Vernon Fire & Casualty Insurance Co. v. Sharp

349 N.E.2d 173, 264 Ind. 599, 1976 Ind. LEXIS 498

Opinions

Hunter, J.

*

Petitioners, Vernon Fire & Casualty Company and Great American Insurance Company, seek transfer from the decision of the Court of Appeals, 316 N.E.2d 381, affirming the judgment of the trial court in favor of their insured A. W. Sharp, d/b/a Columbus Wood Preserving Company. The judgment awarded compensatory damages based upon petitioners’ contracts to indemnify the insured for loss sustained by a fire which gutted his creosoting plant. The judgment also awarded punitive damages based upon the second and third paragraph of Sharp’s complaint, infra Part II, generally alleging tortious conduct on behalf of petitioners in dealing with their insured and in refusing to pay over the proceeds of the insurance contracts.

After hearing oral argument, the Court voted to grant transfer and my brother Justice Prentice agreed to prepare the Court’s opinion. Upon circulation of the proposed opinion, a majority of the Court concurred with that portion of the opinion which treated the issue of compensatory damages, but disagreed with the disposition of the punitive damages award, requiring another opinion to be written upon that issue. As set forth in Part I, but without quotation marks, the Court now adopts the opinion of Justice Prentice on the issue of compensatory damages.

I

Prentice, J.

Plaintiff (Appellee) was the owner of property destroyed in part and damaged in part by fire. Defendants (Appellants) are two insurance companies, each of which had written a policy (contract) of fire insurance upon the property. The evidence is not in dispute and consisted of stipulation and testimony from the plaintiff and his attorney.

The contracts of insurance had been issued by the same agency, and at the same time. Insofar as is pertinent to this litigation, the contracts were in identical form. The property insured was scheduled in the contracts and of the total value of $125,000.00, but the liability of the insurer under each policy was limited to $31,250.00 or twenty-five percent of the scheduled values.

The insuring agreement of each policy was as follows:

“IN CONSIDERATION OF THE PROVISIONS AND STIPULATIONS HEREIN OR ADDED HERETO AND OF the premium above specified, this Company, for the term of years specified above from inception date shown above at Noon (Standard Time) to expiration date shown above At Noon (Standard Time) at location of property involved, to an amount not exceeding the amount(s) above specified, does insure the insured named above and legal representatives, to the extent of the actual cash value of the property at the time of loss, but not exceeding the amount which it would cost to repair or replace * * (Emphasis ours.)

The amount of insurance provided and the property insured was designated in each policy as follows:

“This policy being for $81,250. covers its pro-rata proportion of and on the following amounts: (Emphasis ours.)

1. $ 3,000. On the one story, iron clad and frame Retort Room.

2. 65,000. 80% On contents of the one story, iron clad and frame Retort Room.

3. 4,000. On the concrete block, Creosote Oil Storage Tanks (Limits of Liability) ($1,000. per tank)

4. 15,000. On the one story, iron clad and frame Boiler Room and Storage (including boiler and appurtenances)

5. 1,000. On the steel Metal Stack.

6. 35,000. On contents of Material, principally lumber and ties in yard.

7. 1,000. 80% On contents of One story, frame Office building.

8. 500. On the one story, frame Laboratory Building.

9. 500. On contents of the one story, frame Laboratory Building.

$125,000 ”

The plaintiff’s business was under the management of one John Easter, who also had property of his own destroyed in the fire which occurred on June 7, 1971. Mr. Easter’s property was not scheduled in the contract, but he filed a claim with the defendants and their agent who had issued the contracts in question.

The plaintiff by his attorney, filed a formal proof of loss with the defendants’ adjusting representative upon each contract on August 16, 1971. Such action followed some informal negotiations between the adjuster and the plaintiff personally, the details of which are not disclosed, and from which the plaintiff had concluded that the defendants would refuse to pay his claim until the claim of Mr. Easter was settled. The proofs of loss were on forms provided by the adjuster to the plaintiff’s attorney on July 15, 1971. Completed and filed by the plaintiff, each such proof of loss was as follows:

“Total Insurance

THE TOTAL AMOUNT OF INSURANCE upon the property described by this policy was, at the time of the loss, $31,250.00, as more particularly speci- • fied in the apportionment attached, besides which there was no policy or other contract of insurance, written or oral, valid or invalid.

Value THE ACTUAL CASH VALUE of said property at the time of the loss was ______________________________$93,000.00

Loss THE WHOLE LOSS AND DAMAGE was ___________________ ______.$93,000.00

Amount Claimed THE AMOUNT CLAIMED under the above numbered policy is__$31,250.00”

The amount of the plaintiff’s loss by reason of the fire was $94,108.09 which was itemized as follows:

Retort Room $ 3,000.00

Retort Room contents 80% 65,000.00

Creosote Tank 4,000.00

Boiler 15,000.00

Materials, Lumber Ties, etc. 6,108.09

Laboratory Building 500.00

Laboratory Building contents 500.00

$94,108.09

From the foregoing, it is readily determined that the plaintiff’s loss as to some items was equal to the scheduled value. However, two items insured (a metal stack and office contents) of the total scheduled value of $2,000.00 were not damaged, and only $6,108.09 of the scheduled materials were destroyed or damaged. The plaintiff’s losses exceeded the amount of the insurance provided under the two contracts, and under “blanket” policies he would have been entitled to reimbursement for the stated policy limits of $31,250.00 upon each contract. However, these were not “blanket” policies but were “scheduled” policies, i.e. the property insured was separately scheduled and value in the contracts. The liability of the insurers under such policies is limited as to each scheduled item, and a portion applying to one item but unused may not be transferred to another item which was under-valued and thus under-insured.

“A distinction must be made between a policy which speaks in terms of a lump-sum obligation or value of the property and one which separately schedules different items of property. In the latter case, each separately treated item of property is in effect covered by a separate contract of insurance and the amount recoverable with respect to a loss affecting such property is determined independently of the other items of property.” COUCH ON INSURANCE, 2d Ed., §54.83.

To the same affect, also see CORPUS JURIS SECUNDUM, Insurance § 918 and cases there cited.

This distinction was recognized in Indiana in The Continental Insurance Company v. Chew, (1894) 11 Ind. App. 330, 38 N.E. 417.

In that case, the appellee had been awarded a judgment upon a contract which insured both a house and its contents. The judgment was for less than the total amount of the policy, but the court reversed saying:

“The policy provides for $450 insurance on the house, and $150 on the contents. Thus there was not a general or blanket policy of $600 on both house and contents, but separable contracts for insurance to the amount of $450 on the house, and $150 on the personalty. Nappanee Furniture Co. v. Vernon Ins. Co., 10 Ind. App. 319.

“There is also in the policy a provision that the company shall not be liable for an amount beyond the value of the interest of the assured in the property insured.

“It is conceded by counsel for the appellee that she owned but a one-third interest in the realty, and that consequently she was entitled to recover on account of the building, the value of which was $400, only the one-third thereof or $133.33.

“The amount of the recovery was $433.34. Counsel seek to justify this amount upon the theory that appellee is entitled to the full value of the personal property destroyed, which was shown to be $300.

“This position, however, can not be maintained, because she could not in any event recover on account of the loss of the personalty more than the amount of insurance distributed to it in the policy.” 11 Ind. App. 330, 333-34.

Where an aggregate amount of insurance is on separately valued items pro rata, the risk as to each item is to be determined by prorating the insurance according to the value of the different items. E. H. Stanton Co. v. Rochester German Underwriters Agency, D.C. Wash., 206 Fed. 978, Springfield Fire and Marine Insurance Co. v. Simmons, 184 Okla. 323, 87 P. 2d 941.

The total declared or “scheduled” value of the insured property was $125,000.00 and the amount of coverage under each policy was one-fourth of that value ($ 31,250.00 or one-$125,000.00 fourth), i.e. the ratio of the policy limits to the scheduled value. The prorating of insurance to value applied separately to each scheduled item, the same as would have been the case had the policy limits equaled the total scheduled value. The words “this policy * * * covers its pro rata portion * * *” was a clear expression of the limitation of the defendants’ risk to one-fourth of the scheduled values.

The defendants tendered their proposed final instruction No. 1 which, in effect, was a directed verdict in favor of the plaintiff for $23,527.02 against each defendant, such amount being one-fourth of the plaintiff’s loss. This instruction was refused.

The trial court erred in its denial of the defendants’ tendered instruction No. 1 for the reasons hereinbefore expressed. As a matter of law, the liability of each defendant was limited to $ 31,250.00 or one-fourth of the scheduled $125,000.00 value of each item listed in the contracts of insurance, and the portion of the coverage not utilized by reason of some of the properties having not been damaged was not applicable to increase the amount of coverage upon those items that were lost or damaged but under-insured. The plaintiff was insured under each contract only to the extent of one-fourth of the scheduled or declared value of each item of property scheduled. Continental Insurance Company v. Chew, supra.

There was no ambiguity in the contract with respect to the defendants’ limits of liability. There was confusion from which the trial court and the Court of Appeals apparently concluded that the defendants sought some relief by reason of the standard “pro rata clauses” found in another section in the insurance contracts, and plaintiff has, by his brief, kept this clause in the foreground. The Court of Appeals correctly stated the law with regard to such clauses, i.e. they do not come into play when the amount of the loss exceeds the face value of the contracts. The purpose of such clauses is to require pro rata contribution from all insurers when there are multiple contracts in effect at the time of the loss. The pro rata clauses were merely inapplicable in this case, but by no stretch of the imagination did they increase the amounts of insurance beyond the scheduled limits expressly provided.

II

Plaintiff-appellee sought punitive damages against defendants-appellants in the second and third paragraphs of his complaint. The second paragraph alleged:

“That said defendants have wrongfully breached said contracts of insurance and refuse to pay for the loss sustained by the plaintiff, and that said defendants have been guilty of bad faith in dealing with their insured, this plaintiff.”

The third paragraph alleged:

“That the said defendants have acted in an intentional and wanton manner in dealing with their insured, this plaintiff, and as a result thereof they have refused to pay this plaintiff the proceeds of said insurance.”

At the close of plaintiff’s evidence (which was also the close of all evidence), defendants-appellants moved for judgment on the evidence on these paragraphs. The trial court overruled the motion and appellants assign such action as error. There are no mystical considerations confronting a trial court faced with such a motion: the interpretation of Ind. R. Tr. P. 50 consistently has been that the motion must be denied where there is any evidence or legitimate inference therefrom tending to support at least one of the allegations. Where the evidence is such that the minds of reasonable men might differ, a directed verdict is improper, and the resolution of conflicting evidence is for the jury. Mamula v. Ford Mtr. Co., (1971) 150 Ind. App. 179, 275 N.E.2d 849.

A. STATEMENT ON THE LAW

The parties to this appeal have briefed the evidentiary question without concern for the legal basis upon which the award of punitive damages may rest. If there be no basis in law for this claim, it cannot matter how much evidence the jury had before it. The general rule, recognized in Indiana, Hibschman Pontiac, Inc. v. Batchelor, (1976) Ind. App., 340 N.E.2d 377, Standard Land Corp. v. Bogardus, (1972) 154 Ind. App. 283, 289 N.E.2d 803, and throughout the United States, 11 WILLISTON ON CONTRACTS § 1340 (W. Jaeger, 3d ed. 1968), is that punitive damages are not recoverable in contract actions. In most contract situations, the rule is a fair one, considering the nature of the interest to be protected. As Dean Prosser notes:

“Contract actions are created to protect the interest in having promises performed. Contract obligations are imposed because of conduct of the parties manifesting consent, and are owed only to the specific individuals named in the contract. Even as to these individuals, the damages recoverable for a breach of the contract duty are limited to those reasonably within the contemplation of the defendant when the contract was made, while in a tort action a much broader measure of damages is applied.” Prosser, LAW OF TORTS, 613 (4th ed. 1971).

The well-defined parameters of compensatory and consequential damages which may be assessed against a promisor who decides for whatever reason not to live up to his bargain lend a needed measure of stability and predictability to the free enterprise system. Thus, a promisor’s motive for breaching his contract is generally regarded as irrelevant, Pirchio v. Noecker, (1948) 226 Ind. 622, 82 N.E.2d 838, because the promisee will be compensated for all damages proximately resulting from the promisor’s breach, Cincinnati & Chi. Air Line R. R. v. Rodgers, (1865) 24 Ind. 103. Where the facts surrounding the promisor’s breach indicate sub-standard business conduct, the promisee may also enjoy a limited sense of requital in taking his business elsewhere in the future, but he is not entitled to mulct the promisor in punitive damages.

The general rule is not ironclad. Exceptions have developed where the conduct of the breaching party not only amounts to a breach of the contract, but also independently establishes the elements of a common-law tort such as fraud. Murphy Auto Sales, Inc. v. Coomer, (1953) 123 Ind. App. 709, 112 N.E.2d 589. The requirement that an independent tort be found serves several purposes. First, it maintains the symmetry of the general rule of not allowing punitive damages in contract actions, because the punitive damages are awarded for the tort, not on the contract. Secondly, the independent tort requirement facilitates judicial review of the evidence by limiting the scope of review to a search for the elements of the tort. Neither of these functions of the independence requirement is very compelling when it appears from the evidence as a whole that a serious wrong, tortious in nature, has been committed, but the wrong does not conveniently fit the confines of a pre-determined tort. The foregoing circumstances alone, however, will not sustain the award of punitive damages. It must also appear that the public interest will be served by the deterrent effect punitive damages will have upon future conduct of the wrongdoer and parties similarly situated. Only when these factors coalesce, will the independent tort requirement be abrogated, and the allowance of punitive damages be sustained. A careful review of the case law in this area leads to the conclusion expressed herein, that an independent tort need not always be established, and the same conclusion is reached in Corbin’s treatise:

. “It can be laid down as a general rule that punitive damages are not recoverable for breach of contract, although in certain classes of cases, there has been a tendency to instruct the jury that they may award damages in excess of compensation and by way of punishment. These cases, however, are cases that contain elements that enable the court to regard them as falling within the field of tort or as closely analogous thereto.” 5 CORBIN ON CONTRACTS § 1077 (1964) [Emphasis added, footnotes omitted].

The standard for awarding punitive damages is necessarily a flexible one. Indiana case law follows Sedgwick’s formulation which appears in Taber v. Hutson, (1854) 5 Ind. 322, 324:

“[W]henever the elements of fraud, malice, gross negligence or oppression mingle in the controversy, the law, instead of adhering to the system or even the language of compensation, adopts a wholly different rule. It permits the jury to give what it terms punitory, vindictive, or exemplary damages; in other words, it blends together the interest of society and of the aggrieved individual, and gives damages not only to recompense the sufferer, but to punish the offender.” [Emphasis added.]

Sedgwick’s recognition that the lines between contract and tort often become blurred is aptly demonstrated by his choice of the word “mingle” in describing the presence of tortious activity which accompanies the breach of contract. This formulation clearly recognizes that an independent tort is not a prerequisite to the recovery of punitive damages, and we adhere to this standard as a wise one.

Appellants acknowledge the foregoing rule allowing punitive damages, but. maintain that their conduct in dealing with their insured reflects nothing more than a legitimate exercise of an insurer’s “right to disagree” as to the amount of recovery, citing Meridian Mutual Insurance Co. v. Mc-Mullen, (1972) 152 Ind. App. 141, 282 N.E.2d 558. It is evident that the exercise of this right may directly result in the intentional infliction of temporal damage, including the damage of interference with an insured’s business (which an insured will undoubtedly consider to be oppressive). The infliction of this damage has generally been regarded as privileged, and not compensable, for the simple reason that it is worth more to society than it costs, i.e., the insurer is permitted to dispute its liability in good faith because of the prohibitive social costs of a rule which would make claims nondisputable. Insurance companies burdened with such liability would either close their doors or increase premium rates to the point where only the rich could afford insurance.

For these reasons, we agree that an insurer cannot be subjected to a punitive damage award for seeking in good faith to pay only the amount which the law requires to be paid under its contract. Insofar as defendants’ conduct is ascribable to their good faith efforts to pay the legal proceeds, their conduct is privileged.

B. STATEMENT ON THE FACTS

Appellants maintain that the trial court erred in overruling their motion for a directed verdict because there was no evidence presented from which the jury could find that appellants were either “guilty of bad faith” or had “acted in an intentional and wanton manner” in dealing with the plaintiff. Since the jury did so find, its verdict must be upheld if there is any evidence presented from which a reasonable jury could conclude that appellants engaged in conduct, not privileged (as that term is used above), which amounted to an independent tort or was tortious in nature.

Plaintiff’s evidence and the reasonable inferences therefrom indicate that the defendants knew plaintiff desired, to rebuild his business, but could not do so without the insurance proceeds, and that plaintiff continued to incur the expense of a monthly rental of $300 for the plant site in anticipation of rebuilding. While plaintiff was demanding that the insurers were liable for the full face value of the policies of insurance, the record indicates that appellants made no offer to pay plaintiff even that portion of the face value which they deemed him entitled.

The jury also had before it evidence from which it could reasonably infer that the defendants sought to use their knowledge of plaintiff’s desperate need for funds for reconstruction to require plaintiff to procure a settlement of a separate lawsuit brought by plaintiff’s manager, John L. Easter, against the defendants for negligent failure to issue a fire insurance policy on Easter’s property which was consumed in the blaze. From such evidence the jury could reasonably infer that the defendants had refused, and would continue to refuse, to pay the plaintiff even the amount which the insurance companies concede he was entitled to, until the plaintiff obtained a release of Easter’s claim. That evidence is as follows:

(a) Plaintiff’s Exhibit J, letter from plaintiff’s attorney Leon D. Cline to Mr. J. P. Heffernan, Branch Manager of the General Adjustment Bureau, Inc., dated June 30, 1971. “Dear Mr. Heffernan:

“This is to confirm our telephone conversation of yesterday afternoon relative to the recent fire loss of our client, Mr. A. W. Sharp, d/b/a Columbus Wood Preserving Co.

“Mr. Sharp is most desirous of getting this matter settled promptly and without further delay because of pressing financial matters arising from the loss of his business here in Columbus, Indiana. Consequently, we ask that you submit to my office proof of loss forms and any other forms necessary to get this matter adjusted without further delay.

“In our conversation you mentioned a lawsuit which had been filed by Mr. Sharp’s Plant Manager, Mr. John Easter, and the insurance companies’ wishes to hold up on Mr. Sharp’s fire claim until Mr. Easter’s suit had been settled. This, of course, is impossible. . .

(b) Direct examination of Leon D. Cline, attorney for plaintiff.

PRELIMINARY QUESTION — Mr. Gray

Q. “Are the conversations you are about to relate sir, before or after you filed suit ?”

A. “Before.”

MR. GRAY: “All right, go ahead.”

A. “On August 27, 1971, following this last letter, I got a call, it was from an adjuster, and it was either Mr. Hefferman [sic] or Mr. Dyer. Want me to relate?”

Q. “Yes, would you? Relate the conversation.” OBJECTION — Mr. Conner: “We renew our original objection, Your Honor.”

JUDGE: “You may note the same objection heretofore made by counsel, and the Court overrules said objection. You may answer.”

A. “The sum and substance of the conversation by this adjuster was that Mr. Easter’s claim, or, sorry, Mr. Sharp’s claim was not going to be disposed of until they had handled or got the suit settled with Mr. Easter.”

•fi •!'

Q. “Now I’ll ask you, Mr. Cline, at any time during your negotiations, and so forth, in your representation of Mr. Sharp, did the insurance company at any time offer to settle his claim for any amount during the period of time you represented him?”

A. “No,they — ”

OBJECTION — Mr. Gray: “To which we will object by reason of the fact that any offer or negotiation of settlement after suit was filed would not be germane, would not be admissible.”

JUDGE: “You may note that the question is overruled. You may answer that question.”

A. “At no time did they make any offer to settle.”

(c) Direct examination of Amor Sharp, plaintiff.

Q. “Why was a lawsuit filed ?”

OBJECTION — Mr. Gray: “Now if the Court please, this is a self-serving declaration and calls for an answer which is not germane to the issues.”

JUDGE: “You may note that the objection is overruled. And you may answer.”

A. “The reason the suit was filed was because I couldn’t collect otherwise.”

* # *

Q. “To your personal knowledge, not talking about any knowledge your lawyer might have, to your personal knowledge, did these insurance companies, or did any of their representatives ever tell you why they didn’t pay you?”

A. “Yes, sir.”

Q. “What did they tell you ?”

A. “Because of a counterclaim that John Easter had filed against my policies.”

Q. “Did John Easter own or have any interest in any of the matters under which you are making your claim ?”

A. “No, sir. It was a ficticious [sic] claim.”

Q. “Had you always carried insurance with —, not always, but for some years carried insurance with these two companies ?”

A. “Yes, sir.”

Q. “They knew who you were?”

A. “Yes, sir.”

Q. “Did anyone else own or have an interest in the Columbus Wood Preserving Company?”

A. “No, sir.”

Q. “Whatever interest Mr. Easter might have had in anything would have been confined to what, sir?”

A. “Why it would have been confined to treating fluids of machines that he bought to help him in the operation of the —”

Q. “I think he bought a forklift.”

A. “A forklift, he bought a tractor.”

Q. “Did you make any kind of a claim for anything that Mr. Easter owned ?”

A. “No, sir.”

Q. “And did these fire insurance companies ever dispute the fact that you owned the things that you claim that you owned ?”

A. “No, sir.”

(d) Plaintiff’s Exhibit 9, letter from attorney for defendants to the plaintiff, dated October 6,1971.

“Dear Mr. Sharp:

“We returned herewith the Proofs of Loss which you filed August 12th, 1971, with the Great American Insurance Company of New York and the Vernon Fire and Casualty Company of Indianapolis.

“Both Companies find it necessary to reject these Proofs of Loss for the following reasons:

“(a) The amount claimed is in excess of the loss reflected in your sworn statement.

“(b) Contrary claims against these policies have been filed by your manager and contracting party, John L. Easter.

“If you can provide us with Proofs of Loss in the correct amount and can provide us with release of any claims by John L. Easter against these two Companies, I believe the Companies would be willing to make payment at an early date for the actual loss suffered under the coverage of these two policies.” [Emphases added.]

The insurance contracts were in evidence, and both contained identical “Requirements in Case Loss Occurs” clauses. These clauses are exceedingly detailed, but they do not purport to require the plaintiff to settle the lawsuits of other parties arising from the occurrence which produce plaintiff’s loss, and no reasonable juror could find that the clauses contained such a requirement.

C. APPLICATION OF LAW

At the outset, we note that the second and third paragraphs of plaintiff’s complaint do not charge appellants with the commission of an independent tort. In view of the foregoing evidence, however, we believe the jury could have reasonably found that the appellants promised to pay the-legal proceeds of the policies in accordance with the terms thereof, that appellants knew such representation to be false, in that the policy did not contain all preconditions to payment, that plaintiff relied upon this representation by continuing to carry his insurance with appellants and by not insuring his property through another carrier, and that plaintiff was damaged by this reliance. Viewed in this manner, plaintiff’s evidence establishes the elements of fraud, Edwards v. Hudson, (1938) 214 Ind. 120, 14 N.E.2d 705, and any inconsistency between plaintiff’s pleading and proof will be resolved in favor of the proof at trial, Ayr-Way Stores, Inc. v. Chitwood, (1973) 261 Ind. 86, 300 N.E.2d 335.

Plaintiff’s second paragraph charged appellants with wrongfully breaching their contracts by refusing to pay his loss. Plaintiff embellished his claim by charging “that said defendants have been guilty of bad faith in dealing with their insured.” As noted above, appellants are not subject to punitive damages insofar as their actions are attributable to their good-faith efforts to pay the legal proceeds. Consequently, the evidence herein dictates that appellants’ actions which ultimately required plaintiff to seek judicial determination of the amount of appellants’ liability under the contracts of insurance were in good faith, since there was no evidence to indicate that the policies were reasonably susceptible of only one interpretation and that being in favor of the plaintiff. We therefore hold that the trial court erred in denying appellants’ motion for a directed verdict on the second paragraph of plaintiff’s complaint.

Plaintiff’s third paragraph charged that appellants acted in an intentional and wanton manner in refusing to pay plaintiff the proceeds of the policies. From the evidence herein the jury could reasonably conclude that appellants acted in an “intentional and wanton” manner in dealing with plaintiff in regard to securing a settlement of Mr. Easter’s claim, and since this conduct did not relate solely to the appellants’ actions in paying the legal proceeds, it was not privileged. We believe such conduct might also have been characterized as “oppressive” as that term is used in Murphy Auto Sales, supra. Black’s Law Dictionary defines oppression as: “An act of cruelty, severity, unlawful exaction, or excessive use of authority.” Plaintiff’s evidence showed that the insurers dealt with his claim with an “interested motive” and wrongfully attempted by virtue of their superior position to exact additional consideration from the plaintiff before performing their obligations under the contract. This evidence was sufficient to establish a serious intentional wrong.

As noted above, punitive damages “do not rest upon any ground of abstract or theoretical justice but upon the basis of an established public policy which seeks to promote the public safety.” Murphy Auto Sales, supra. The public policy of the state is to be determined from a consideration of our constitution, statutes, the practice of governmental officers in the course of administration and the decisions of our courts. Hogston v. Bell, (1916) 185 Ind. 536, 112 N.E. 883. From an examination of Title 22 of the Indiana Code, we find expressed therein a public policy to regulate those engaging in the insurance business in this state, not only for the good of the public, but for the benefit of insurers as well. One area regulated by this title is insurance company rate-making. IND. CODE § 27-1-22-1, et seq., (Burns 1975). An insurance company, like any other business, is entitled to a reasonable return on its investment. To guarantee such a return, the company demands a premium which will offset its cost of doing business and which will enable the company to meet its obligations as they become due. One of the costs of engaging in the insurance business, and allowable under the statute, is the settling of spurious claims, such as that of plaintiff’s manager. When such rates have been determined in accordance with the statutory scheme, IND. CODE § 27-1-22-18 (Burns 1975) prohibits insurers from altering the rates by knowingly charging, demanding or receiving a premium which is in excess of those established by law. Appellants’ actions in demanding non-contractual settlement service from their insured as a pre-condition to paying the loss they were already obligated to pay under the contract offend the statutes governing the rate-making process. If appellants’ demands had been met, it is clear that appellants would have reaped an unbargained-for benefit from the insured, which would have operated to increase the value of the premium paid by the insured. This type of behavior ignores the rights of the individual insured and undercuts the rights of insurers who abide by the rate-making laws.

When a statutory scheme exists to protect the public, those who are regulated thereby may not act in an intentional and wrongful manner so as to defeat the statutory objective, see Frampton v. Central Indiana Gas Co., (1973) 260 Ind. 249, 297 N.E.2d 425. We conclude that the public policy of this state permits the recovery of punitive damages under the circumstances of this case. There was evidence presented under the third paragraph of plaintiff’s complaint from which the jury could reasonably find that appellants acted tortiously in dealing with the plaintiff. The trial court did not err in overruling appellants’ motion for a directed verdict on plaintiff’s third paragraph.

Judgment for plaintiff awarding compensatory damages of $31,250 against each defendant is hereby reversed and the cause is remanded to the trial court with instructions to vacate the judgment and enter final judgment for the plaintiff in the amount of $23,527.02 against each defendant, with interest from the date of entry. The judgment of the trial court in all other matters, including the award of punitive damages of $17,000 against each defendant, is hereby affirmed.

Givan, C.J., and Arterburn, J., concur; Prentice, J., dissents with opinion in which DeBruler, J., concurs.

This case transferred and re-assigned to this office April 7, 1976.