'Brien met with Gibson and
reviewed the file in detail.
In January 1976, O'Brien reported the status to Western
and suggested the need for an independent medical
examination. In early February, O'Brien again discussed the
matter with Spokane counsel and was advised that the latest
medical examination revealed the existence of the cataract,
and that the attending physician had recommended removal but
suggested a few months wait. O'Brien decided to wait for
additional medical information before setting up an
independent medical examination. Nothing further occurred
until the middle of July 1976 when attorney John Hoyt of
Great Falls informed O'Brien that he was now in the case
representing Frisnegger.
Hoyt suggested a meeting between Beck, O'Brien and
himself to discuss the case and forwarded to O'Brien a
detailed statement outlining the facts on which the claim was
based and Hoyt's position on the matter. O'Brien was advised
that Frisnegger's treating physician recommended surgery, but
Frisnegger had elected not to have such surgery. By this
time Gibson had advised O'Brien that surgery would be the
only hope of improving Frisnegger's condition and that such
surgery was low risk.
On August 3, 1976, O'Brien and Beck met with Hoyt in
Great Falls. There O'Brien informed Hoyt that Frisnegger had
an obligation to mitigate his damages by undergoing the low
risk, probably successful operation. Hoyt advised that he
would recommend to his client that the case be settled for
$75,000, and that the figure was firmly non-negotiable.
O'Brien learned from other attorneys in Great Falls that
Hoyt's "non-negotiable" stance meant that Hoyt would stand
firm on his demand.
Upon recommendation of Dr. Gibson, Western caused
Frisnegger to be examined by Dr. Charles Gates in Spokane on
September 17, 1976. Dr. Gates confirmed that Frisnegger's
left eye was essentially nonfunctional, and stated he would
recommend cataract surgery for the left eye. He reported
that it "could be restored to normal vision with cataract
extraction and contact lens." From the information provided
by Dr. Gates, O'Brien and the claims manager for Western
formed the opinion that Frisnegger had a duty to mitigate his
damages and if he were willing to do so, his damages would be
of a small magnitude.
It was on September 27, 1976, that O'Brien wrote to Hoyt
enclosing a copy of the medical report of Dr. Gates. O'Brien
informed Hoyt that in view of the Gates report, O'Brien could
not recommend to Western that the case be settled for the sum
of $75,000. No specific counter-offer was made.
Later correspondence established that O'Brien had sent
the materials including the Gates report to the company and
was waiting for an evaluation of the case. Hoyt wrote on
October 11, 1976 he would be willing to file the suit outside
Flathead County, or to arrange to "pull the file" from the
clerk's office so that there would be no publicity against
Gibson, or at least a minimum of publicity.
On November 4, 1976, Hoyt wrote asking what was going on
with the claim. On receipt of the letter, OIBrien telephoned
Beck in Salt Lake City and they discussed the claim. OIRrien
testified that Beck "concurred with my recommendation" that
the claim did not have a value of $75,000.
As a result of the conference with Beck, O'Rrien wrote
to Hoyt setting up the position of Western that the cataract
was removable and that a reasonable and prudent person would
submit to the operation and that this was not a case of
irretrievable loss of eyesight. Further, OIBrien "to test
[Hoyt's] offer1' advised Hoyt that Western would pay all
present and future medical expenses and all loss of income
that Frisnegger had sustained, and would make allowance to
pay him for pain and suffering. No dollar amount was fixed
in connection with this proposal. Hoyt did not respond to
the letter. In a subsequent letter, O'Brien advised Hoyt
that Western, if Frisnegger decided to have surgery, would
pay for all the expenses of that surgery, all- of the lost
wages during the time that he was laid up, and proceed to
suit on the issue of damages, asking that they be given
credit for whatever they had paid. Again Hoyt did not
respond.
In a memorandum to his home office claims supervisor
dated December 29, 1976, Beck reported on a conversation with
OIBrien stating "We also agreed that $75,000 is totally out
of line for this case and our current plans are to line up
ample medical evidence that would indicate that the claimant
could return to normal vision if he had a cataract
operation." Hoyt filed suit against Gibson in December
1976. The suit was filed in Flathead County. Hoyt mailed
the original complaint, and admission of service for Gibson
to sign, and the check for the filing fee to O'Brien, who
filed the suit, obtained Gibson's signature on the admission,
and checked out the complaint from the clerk's office. At
about this time, Western's loss reserve on the claim was
raised from the original $1,000 to $25,000. On ~ecember20,
1.976, Hoyt addressed a letter to O'Brien referring to a
verdict of $675,000 which had been awarded in an eye case.
Sometime prior to the filing of the suit by Hoyt,
O'Brien and Beck had agreed that the Frisnegger claim had a
settlement value up to $45,000. O'Brien testified that it
had a low range of $35,000 and a high range of $45,000. No
documentation of this evaluation appears in Western's file.
The testimony indicates that the evaluation was arrived at
through telephonic communication between Beck and O'Brien,
who were discussing the claim, but no letter or memorandum
appears in the evidence that would indicate how the
evaluation came about. The testimony is that Eeck and
O'Brien related to some personal experience with claims for
loss of eyesight where each had experienced significant]-y
lower results for total loss of eyesight in one eye.
With the filing of the lawsuit by Frisnegger against
Gibson, Western took steps to advise him of the possibility
of an excess judgment. The letter, written by Beck to
Gibson, on December 10, 1976, included in pertinent part:
"This matter has been referred to Mr. Kenneth
O'Brien of Hash, Jellison & O'Brien, Plaza West,
136 First Avenue West, Kalispell, Montana, for
defense. However, even though the complaint does
not state an amount prayed for, the possibility
exists - - coverage provided by the above
that the
captioned policy may - exceeded. This letter is
be
 to advise you that you are a.t liberty to retain an
attorney of your own choosing, at your own expense,
to represent you on the amount which may exceed the
coverage provided. If you desire to retain such
attorney, please advise his name and address so
that Mr. O'Brien can work closel-y with him in the
mutual defense of this action.

- - keep you advised - - progress of the
"We will of the
- - - developsnot hesitate toyou hinv e any
case as it
questions, please do
and should
get
a
touch
with our office." (Emphasis added.)
Gibson, however, had earlier retained I. James
Heckathorn, a Kalispell attorney, as his personal lawyer in
the matter. On November 23, 1976, Heckathorn had written to
O'Brien stating that " [alfter reviewing the matter with him,
we believe the $75,000.00 settlement offer is not out of
line. " On behalf of Gibson, Heckathorn requested that the
pending claim be settled within the policy limits.
On receipt of Heckathorn's letter, O'Brien had called
Heckathorn on the telephone to discuss the case. Heckathorn
had reviewed jury result handbooks, and felt that $75,000 was
not unreasonable for the loss of an eye. He did demand that
the claim be settled within the policy limits. 0'Brien

responded that he didn't feel that the settlement demand was
reasonable in that they did not have a case of total loss of
an eye, but one that was correctable by surgery.
In February and March 1977, depositions were taken of
Frisnegger and of Dr. Larson, his personal physician.
O'Brien established in Dr. Larson's deposition, that Dr.
Larson was aware of no medical reason why Frisnegger could
not be operated on and that after surgery Frisnegger's vision
would be essentially normal and that he should not have any
problem wearing contact lenses. The deposition of Dr. Gates,
although scheduled for this period, was not taken by either
party.
 In May 1977, Hoyt made it clear that the $75,000 d-emand
was an offer rather than a.n amount which he would suggest to
his client as appropriate. Heckathorn was advised of the
situation. Again OIBrien contended to Hoyt that his
evaluation of the case was "significantly lower" than $75,000
and did not justify a settlement in that amount.
O'Brien was basing his position on two cases he had been
involved with for total eye losses, one of which was settled
for $18,000, and another which resulted in a verdict of
$10,000 when the demand had been for $40,000. Beck had
persona1 claim experience with an eye loss case in Idaho,
where in a bar room brawl a complainant's eye had been
displaced completely, and the resulting verdict was $35,000.
No cases of significant similarity were found in the home
office files of Western.
O'Brien also consulted with three members of his firm
and two plaintiff's attorneys, Frank Morrison and Dale
McGarvey in Kalispell. A significant psychological component
to the claim was not discussed with the attorneys at that
time. After discussion with the attorneys and on other
considerations, OIBrien continued his opinion that the value
of the case was in the $35,000 to $45,000 range.
O'Brien had raised the defense in his pleadings of
mitigation by reason of avoidable consequences. Hoyt filed a
motion to strike that defense which was by the court denied.
On September 14, 1977, a pretrial conference was held. After
the conference, Hoyt advised OIBrien that if the case were
not settled at $75,000 by October 1, the offer would be
withdrawn.
On September 27, 1977, an offer of $25,000 to settle the
whole case was extended to Hoyt. On September 30, 1977,
Heckathorn made written demand upon O'Brien for settlement
within the policy limits. In pertinent part, Heckathorn
wrote :
"I have just concluded a conference with Dr.
Gibson. John C. Hoyt contacted me and we reviewed
the claim together. He feels very strongly that a
jury will award more than $75,000. He pointed out
that a person's eyesight is one of his most
valuable possessions and he believes the defense is
not taking a realistic look at the value of the
claim.
"He also pointed out that there is no guarantee
that corrective surgery will be effective. I
discussed this matter with Dr. Gibson and Dr.
Gibson wants to make it plain that the purpose for
which he bought insurance was so that he would be
protected against claims which could be settled
within the limits of the policy.
"Dr. Gibson's claim can be settled within the
limits of Dr. Gibson's policy and, on his behal.f,
we demand that settlement be made.
"In the event you and Dr. Gibson's insurance
carrier disagree with our thinking and want to
gamble on the basis that you have only $100,000 to
lose and that any excess must be paid by Dr.
Gibson, we want you to know that any such gambling
will be at the risk of the insurance carrier and we
will bring, on behalf of Dr. Gibson, a 'bad faith
action' against the carrier.
"We are not attempting to tell you how to
negotiate, or in what amount to settle, but we do
want you to understand that failure to settle
within the policy limits will be at your peril, not
at the peril of Dr. Gibson."
.Then came a significant development in the claim. On
October 1, Hoyt called O'Brien to advise that a Missoula
psychiatrist would testify to the effect that Frisnegger was
having psychological problems relating to his injury and that
Hoyt was going to add his name to the witness list for the
trial which had been set for October 17, 1977. O'Brien made
arrangements to have Frisnegger examined before the trial by
Dr. Quint, a psychiatrist residing in Kalispell. Following
the examination, Quint diagnosed Frisnegger's condition as a
mild reactive depression. Dr. Quint had found that
Frisnegger suffered no loss of appetite, no inability to
sleep, and no sexual dysfunction, the three hallmarks of
depression.
In the meantime, on October 4, Hoyt had notified O'Brien
that his new firm offer of settlement was $100,000. This
offer remained open through the course of the trial to the
jury verdict. However, O'Brien may have felt the settlement
offer did not extend beyond the first day of trial because of
a statement from Hoyt earlier that he did not leave open
settlement offers once the trial had commenced.
During the trial, Dr. Walters, the Missoula
psychiatrist, testified that Frisnegger was suffering from
severe anxiety, with some symptoms of depression, and that if
he did not receive help, a more serious type of depression
might result, and suicide was not an impossibility. Much of
this had been learned by O'Brien in the week before the
trial, and although he communicated the information to Beck,
O'Brien testified that he still did not feel it likely that
the verdict would exceed $100,000.
At the trial, Dr. Larson testified that if the cataract
were removed and a contact lens successfully used,
Frisnegger's vision would be essentially normal. He admitted
under cross-examination that there are psychological
concerns, which usually do not appear until after surgery
when the patient may have difficulty with contact lenses.
Larson had not recommended surgery to Frisnegger. Walters
testified in accordance with his earlier report, to the
effect that Frisnegger suffered from severe anxiety and
showed all the major symptoms of "reactive depression."
For the defense during the trial, Dr. Quint testified
that he found a mild reactive depression. Dr. Gates wa.s
called by the defendant on the second day of the trial and
during his cross-examination, serious problems developed for
the defense. Hoyt cross-examined Dr. Gates on an article by
one Dr. Norman Jaffe, a textbook entitled, "Cataract Surgery
and Its Complications." Dr. Gates was forced to admit that
no complete physical examination of the plaintiff had been
made to determine his overall status and suitability for
cataract surgery and that there were in fact serious problems
which could develop during and after cataract surgery.
The verdict was returned in the amount of $175,000.
Those are the essential facts leading up to the
Frisnegger verdict. The judgment was entered thereon and
eventually was sustained by this Court.
We turn now to the facts developed in the case at bar,
Gibson's "bad faith action" against Western. At trial, to
present expert testimony on insurance claims management, each
party called two lawyers engaged in trial practice, and a
claims manager of an insurance company. Merritt Warden and
Marshall Murray, two Kalispell lawyers, testified on behalf
of Western. Each had been given files relating to the
Frisnegger claim and trial and each gave an opinion
supportive of O'Brien and Western. Warden valued the
settlement estimate of the claim at $30,000 to $40,000;
Murray valued it at $40,000 to $60,000. Gary Olson, a claims
manager for Liberty Mutual Insurance Company, was also called
by Western and he placed an evaluation of $30,000 to $40,000

on Frisnegger's claim, and up to $60,000 based on Dr.
Walter's testimony in the trial.
Gibson called on his behalf lawyers Bruce Toole of
Billings, and William T. Boone of Missoula, and a claims
manager, Erik Hallen. Because we must view the evidence in
the light favorable to the prevailing party, we will relate
more on the testimony as it came from Gibson's witnesses.
Boone testified that Western failed in its duty properly
to investigate the claim when it did not determine through
medical examination whether Frisnegger was a suitable
candidate for eye surgery. This failure was incompatible
with the defense of avoidable consequences. Further the
insurer failed to determine whether plaintiff's counsel
intended to use medical textbooks and if so what textbooks in
the examination of witnesses. Either a pretrial deposition
of Dr. Waiters, or interrogatories to him would have
developed his testimony regarding reactive depression.
Western had failed to develop facts before the trial relating
to how the injury had effected Frisnegger's ability to lead a
normal life, the effect on his job, his family, his
recreational activities. With respect to evaluation, Boone
could find no evidence in the insurance company file that it
had valued the case at $45,000. Moreover, if the company had
placed a $45,000 value on the claim, its agents did not
communicate that tc Mr. Hoyt. In Mr. Boone's opinion, if
they valued the claim at $45,000, they had a duty to offer
that amount in settlement and they had a duty to inform that
they had done so to Gibson and his attorney. The prayer of
the complaint against Gibson did not mention a total
damage amount, and no attempt was made by the company before
trial to determine the amount of damages actually being
claimed by Frisnegger. The only offer made by the company
before the trial was for $25,000. The failure of the company
to offer $45,000 may have foreclosed a possible contribution
by Gibson himself towards settlement. Boone had examined the
case law that existed prior to the Frisnegger trial and had
found a large number of cases involving cataracts. He found
cases ranging from a low of fifteen thousand to several
hundred thousand dollars in compensatory damages and also
cases where punitive damages were awarded. He found a "very
wide range" of verdicts exceeding $100,000 in amount. Boone
was of the opinion that the insurance company, in the light
of all of the facts here, should have realized that there was
a probability that the verdict would be rendered by a jury in
excess of $100,000. He was of the opinion that the insurance
company did not give at least equal consideration to the
interests of its insured, Gibson. Boone further testified
that there should have been some communication during the
trial between OIBrien and the insurance company when the case
started going badly.
Toole testified in effect that Western placed too much
reliance on the efficacy of the defense of avoidable
consequences. Western took a "dogmatic view" that there was
no question that its defense of avoidable consequences would
be sustained. No attempt was made by Western or its counsel
to evaluate what a jury might do, if it concluded that
Frisnegger did not have an absolute duty to have his eye
repaired; [tlhat was going to be a fact question for the
jury. " Western should have evaluated the case as it neared
trial with the options in mind respecting the possibility of
the jury accepting or not accepting the affirmative defense.
There was no attempt to memorialize in the file, by
memorandum or letter, any analysis as to the evaluation
placed on the Frisnegger claim by Western. The $25,000
settlement itself was not evaluated. Beck's evaluation is
not explained nor do any analyses appear in the file by
defense counsel. Industry standards would require a careful
analytical opinion of the components of the lawsuit, and an
estimate of their possible liability in the various aspects
of damages and what the options were. This was never done in
the Frisnegger claim by Western or its counsel. If the case
had been properly evaluated, the attention of somebody would
have been brought to the fact that the case had a "greater
potential" for large damages. This was a case of admitted
liability, with an eye injury about which the jurors might
tend to be squeamish. It involved a patient who, undergoing
a very simple procedure, "ended up with a bad eye" and so
might have some real questions about having any more work
done on his eye. No mention is made in the company files or
letters concerning the Frisnegger claim of the ability or
skill of the opposing attorney. According to Toole's
testimony, these facts tended to indicate a potential for
larger damages.
Toole further testified that because the insurance
company occupied a fidiciary position with respect to its
insured, Gibson, it had a duty to put out its "top dollar'' in
the settlement negotiations. Even though the attorney
retained by the insurance company is receiving his fee from
the insurance company, his primary duty is to the insured.
On that basis, Toole testified, if the doctor has a desire to
have the case filed against him out of town, and this is
possible, he should be consulted about that possibility by
the attorney representing the insura.nce company. Toole
testified that in his opinion a prudent insurance company
facing the same situation as Western would ha.ve settled the
Frisnegger case within the policy limits and it was his
further opinion that there was a significant likelihood that
this case was going to go over the limits and invade the
doctor's assets.
The opinion of Gary Olson called by Western in its case,
was that as a regional claims manager, he would have placed a
value on the Frisnegger claim between $30,000 to $40,000
before trial. Erik Hallen testified, on behalf of Gibson,
based on his expertise as a regional claims manager, that
there was incomplete documentation in Western's file with
respect to the claim and that nothing in the file indicated
that Western had ever made any evaluation of the claim.
From this rather full exposition of the facts, we turn
our attention now to relate those facts to the elements
suggesting bad faith, set out in Jessen v. O'Daniel (D. Mont.
1962), 210 F.Supp. 317.
Keeping in mind Western's contention that the jury
verdict in this case was not based on sufficient evidence, in
light of appropriate and accepted standards, we inquire first
whether there was a likelihood of a verdict greatly in excess
of the policy limits. The appellate rule of review is that
if substantial evidence in the record supports a jury
verdict, it must be sustained. Western is hardly in a
position to raise appropriate and accepted standards in this
case; the record is positive that nelrer before the trial did
it evaluate the Frisnegger claim from the viewpoint that the
defense of avoidable consequences might not be sustained.
The testimony of Boone, Toole, and Hallen supports the
possibility of a verdict exceeding $100,000, and in Toole's
case, establishes a significant possibility of such a result.
Western argues now that no witness testified that the verdict
would be "greatly in excess" of the coverage limits. The
range of possible verdicts based on other cases, testified to
by Boone and Toole, reveals possible verdicts several hundred
thousand dollars in excess of the coverage limits here. It
is clear from the record here that Western did not take into
account the likelihood of a high verdict but rather relied on
a somewhat limited field. of experience involving three or
four cases. We hold that a verdict greatly in excess of the
policy coverage limit was likely, as shown by substantial
evidence.
In Mr. Toole's words, had a proper investigation and a
written evaluation based on the factors facing the company in
this claim been done, the value of the claim would have
"iumped out" at Western's representatives.
The second. Jessen factor is whether a defendant's
verdict on liability is doubtful. Here Gibson, by his own
a.dmission, was at fault for the injury to Frisnegger. There
was no issue as to liability.
The third Jessen factor is whether the company has given
due rega.rd to the recommendations of its tria.1 counsel. That
factor has no application here. Although trial counsel. had
apparently valued the claim at $35,000 to $45,000, there is
no file documentation of this evaluation. It is especially
evident that the offer of $25,000 which was actually made
before trial came not from trial counsel, but from the
company itself, upon a ba-sis not set forth in the company's
files.
The fourth factor is whether the insured has been
informed of all settlement demands and offers. Gibson and
his attorney were informed of the $75,000 offer that had been
made by Hoyt. They were also informed of the $25,000
counter-offer that had been made by Western. They had been
given no information, certainly not in writing, that the
company placed a $45,000 value on the claim. As far as
Gibson was concerned, there was until October 1, 1-977, an
offer from Frisnegger of $75,000; after October 1, 1977 an
offer of $100,000; and from the company, in either case of
$25,000. Both Toole and Roone testified that the insurer had
a duty to put the $45,000 "on the table" to see if there
would be any movement toward settlement from Hoyt.
There is a conflict in the evidence as to whether
OIBrien discussed with Gibson the possibility that the
Frisnegger claim might be filed in a county other than
Flathead County, where Gibson resided and practiced. It was
Toole1s opinion, by virtue of the fidiciary relationship
existing between the company and Gibson, that he should have
been made aware of this possibility and his decision should
have been considered as to the place of trial.
The fifth Jessen factor is whether the insured has
demanded that the insurer settle within pol-icy limits. That
can not be disputed here. Gibson's attorney clearly told the
insurer that if it failed to settle the case within the
policy limits it was "gambling" at its own risk.
The sixth factor is whether any offer of contribution
had been made. In this case no contribution offer had been
made by Gibson. Ordinarily we would conceive that an
insurance company could not properly request that the insured
make a contribution when the offer of settlement is within
the policy Limits. That does not foreclose the issue,
however. As both Toole and Roone testified, if the $45,000
evaluation had been offered to Frisnegger, the gap between
the settlement demand of $75,000, and the offer of $45,000
would have been considerably narrowed. In that situation
Gibson might well have considered making a contribution
toward settlement. This case, however, is one where no offer
of contribution was made by Gibson. The sixth Jessen factor
is not applicable to this case.
Those are the Jessen factors. As the Court said in
Jessen, no one factor is decisive, and all of the
circumstances must be considered as to whether the insurer
acted in good faith. The jury found by special verdict that
Western was guilty of bad faith in the handling of the claim,
and we hold that the evidence fully supports the jury
verdict. The failure of Western through its agents to follow
established standards of investigation, evaluation,
negotiation, and communication with its insured are the
deciding factors upon which we base this conclusion.

Excessive Compensatory Damages; Sufficiency - - Evidence
Of The

- Support Damages
To
After judgment was entered on the verdict, Western moved
the District Court for a new trial on the ground that the
verdict granted excessive damages appearing to have been
given under the influence of passion and prejudice. As an
alternative, Western moved to alter or amend the judgment by
striking all consequential damages in excess of $83,750.
The District Court denied both motions.
Western contends on appeal that in this case Gibson had
$83,750 in actual damages, the sum he had to pay to procure
satisfaction of the Frisnegger judgment. Western contends
that the remainder of the $250,000 compensatory award,
$166,250, was based solely on the purported inconvenience and
frustration of litigation suffered by Gibson and that the
remainder of the compensatory award is without adequate
found.ationas to amount and so must be reduced.
 Under section 25-11-102 (5), MCA, a party may move for a
new trial at the District Court level on the ground that
excessive damages have been granted under the influence of
passion or prejudice of the jury. The rule established in
Ashley v. Safeway Stores, Inc. (1935), 100 Mont. 312, 47 P.2d
53, is that a jury award of damages will not be overturned
unless it shocks the conscience of the court.
When a motion for new trial is pending before a district
court on the ground of excessive damages, it is guided by the
rule set out in Kelley v. John R. Daily Company (1919), 56
Mont. 63, 181 P. 326: excessiveness of verdict is not in
itself a ground for the grant of a new trial. It is only
when the excessive damages appear to have been given by the
jury under the influence of passion or prejudice that a new
trial may be granted; in every case a wide latitude is
allowed for the exercise of the judgment of the jury and
unless it appears that the amount awarded is so grossly out
of proportion as to shock the conscience, a court cannot
substitute its judgment for that of a jury. When the order
of the District Court denying a new trial on the ground of
excessive damages is reviewed at the appellate level, where
the evidence is subst.antia1, though conflicting, the order
will be sustained in the absence of any showing of ahuse of
discretion by the District Court. Pfau v. Stokke (1940), 110
Mont. 471, 103 P.2d 673.
Although an action against an insurer for a breach of
its implied covenant of good faith and fair dealing towards
its insured sounds in contract the action is to be regarded
as one for tort. See Crisci v. Security Insurance Company
(1967), 66 Cal.2d 425, 58 Cal.Rptr. 1-3, 426 P.2d 173;
Comunale v. Traders & General Insurance Company (1958), 50
Cal.2d 654, 328 P.2d 198. The statutory rule for measure of
damages in tort cases is the amount which will compensate the
injured party for all the detriment proximately caused
thereby, whether it could have been anticipated or not.
Section 27-1-317, MCA.
In French v. Ralph E. Moore, Inc. (~ont.19831, 661 P.2d
844, 40 St.Rep. 481, we held that damages for mental anguish,
including emotional distress, are recoverable in a negligence
action. It is clear to us that the statutory allowance for
recovery of damages for all detriment proximately caused by
the insurer in this type of case would allow recovery for
amounts other than simply the amount of the excess judgment,
as for example, economic loss and emotional distress. See
Larraburu Brothers, Inc. v. Royal Indemnity Company (9th cir.
1979), 604 F.2d 1208; Crisci, supra.
The District Court in this case properly instructed the
jury with respect to compensatory damages, including
cautionary instructions. It told the jury that it could
determine the amount of damages from the evidence presented
pursuant to the instructions; that it could consider
reasonable compensation for any embarrassment, fears,
anxiety, and other emotional distress suffered by Gibson and
for similar future distress reasonably certain; that no
definite standard or method of calculation is prescribed by
1-aw for fixing damages for emotional distress, but that the
jury should exercise calm and reasonable judgment in fixing
the same; that damages in all cases must be reasonable; and
that mere speculation cannot be a ba.sis for recovery.
There is no doubt that Gibson sustained $83,750 in
out-of-pocket damages. The remainder of the $250,000
compensatory award, Western contends, is based only on the
inconvenience and frustration of litigation, suffered by
Gibson, although Western recognizes that the trial
undoubtedly had an effect upon him.
Gibson testified that when the Frisnegger trial came on,
he was not ready for the publicity. He was despondent, angry
and felt betrayed when the large verdict was returned against
him. After the verdict, only four or five physicians in the
Kalispell area expressed any regret to Gibson. Some
optometrists or physicians discontinued referrals to Gibson.
As a result of the lack of support from his peers, his
professional enthusiasm lessened.
Mrs. Gibson testified that her husband was very
"uptight" following the damage to Frisnegger's eye. As the
trial approached, he became tense, could not sleep and was
not patient with the children. After the trial, he was
depressed and lacked energy and this affected their marital
relationship. Professional counseling was sought, but the
problems resolved themselves.
Recently we permitted the recovery of damages for mental
anguish in wrongful death cases. Dawson v. Hill & Hill Truck
Lines (Mont. 1983), 671 P.2d 589, 40 St.Rep. 1689. Emotional
or mental distress is an aggravation of damages when it
naturally follows from a tort. When emotional distress is a
factor in the detriment sustained, there is no reason why an
award for such damages may not be given by a jury. There is
no precise yardstick by which an appellate court can measure
the propriety of a jury award for such damages.
The mental distress of a professional person fearing
that his professional reputation has been damaged, and the
stress of disruption of his home and professional life are
elements for a jury to measure, seeing the witnesses and
hearing the evidence. Here the evidence and testimony
relating to emotional distress were straightforward. No
attempt was made to expand the record for purposes of gaining
sympathy for Gibson or creating passion against Western. The
district judge saw no reason to grant a new trial on this
ground. We see no abuse of discretion and find no reason to
disturb the decision of the jury on its award of compensatory
damages.

Punitive Damages; Sufficiency - - Evidence - Support
of the to
Punitive Damaaes
The jury awarded $300,000 in punitive damages against
Western and. in favor of Gibson. Western recognizes that we
have recently held that punitive damages may be assessed in
an insurance bad faith case, Lipinski v. Title Insurance
Company (Mont. 1982), 655 P.2d 970, 39 St.Rep. 2283, but
argues that here the punitive award is unsupportable.
The main thrust of Western's contention on this issue is
that there is in the evidence no showing of an intentional
wrongdoing or a desire to injury Gibson, nor any illegal
withholding of the benefits of his malpractice policy. They
contend that the a.ctions of the company claims managers and
of its counsel do not show the requisite in.tent to harass or
harm, nor the unjustifi-able or reckless conduct needed to
sustain an award of punitive damages. They contend that
affirmance of the punitive damages award will be a message to
the insurance industry that they may not rely on the best
efforts of experienced trial counsel and adjusters and should
they refuse a demand within policy limits, they face the
specter of six figure exemplary damages, regardless of the
character of the conduct.
 Gibson, on the other hand, contends that Western
unreasonably failed to investigate, evaluate or negotiate the
claim in good faith or properly to prepare for trial; and
that Western intentionally failed to disclose matters of
material interest to its insured, including the offer to file
the case in another county and the failure to discl-ose the
fact that it had placed a valuation of $45,000 on the case
which was never offered for settlement.
In First Security Bank v. Goddard (1979), 1.81Mont. 407,
423, 593 P.2d 1040, 1049, we said:
". . . The office of an award of exemplary damages
is to punish the defendant for malicious and
wrongful acts, be the malice actual or presumed,
where the defendant should suffer some additional
penalty for the wrongful conduct and where the
exemplary damages will serve as a warning to others
and as a deterrent and. punishment to the
defendant."
Exemplary damages are allowed where the defendant has
been guilty of oppression, fraud or malice, actual or
presumed. Section 27-1-221, MCA. We have defined presumed
malice to include unjustifiabl-e conduct. Goddard, supra.
Recently in Owens v. Pa.rker Drilling Company (Mont. 1984),
676 P.2d 162, 164-65, 41 St.Rep. 66, 69, we explained the
term "unjustifiable" saying:
"When a person knows or has reason to know of facts
which create a high degree of risk of harm to the
substantial interests of another, and either
deliberately proceeds to act in conscious disregard
of or indifference to that risk, or recklessly
proceeds in unreasonable disregard of or
indifference to that risk, his conduct meets the
standard of willful, wanton, and/or reckless to
which the law of this state will all-ow imposition
of punitive damages on the basis of presumed
malice.
"This standard is more definitive and perhaps more
stringent than those of the past. Certainly the
'unjustified conduct' measure was extremely broad
and difficult to apply. We also emphasize that
substantial interests must be implicated so that an
intentional or reckless disregard of duties that do
 not protect substantial interests, does not give
rise to punitive damages. The standard, in
substance, is supported by Restatement of the Law,
Torts 2d section 500, comment a."
The instructions show that the court was careful to
state that punitive damages are extraordinary and shall be
given only when the conduct of the defendant deserves such
special treatment; that a plaintiff is never entitled to
punitive damages as a matter of right; and that the acts
complained of must not only be unlawful, but must also
partake somewhat of a wanton nature.
From the testimony in this case the jury could have
found that Western was at least recklessly indifferent to the
risk to which it was putting Gibson so that consideration of
punitive damages was a proper issue to submit to the jury.
We find no reason to state that as a matter of law punitive
damages should not have been awarded in this case.
Western raised in the District Court the question of
whether the punitive damages were excessive. That same
question is not presented directly here al-though Western
submits that the punitive damage award should be "properly
vacated or significantly reduced to an amount more in keeping
with its function . . ."
To perform its office as a deterrent, punitive damages
when awarded should be of such a significant amount as will
serve the office of deterrence by punishing the defendant and
as will warn others. Thus the wealth of a defendant is a
fact in issue where punitive damages are involved. An
exhibit in this case shows that Western's net worth or
surplus in 1981 was $122,198,665. Its annual net income for
1981 was $13,962,915 after taxes. In those circumstances an
award of $300,000 punitive damages is not enough to shock the
conscience.
IV.
Concealment - Material Facts
of & - Fiduciary; Instructional
a
Error
The final issue raised. by Western on a.ppea1 was whether
the trial court erred in giving its court's instruction no. 7
as follows:
"An insurance company is subject to liability for
bad faith if it intentionally conceals material
facts within its knowledge and not known by its
insured. I
'
Western contends that the instruction was taken from
pattern instructions on fraud and that to insert the term
"bad faith" for the term "fraud" takes the instruction out of
context. Western further contends that failure of
communication is not a part of the disclosure requirements of
Jessen, supra.
The first interrogatory given to the jury was "Did
defendant act in ba.d faith toward Plaintiff in the prior
case?" Western contends that on the strength of instruction
no. 7, the jury was mandated to answer the question in the
affirmative.
Western also contends that instruction no. 7 led to the
award of punitive damages because of court's instruction no.
31 which stated:
"Punitive damages may be awarded to an insured for
breach of duty owed to its' insured. If it is
found that Western Fire Insurance Company acted in
bad faith, punitive damages may be awarded
independent of breach of contract and independent
of violation of statute."
Gibson responds that the fiduciary relationship imposes
a duty upon the fiduciary to speak ra-ther than remain silent
and to disclose information to the beneficiary with whom he
is dealing so as to place the beneficiary on an equal footing
with the fiduciary. Lyle v. Moore (1979), 183 Mont. 274, 599
P.2d 336.
The duty of a fiduciary to his beneficiary is no less
than that of a trustee. The fiduciary, as 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. Section 72-20-201, MCA.
Court's instruction no. 7 must be read in the light of that
duty. It is therefore not error to inform the jury that an
insurance company which "intentionally" conceals material
facts within its knowledge and not known by its insured may
be found in bad faith. Jessen, supra. The facts which are
concealed must be material to the subject of the trust or the
duty of the fiduciary, as the instruction stated.
Western does not contend that instruction no. 31 itself
is a misstatement of the law. Rather it contends that
instruction no. 31 coupled with instruction no. 7 mandated
the punitive damage award.
Instruction no. 31, however, was not the sole
instruction given to the jury on the subject of punitive
damages. We have already quoted in this opinion excerpts
from some of those instructions. Instructions should be
weighed as a whole, and no District Court may be reversed
where the instructions, read one with another, and in context
with each other, fully define the issues involved, including
dama.ges. We find no error in the instructions on punitive
damages when read as a whole.

The judgment of the District Court is affirmed in all
respects.

Justice
\

We Concur:

~ L d.&d&&Q<
d
Chief Justice

a

Hon. Gordon Bennett,
District Judge, Sitting
for Mr. Justice Frank B.
Morrison