Harrell v. Travelers Indemnity Co.

567 P.2d 1013, 279 Or. 199, 1977 Ore. LEXIS 811

• Court: Oregon Supreme Court
• Decided: July 20, 1977
• Docket: TC 7344, SC 24627
• Status: Published

Opinions

TONGUE, J.

This is an action to collect from an insurance company a judgment of $25,000 in punitive damages entered against defendant’s insured for reckless driving. Plaintiff appeals from a trial court decision on stipulated facts that defendant insurance company is not liable.

Plaintiff was injured in a collision with an automobile driven by defendant’s insured, Mrs. Linnie Ames. The jury returned verdicts against Mrs. Ames for $70,000 in compensatory damages and $25,000 in punitive damages. The award of punitive damages, based on evidence that defendant’s insured had been guilty of reckless driving after drinking, was affirmed by this court, Harrell v. Ames, 265 Or 183, 508 P2d 211, 65 ALR3d 649 (1973).

Defendant paid plaintiff the $70,000 in compensatory damages, but not the $25,000 in punitive damages.¹ Defendant’s insured assigned to plaintiff all rights against defendant. The trial court upheld the assignment and plaintiff’s right to sue. It concluded, however, that the insurance policy did not cover punitive damages, for two reasons: (1) that the "language” of the insurance policy "does not provide coverage for punitive damages,” and (2) that such coverage would be "contrary to the expressed Oregon public policy.”

1. The insurance policy does not exclude liability for punitive damages.

The insurance policy was issued by defendant to South Coast Lumber Co., an Oregon corporation, and is over 70 unnumbered pages in length, including numerous endorsements. The "named insured,” in addition to that corporation, includes, among others, "C. V. Ames,” husband of Mrs. Ames, and provides that

"* * * Whenever the named insured also includes individually named insureds, the spouses of such individually named insureds are included if members of the same household.” ¡

On a page entitled "Comprehensive Automobile Liability Insurance Coverage Part” it is provided, among other things, that:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * * bodily injury * * * to which this insurance applies, caused by an occurrence and arising out of the ownership, maintenance or use * * * of any automobile * * *.” (Emphasis theirs)

The policy then immediately goes on to state five paragraphs of "exclusions,” none of which are claimed to exclude liability for punitive damages.

It is contended on behalf of defendant insurance company that "the only reasonable construction of this policy language and coverage involved in this case” is that "the clear intent of the policy was to provide coverage for compensatory damages resulting from bodily injury” and that "since punitive damages are in no sense compensatory” (but are "awarded only as a deterrent to the violation of a societal interest”) they are not considered within the coverage. In support of this contention defendant cites Noe v. Kaiser Foundation Hosp., 248 Or 420, 425, 435 P2d 306 (1967), as holding that the purpose of punitive damages in Oregon is "deterrence,” and the Missouri case of Crull v. Gleb, 382 SW2d 17 (Mo App 1964), as holding (at 23) that such a policy covers only "damages for bodily injury” and that "[p]unitive damages do not fall in this category.”

It would appear, however, that the majority of courts hold to the contrary. As an example of the reasoning of such courts, it was stated in Norfolk & W. Ry. Co. v. Hartford Acc. & Indent. Co., 420 F Supp 92, 94 n.1 (ND Ind 1976), that:

"Of course, a threshold question may be posed, whether the language of the insurance contract admits of a construction which allows coverage for punitive damages. The contract covers \'all sums which the insured shall become legally obligated to pay. ’ The contract’s explanation of the term 'damages’ is that it 'includes’ certain items, namely, that it 'includes damages for death [etc.].’ The explanation does not attempt to be all-inclusive, and it is in any event a circular definition. The contract nowhere mentions punitive damages, although it was within Hartford’s power to exclude such coverage. The policy unambiguously covers 'all sums. ’ Punitive damages are a form of damages; when liquidated by judgment, they are a 'sum. ’Thus, this contract does not even present such an ambiguity as would call into play the rule that ambiguities in insurance contracts should be resolved in favor of the insured.” (Emphasis added)²

As also stated in 7 Appleman, Insurance Law and Practice 132, § 4312 (1962):

"* * * [j]t js ciear that the average insured contemplates protection against claims of any character caused by his operation of an automobile, not intentionally inflicted. When so many states have guest statutes in which the test of liability is made to depend upon wilful and wanton conduct, or when courts, in an effort to get away from contributory negligence of the plaintiff, permit a jury to find a defendant guilty of wilful and wanton conduct where the acts would clearly not fall within the common law definitions of those terms, the insured expects, and rightfully so, that his liability under those circumstances will be protected by his automobile liability policy.” -

and (at 136):

"Of course, a policy could expressly exclude liability arising from wilful and wanton acts * * i

and also (at 86) Supp (1972):

"In any event a Court should not aid an insurer which failed to exclude liability for punitive damages.* * *”

Although this court has not previously decided this precise question, we believe that the reasoning as stated by these authorities is in accord with the reasoning adopted by this court in other cases involving the interpretation of insurance policies. Thus, in Chalmers v. Oregon Auto Ins. Co., 262 Or 504, 508-09, 500 P2d 258 (1972), we restated the effect of such cases as follows:

"* * * [Although an insurance company is ordinarily entitled to the enforcement of an insurance policy as written by the company if its terms are clear and unambiguous, in the event of an ambiguity in the terms of an insurance policy, any reasonable doubt will be resolved against the insurance company and in favor of extending coverage to the insured. * * * i

"* * * [W]hile the primary rule of contract interpretation, including insurance contracts, is to ascertain the intent of the parties, if possible, it is nevertheless established in Oregon that when a policy of insurance is ambiguous it 'should be construed * * * in the sense in which the insured had reason to suppose it was understood.’ (Citing cases)”

Upon the application of these rules to the provisions of this insurance policy, we hold that such provisions were ambiguous, at the least, so as to require the resolution of any reasonable doubts against the insurance company; that upon reading the policy provisions as set forth above, and in the absence of any express exclusion of liability for punitive damages, a person insured by such a policy would have reason to suppose that he would be protected against liability for "all sums” which the insured might become "legally obligated to pay” and that the term "damages” would include all damages, including punitive damages which became, by judgment, a "sum” that he became "legally obligated to pay.”

Defendant insurance company could have removed this ambiguity easily by including an express exclusion from liability for punitive damages, but apparently chose not to do so. As stated by Appleman, supra (at 86 Supp), "there is nothing in the insuring clause that would forewarn an insured that such was to be the intent of the parties,” if indeed, such was the intent of the insurance company.

2. The provision of this insurance contract under which defendant undertook to provide protection from liability for punitive damages is not void as against public policy.

Defendant next contends that if even the provisions of its policy be construed so as to impose liability for punitive damages, such provisions would then be invalid as contrary to the public policy of Oregon to the effect that the sole purpose of punitive damages in Oregon is to act as "a punishment and deterrent for anti-social conduct” and that "to do otherwise would result in the diminishment of punitive damages as a deterrent.”

In support of that contention defendant states that "this is a case of first impression in Oregon” on this question and then cites an Annotation in 20 ALR3d at 343 (1968), which (according to defendant) indicates a clear split of authority among other courts.

(a) "Public policy” as a basis for a declaration by a court that an existing contract is void.

It is important to bear in mind at the outset that this case does not involve the application of any settled and established rule of contract "public policy,” but the adoption in Oregon of a proposed new rule of "public policy” under which both existing and future insurance contracts which undertake to provide protection from liability for punitive damages would be held to be invalid.

It has been said of "public policy” as a ground for invalidation by the courts of private contracts that "those two alliterative words are often used as if they had a magic quality and were self-explanatory * * *”³ and that for a court to undertake to invalidate private contracts upon the ground of "public policy” is to mount "a very unruly horse, and when you once get astride it you never know where it will carry ¡you.”⁴

In Eldridge et al v. Johnston, 195 Or 379, 405, 245 P2d 239 (1952), we said:

"In considering the contract executed by defendant, we are confronted with more than one principle of public policy. It is elementary that public policy requires that men of full age and competent understanding shall have the utmost liberty of contracting, and that their contracts, when entered into freely and voluntarily, shall be held sacred and shall be enforced by courts of justice, and it is only when some other over-powering rule of public policy, such as the rule against perpetuities, intervenes, rendering such agreement illegal, that it will!not be enforced. * * *”⁵ (Emphasis added)

As a test to be applied in determining whether a contract should be held invalid as contrary to ¡public policy, this court, in Pyle v. Kernan, 148 Or 666, 673-74, 36 P2d 580 (1934), held that:

" '* * * The test is the evil tendency of the contract and not its actual injury to the public in a particular instance.’ * * *” (Citing numerous authorities) (Emphasis added)

Applying this test to contracts of insurance it is stated in 6A Corbin on Contracts 587-88, § 1471 (1962), that:

"Liability insurance policies, taken out by employers, owners of automobiles, and others, are contracts for indemnity against consequences of tortious negligence on the part of servants and employees. Such contracts are not made illegal by the fact that they provide for indemnity against consequences of the negligent conduct of the employer or owner himself It is not believed that harmful negligence is made more probable by such indemnification: * * (Emphasis added)

In Isenhart v. General Casualty Co., 233 Or 49, 52-53, 377 P2d 26 (1962), we held that:

"It is generally held that it is contrary to public policy to indemnify the insured for losses arising out of his commission of an intentional act which causes damage to another. * * *” (Emphasis added)

and that

"A contract to indemnify the insured for damages he is forced to pay as a result of an intentionally inflicted injury upon another should not be regarded as contrary to public policy unless the fact of insurance coverage can be related in some substantial way to the commission of wrongful acts of that character. * * *” (Emphasis added)

See also Ferguson v. Birmingham Fire Ins., 254 Or 496, 506, 460 P2d 342 (1969).

This case, however, does not involve an "intentionally inflicted injury,” as in Isenhart, but conduct claimed to have been "reckless.” It has long been recognized that there is no empirical evidence that contracts of insurance to protect against liability for negligent conduct are invalid, as a matter of public policy, because of any "evil tendency” to make negligent conduct "more probable” or because there is any "substantial relationship” between the fact of insurance and such negligent conduct. Neither is there any such evidence that contracts of insurance to protect against liability for punitive damages have such an "evil tendency” to make reckless conduct "more probable” or that there is any "substantial relationship” between the fact of such insurance and such misconduct. Conversely, neither is there any such evidence that to invalidate insurance contract provisions to protect against liability for punitive damages on grounds of public policy would have any substantial "tendency” to make such conduct "less probable,” i.e., that to do so would have any "deterrent effect” whatever upon such conduct.⁶ ¡

To the same effect, it was observed in a concurring opinion in Lazenby v. Universal Underwriters Ins. Co., 214 Tenn 639, 652, 383 SW2d 1, 7 (1964), one of the leading cases holding that a contract of insurance against liability for punitive damages is not invalid or contrary to public policy, in rejecting the contention that such insurance would "result in increased recklessness,” that

"In the early years of the casualty insurance business it was argued by some that by allowing one to insure against his own negligent acts that carelessness would be encouraged, resulting in increased injuriés and deaths on the highways. * * *”

As also stated in Lazenby (at 5):

"* * * [T]o say the closing of the insurance market.in the payment of punitive damages, would act to deter guilty drivers would in our opinion contain some element of speculation.”

To the same effect, as observed in Price v. Hartford Accident and Indemnity Company, 108 Ariz 485, 502 P2d 522, 524 (1972):

"* * * [Tjhere is no evidence that those states which deny coverage [for liability against punitive damages] have accomplished any appreciable effect on the slaughter on their highways. * * *”

(b) The scope of conduct subject to punitive damages.

In considering whether this court should hold that an insurance contract between an automobile owner and an insurance company to provide protection from liability for punitive damages is invalid as contrary to the public policy of the State of Oregon, this court must also consider the results that must then follow once this court has "mounted the unruly horse” of "public policy.”

If it were true that a person only becomes liable for punitive damages upon engaging in an "intentionally inflicted injury upon another,” as under the rule of public policy stated by that court in Isenhart v. General Casualty Co., supra, the results flowing from the rule proposed by defendant and as adopted by the trial court would not be so far reaching. That proposed rule, however, is not so limited, but would hold that a contract of insurance against liability for punitive damages is invalid per se as a contract contrary to public policy, i.e., as applied to a judgment for punitive damages based upon any conduct for which punitive damages may properly be awarded.

This court held in Starkweather v. Shaffer, 262 Or 198, 207, 497 P2d 358 (1972), that "[pjunitive damages are recoverable” in Oregon in all cases in which

"* * * violation of societal interests is sufficiently great and the conduct involved is of a kind that sanctions would tend to prevent.”⁷

Indeed, this court has held that even "gross negligence” may provide a proper basis for an award of punitive damages.⁸ It necessarily follows that if the rule proposed by defendant were adopted, the conduct subject to possible liability for punitive damages, and which could no longer be the subject of protection by a valid contract of insurance, would include a wide spectrum of conduct that would impose liability not only upon automobile drivers, but also upon business and professional persons, firms and corporations, as well as upon ordinary persons when engaged in a wide variety of activities. As examples:

(1) A physician whose treatment of a patient is such that a jury could properly find that it was "grossly negligent” may be held liable for punitive damages — a liability for which protection by insurance would no longer be available.⁹

(2) Any creditor who has occasion to repossess personal property pledged as security for an unpaid debt may be subject to the same uninsurable liability for punitive damages if his conduct is such that a jury may properly find that he acted with "improper motives” and in "utter disregard” of plaintiff’s rights, even though the defendant exercised what he believed to be a legal right.¹⁰ I

(3) The owner of a retail store who causes the arrest and prosecution of a suspected shoplifter under circumstances not sufficient to constitute "probable cause” may also have an uninsurable liability for punitive damages because the jury may make a finding of malice based upon lack of probable cause.¹¹

(4) One whose business involves the operation of a plant which emits smoke, fumes or "particulates” may also have an uninsurable liability for punitive damages, even in the absence of any "wanton” or "fraudulent” conduct, upon the ground that he has "intentionally” permitted fumes, smoke or particles to be released and blown by the wind upon another’s property, for the reason that "[t]he intentional disregard of the interest of another is the legal equivalent of legal malice and justifies punitive damages for trespass.”¹²

(5) The operator of a retail store who sells any goods in a package which bears representation which he "knows” or " should know” to be "false or misleading’ or who engages in any practice which he "knows” or "should know” to be "unfair or deceptive” contrary to the provisions of the Oregon Unlawful Trade Practices Act, may also be subject to an uninsurable liability for punitive damages.¹³

Under the rule proposed by the defendant, and as held by the trial court, even though the risks involved in each of these examples were of such a nature as to be encountered in the operation of such business or professions, and the conduct involved did not involve "intentionally inflicted injury,” any contract with an insurance company to provide protection against the risk of punitive damages as the result of such conduct would become invalid as a matter of "public policy,” regardless of whether the insurance contract was negotiated upon payment of an additional premium for protection against such liability.

In the well-recognized and often-cited article by Hodel, Exemplary Damages in Oregon, 44 Or L Rev 175 (1965), the conclusion is reached (at 240), after a review of the decisions by this court, that although it may be proper not to permit insurance coverage for punitive damages "if nothing less than wanton misconduct will support an award of [punitive] damages,” the "reason for the prohibition of such insurance ceases to exist” when no more than gross negligence is held to be sufficient for such an award.

This is in accord with the view as stated in the concurring opinion in Lazenby v. Universal Underwriters Ins. Co., supra, at 7 that: '

"The line of demarcation between the allowance of punitive damages and compensatory only is too thin and exacting in my opinion to apply [insurance] coverage in the one case and deny coverage in the other. * * *”¹⁴

(c) The "shift of the burden” argument.

The case on which defendant places its principal reliance as the one case which "most clearly and forcefully” states its position is Northwestern National Casualty Company v. McNulty, 307 F2d 432 (5th Cir 1962), in which that court reasoned (at 440-41) as follows: !

"The policy considerations in a state where, as in Florida and Virginia [and Oregon], punitive damages are awarded for punishment and deterrence, would seem to require that the damages rest ultimately as well [as] nominally on the party actually responsible for the wrong. If that person were permitted to shift the burden to an insurance company, punitive damages would serve no useful purpose. Such damages do not compensate the plaintiff for his injury, since compensatory damages already have made the plaintiff whole. And there is no point in punishing the insurance company; it has done no wrong. In actual fact, of course, and considering the extent to which the public is insured, the burden would ultimately come to rest not on the insurance companies but on the public, since the added liability to the insurance companies would be passed along to the premium payers. Society would then be punishirlg itself for the wrong committed by the insured!' (Emphasis added)

In our view, it is naive at least, if not pure fiction, to hold that an insurance contract against liability for punitive damages is invalid as contrary to public policy because such a contract would "shift the burden” to an insurance company so as to either "punish” it or have it pass that burden "on [to] the public,” so as to "punish society.”

On the contrary, an insurance company which deliberately enters into a contract to provide coverage against liability for punitive damages is free to charge either a separate or additional premium for that risk. Conversely, if an insurance contract excludes coverage for liability against punitive damages no such additional premium need be charged and the insurance company may charge a lower premium for such a policy.

Thus, in the event that an insured who has a contract of insurance which includes coverage for punitive damages incurs a judgment for punitive damages, he does not "shift the burden” of that judgment to an unsuspecting insurance company so as to "punish it” and, through it, to "punish society.” Instead, he and others desiring to contract for that additional coverage have presumably paid additional premiums for such coverage, so as to provide a separate fund of moneys collected by the insurance company for the express purpose of paying such judgments, without "punishment” to either the insurance company or "society.”

It follows, in our opinion, that the reasoning upon which the McNulty opinion is based (as adopted by defendant) is fallacious. At the least, that reasoning fails, in our opinion, to provide a clear and "overpowering” rule of public policy, as is required before this court can properly interfere with the freedom of private parties in the negotiations of the terms of a contract upon the ground of "public policy.”¹⁵

(d) Vicarious liability.

Defendant would distinguish some of the cases relied upon by plaintiff upon the ground that they involve vicarious liability for punitive damages. Thus, defendant suggests that insurance contracts by corporations and other employers for protection against vicarious liability may not be contrary to public policy because an award of punitive damages against such a defendant, rather than against the person guilty of the misconduct, would not act as a deterrent, while an insurance contract by a person, firm or corporation for protection against punitive damages resulting from his or its own conduct would be invalid as against public policy because of the deterrent effect of a judgment for punitive damages as against such a defendant.

What the defendant fails to say, however, is that under the decisions by this court the basis for the imposition of vicarious liability for punitive dsLmages upon a corporation or other employer is also one of deterrence — i.e., the deterrent effect upon an employer of an award of punitive damages by encouraging him to exercise closer control over his employees.¹⁶

It is significant to note, however, that when liability for a judgment of punitive damages is imposed upon a large corporation, or even upon an individual business or professional person with a profitable and well-established business or profession, the financial "burden” of such a judgment is then usually "shifted,” if not to an insurance company, then to the public in the form of its customers or consumers. Thus, there would be the same "shifting of the burden” which provides a primary basis for the rule as proposed by the defendant, as previously noted.¹⁷ On the other hand, unless an individual business or professional person who is less well-established or affluent can insure against such liability, it may not be possible for him to so "shift” the burden of a judgment for punitive damages, depending upon its size. Indeed, for such a person a large judgment for punitive damages may well be a permanent financial disaster because such a judgment is not dischargeable in bankruptcy.¹⁸

The result of such a disparity may well be to encourage small businessmen to incorporate, so as to be able to protect themselves against such a financial disaster by having the corporation purchase insurance against punitive damages. Indeed, it is of interest to note that the insurance policy in this case was one issued to a lumber corporation and also named as an "insured” the husband of the defendant whose reckless conduct resulted in the judgment for punitive damages involved in this case.

Under the rule proposed by the defendant and adopted by the trial court, however, such possible protection would not be available to a professional person or wage earner or to a housewife or retired person, who might well be ruined financially by a judgment for punitive damages as the result of conduct of no more flagrancy than an act of "gross negligence,” a momentary "reckless” act, or conduct "contrary to societal interests.”

Summary.

There may be other alternatives that would be preferable to the present state of the law in Oregon on the subject of punitive damages, such as: i

(1) The complete elimination of punitive damages;

(2) Some limitation upon the amount of awards for punitive damages; ¡

(3) A limitation of liability for punitive damages to flagrant misconduct, such as intentionally inflicted injury. ¡

Some of these possible alternatives might more appropriately be considered by the legislature, rather than by the courts. In any event, none of them are proposed by either party to this case and we do not think it appropriate to consider any of them in this case.

It may also develop that insurance companies will refuse to insure for punitive damages and will make this clear by policy provisions setting forth specific exclusions for such liability. But as long as insurance companies are willing, for a price, to contract for insurance to provide protection against liability for punitive damages to persons or corporations deemed by them to be "good risks” for such coverage, and as long as liability for punitive damages continues to be extended to "gross negligence,” "recklessness,” and for other conduct, "contrary to societal interests,” we are in agreement with those authorities which hold that insurance contracts providing protection against such liability should not be held by courts to be vbid as against public policy.¹⁹

It is one thing for an insurance company to write a policy with provisions which exclude liability for punitive damages and to ask that this court construe and apply such policy provisions. It is quite another thing, however, for an insurance company which has written and issued an insurance policy in terms which include coverage for punitive damages — presumably at a premium which the insurance company believed to be sufficient as consideration for such coverage — to ask this court to relieve it from such liability under its own insurance contract by a judicial declaration that the contract is void for reasons of "public policy.”²⁰

When we are called upon to weigh all of the various factors and conflicting argument, as we must do in arriving at a decision whether there are "overpowering” reasons why any contract should be held invalid as contrary to public policy, we find ourselves in agreement with the conclusion reached by Hodel, supra, as previously noted,²¹ and with those courts which have declined to rule that a contract of linsurance to provide protection from liability for punitive damages is, ipso facto, invalid for reasons of "public policy.”

For all of these reasons the judgment of the trial court is reversed and the case is remanded with instructions to enter judgment against defendant in the sum of $25,000, representing the amount of the judgment for punitive damages against defendant’s insured, and for other appropriate proceedings not inconsistent with this opinion.²²

1 At the time plaintiff brought suit against defendant’s insured, defendant undertook defense of the case under a reservation of rights denying any coverage for that portion of the claim based on punitive damages.

2 Among other cases to the same effect, see Price v. Hartford Acc. & Indem. Co., 108 Ariz 485, 502 P2d 522, 523 (1972), and Abbie Uriguen Olds. Buick, Inc. v. United States F. I. Co., 95 Idaho 501, 511 P2d 783, 789 (1973); Concord General Mutual Insurance Company v. Hills, 345 P Supp 1090, 1095 (SD Maine 1972); United States Fidelity & Guaranty Co. v. Janich, 3 FRD 16, 19 (SD Calif 1943); Carroway v. Johnson, 245 SC 200, 139 SE2d 908, 910 (1965).

3 6A Corbin on Contracts 10, § 1375 (1962).

4 14 Williston on Contracts 7-8, § 1629 (3d ed 1972).

5 To the same effect, see Bliss v. Southern Pacific Co. et al, 212 Or 634, 646, 321 P2d 324 (1958), and 14 Williston, supra n. 4, at 11, § 1629, and 6A Corbin, supra n. 3, at 19, § 1373.

For further discussion of "judicial restraint in the use of public policy as a tool in the decision making process,” see Note, 47 Temple LQ 748, 751 and 758 (1974).

6 See Zuger, Insurance Coverage of Punitive Damages, 53 ND L Rev 239, 256 (1975).

7 See also Noe v. Kaiser Foundation Hosp., 248 Or 420, 435 P2d 306 (1967).

8 See Noe v. Kaiser Foundation Hosp., supran. 7, at 423, and cases cited therein.

9 See Noe v. Kaiser Foundation Hosp., supra n. 7, at 423, and cases cited therein. See also Hodel, Exemplary Damages in Oregon, 44 Or L Rev 175, 212-14 (1965).

10 Although the Oregon cases may not be entirely clear on this point, see: Pelton v. Gen. Motors Accept. Corp., 139 Or 198, 204, 7 P2d 263, 9 P2d 128 (1932), overruled on another point in Stroud v. Denny’s Restaurant, 271 Or 430, 532 P2d 790 (1975). See also Hodel, supra n. 9, at 223-25.

11 See Gustafson v. Payless Drug Stores, 269 Or 354, 366, 525 P2d 118 (1974); Fleet v. May Dept. Stores, Inc., 262 Or 592, 604-05, 500 P2d 1054 (1972).

12 McElwain v. Georgia-Pacific, 245 Or 247, 249, 421 P2d 957 (1966). See also Note, 46 Or L Rev 477 (1967).

13 See ORS 646.605, 646.608 and 646.638. See also Scott v. Western Int. Sales, Inc., 267 Or 512, 517 P2d 661 (1973).

14 As also observed by the concurring opinion in Lazenby v. Universal Underwriters Ins. Co., 214 Tenn 639, 652, 383 SW2d 1, 8 (1964):

"* * * [Rjegardless of how careful the operator may be, situations could and do arise where the jury would feel warranted on thd facts of the case in awarding punitive damages when another jury, on the same facts, would feel warranted in denying punitive damages.”

Indeed, this court has said, in all frankness, in Cook v. Kinzua Pine Mills Co. et al, 207 Or 34, 58, 293 P2d 717 (1956), that:

"The courts are constantly confused and frustrated by the overgenerous employment of adjectives in describing wrongful conduct, and the difficulty becomes well-nigh insurmountable when the attempt must be made to draw the line which marks the boundaries of different kinds of liability.”

15 See 14 Williston on Contracts 11, § 1629 (3d ed 1972); Eldridge et al v. Johnston, 195 Or 379, 405, 245 P2d 239 (1952), as previously quoted, and Bliss v. Southern Pacific Co. et al, 212 Or 634, 646, 321 P2d 324 (1958).

16 See Stroud v. Denny’s Restaurant, 271 Or 430, 434-37, 532 P2d 790 (1975).

17 As stated in Zuger, supra n.6, at 257:

"This raises another interesting point. Apparently the majority of courts find little difficulty on the public policy ground with the shifting of responsibility for punitive damages from the wrongdoer to the innocent employer. Yet, some of these same courts base their rejection of insurance coverage on the principle that responsibility for wrongful conduct ought not to be shifted from the original wrongdoer to an innocent party, namely the insurance company. * * *”

18 See 8 Remington on Bankruptcy 192, § 3328 (Henderson ed 1955), and 1976 Pocket Part 92-93.

19 As stated in the concurring opinion in Lazenby v. Universal Underwriters Ins. Co., 214 Tenn 639, 383 SW2d 1, 8 (1964):

"* * * [I]f the insurance industry feels that punitive damages protection should not be afforded under automobile liability policies, it can very easily make a provision in the exclusions section to that effect. Until this is done, I am of the opinion that the insured should receive the coverage sought to be denied in this case.”

Although, as stated by the defendant, the courts may be about equally divided on this question, there is some indication that the trend of the more recent cases is toward this view, Obler, Insurance for Punitive Damages: A Reevaluation, 28 Hastings LJ 431, 443 (Nov 1976). See also 7 Appleman, Insurance Law and Practice 1962 Supp 86, § 4312 (1972). See generally Prosser, Law of Torts 13, § 2 (4th ed 1971); 7 Appleman, supra, at 133, § 4312; and 15 Couch, Insurance 2d 700, § 56.27 (1966).

See also Note, 1 Will LJ 640, 645-56 (1961), and 7 Am Jin 2d, Automobile Insurance 538, § 196 (1963).

It is of interest to note that no other court in a western state has adopted the Northwestern National Casualty Company v. McNulty, 307 F2d 432, 440-41 (5th Cir 1962), view. The two western courts which have considered this question have expressly rejected that view and have adopted the view advocated by this opinion. See Price v. Hartford Accident and Indemnity Company, 108 Ariz 485, 502 P2d 522 (1972), and Abbie Uriguen Olds. Buick, Inc. v. United States F.I Co., 95 Idaho 501, 511 P2d 783, 789 (1973).

20 Cf. Lazenby v. Universal Underwriters Ins. Co., 214 Tenn 639, 383 SW2d 1, 5 (1964).

As also stated in Price v. Hartford Accident and Indemnity Company, 108 Ariz 485, 502 P2d 522, 525 (1972):

"On page 86 of the cumulative supplement to volume 7 of Appleman’s work, we find the following:

" 'In any event a court should not aid an insurer which fails to exclude liability for punitive damages. Surely there is nothing in the insuring clause that would forewarn an insured that such was to be the intent of the parties.’

"It is our holding that the premium has been paid and accepted and the protection has been tendered, and that under the circumstances public policy would be best served by requiring the insurance company to honor its obligation.”

21 See Hodel, Exemplary Damages in Oregon, 44 Or L Rev 175, 240 (1965), as quoted above.

22 It would serve no useful purpose to discuss the dissenting opinions in detail, including all of the statements with which we disagree. Suffice to say, that the essence of our disagreement arises from the fact that awards of punitive damages are not limited to wanton or intentional misconduct, but extend to conduct that is grossly negligent or reckless.

We would point out, however, that we have not overlooked our previous decision in Butler v. United Pacific Ins. Co., 265 Or 473, 509 P2d 1184 (1973), which, according to the principal dissent, adopts a "rationale [that] is equally applicable here.” We would point out that although some of the language in Butler lends support to the position of that dissent,¡ Butler involved the terms of a bond required by statute of all automobile dealers, rather than the terms of a contract of insurance as negotiated between private parties.

ORS 481.310 requires automobile dealers to have surety bonds under which any person who "suffers any loss or damages by reason of thp fraud * * * by a licensed dealer” shall have a right of action against both the dealer and also "against the surety on the bond.” Thus, this court did not hold in Butler that a contract of insurance was invalid as contrary to public policy. Indeed, it could not hold that a bond required by statute was contrary to public policy. Thus, the net effect of that decision was rilo more than to interpret the provisions of a statutory surety bond as not imposing liability upon a surety for a judgment of punitive damages against an automobile dealer.