Monaghan, J.d.c., Temporarily Assigned.
[152 NJSuper Page 373] This is basically a declaratory judgment action brought to compel an insurance company to indemnify and/or defend its insured against certain automobile negligence actions, now pending the outcome of this case. The insurer, Liberty Mutual
Insurance Company (Liberty), had contended that the accident in question did not fall within the coverage provided by the automobile liability policy. Upon earlier motions for summary judgment, this court found that the policy did provide coverage. The present motions for summary judgment raise the unique issue of whether punitive damages may be assessed against Liberty. The court has already awarded counsel fees.
This action arose from an automobile accident which occurred in Paramus, New Jersey, in September, 1974. The accident resulted in two deaths and injuries to six other individuals when the vehicle carrying the parties Caci and Fiore was struck by the automobile owned by Virginia McNulty and operated by her fiance, Randolph Kocse. The accident was reported to Allstate Insurance Company (Allstate), the insurer for the McNulty vehicle, as well as to Liberty, which had issued a comprehensive family automobile liability policy to Kocse's parents. Allstate has since tendered to the injured parties the sum of $300,000, the total coverage provided by its policy. However, with respect to the policy issued by Liberty, there has been a dispute as to whether the family policy covered the accident in question.
When notification of the accident had been received by Liberty in mid-October 1974 the company initially relied on the investigation being conducted by Allstate, the primary insurer. This was supplemented by some direct investigatory work by Liberty, most of which pertained to Kocse's PIP (no fault insurance personal injury protection coverage, N.J.S.A. 39:6A-4) claims. In November of that same year Liberty paid about $1,500 in medical expenses on Kocse's behalf, and by the following January it notified him that his lost wages, less temporary disability benefits, would also be paid (amounting to about $150). At that time Liberty received a letter from the attorney of one of the injured parties, advising the insurer of its possible liability as an excess carrier. While Liberty certainly had been apprised of the seriousness of the injuries caused by the accident
and of the possible secondary liability, apparently it was not until then that it first questioned the coverage of the accident under its policy with Kocse's parents. As a result of that letter Liberty sought to determine whether Kocse was a resident of his parents' household; why he was driving the McNulty auto at the time of the accident; how often he drove it; whether he had regular use of the automobile; whether he owned his own car; and other questions relating to coverage as well as to the happening of the accident itself. On January 29, 1975 a tape-recorded interview with Kocse was conducted by Liberty which, among other things, revealed that the McNulty car had been originally owned by him; that he had sold the car to McNulty, his fiancee, in April 1974; that at least one of his reasons for the transfer was that it would save him the cost of paying high insurance rates, and that after the transfer he still had liberal driving privileges of the car. Based on a provision which excluded coverage for persons operating a non-owned automobile "furnished" for their "regular use," these factors indicated to Liberty that there was a possibility that the accident might not come within the policy coverage.
Following the interview Liberty continued its investigation with an emphasis on the coverage question. Upon transcription of the recorded testimony and a review of the case in March, the company deemed it necessary to contact Kocse again for further information. A subsequent meeting with him in April disclosed more of the details of the sale of the automobile to McNulty, including the fact that the car was sold to her for no consideration. Concluding that Kocse was operating a nonowned automobile furnished for his regular use, Liberty disclaimed coverage in early May 1975. As indicated above, this court has already determined that this conclusion was incorrect and that the policy did, in fact, provide coverage. Therefore, Liberty's conduct need only be examined with respect to the punitive damages issue.
The general rule regarding punitive damages was adequately stated in the recent case of Sandler v. Lawn-A-Mat [152 NJSuper Page 376] Chem. & Equip. Corp. , 141 N.J. Super. 437 (App. Div. 1976), certif. denied 71 N.J. 503 (1976), where it was said that punitive damages are usually restricted to actions arising out of tortious conduct. However, the conduct must be more than merely tortious; it must be done maliciously or with willful and wanton disregard of the rights of another, Di Giovanni v. Pessel , 55 N.J. 188 (1970); Berg v. Reaction Motors Div. , 37 N.J. 396 (1962); La Bruno v. Lawrence , 64 N.J. Super. 570 (App. Div. 1960), certif. denied 34 N.J. 323 (1961). The restriction of such damages to tort actions obviously means that punitive damages will not generally be available in contract actions. 22 Am. Jur. 2d, Damages , § 245 (1965); 5 Corbin on Contracts , § 1077 (1964); 25 C.J.S. Damages § 120 (1966); McCormick, Law of Damages , § 81 at 286 (1935). Yet, this rule, as with most general rules, is not without its exceptions. Punitive damages have been awarded in contract actions where there was a special relationship existing between the parties or a duty imposed upon the wrongdoer. Sandler v. Lawn-A-Mat Chem. & Equip. Corp., supra 141 N.J. Super. at 449, 451. Such "exceptional circumstances" include the breach of marriage contract situations, 12 Am. Jur. 2d, Breach of Promise , §§ 31, 32 (1964); Annotation, "Measure and elements for breach of contract to marry," 73 A.L.R. 2d 553 (1960); 11 C.J.S. Breach of Marriage Promise § 45 (1938); a bank's failure to honor its depositor's checks, 10 Am. Jur. 2d, Banks, § 576 (1963); 5 Corbin, op. cit. at 444, and oppressive conduct by public transportation carriers and other public service companies towards their patrons, 5 Corbin, op. cit. at 443-44; C. McCormick, supra at 288-89. In a similar fashion, a breach of the fiduciary relationship existing between a seller and real estate broker, Ellsworth Dobbs, Inc. v. Johnson , 50 N.J. 528 (1967); Silverman v. Bresnahan , 35 N.J. Super. 390 (App. Div. 1955), may give rise to the awarding of punitive damages under certain circumstances. Security Corp. v. Lehman Associates, Inc. , 108 N.J. Super. 137
(App. Div. 1970); Brown v. Coates , 102 U.S. App. D.C. 300, 253 F.2d 36, 67 A.L.R. 2d 943 (D.C. Cir. 1958); 12 Am. Jur. 2d, Brokers, § 83 (1964); Annotation, "Right of principal to recover punitive damages for agents' or brokers' breach of duty," 67 A.L.R. 2d 952 (1959).
Turning to the specific contract in question, it would appear that the courts are divided as to whether the general prohibition against punitive damages in contract actions applies to disputes involving insurance policies. 20 Appleman, Insurance Law and Practice § 11255 (1963, Supp. 1977); Annotation "Insurer's Liability for Consequential or Punitive Damages for Wrongful Delay or Refusal to Make Payments Due Under Contracts," 47 A.L.R. 3d 314, 339-48 (1973). Some courts have taken the more traditional view that insurance policies, being contractual in nature, may not give rise to punitive damages upon their breach. Cassady v. United Ins. Co. of America , 370 F. Supp. 388 (D. Ark. 1974); MacDonald v. Penn. Mut. Life Ins. Co. , 276 So. 2d 232 (Fla. D. Ct. App. 1973); Wallace v. Prudential Ins. Co. of America , 12 Ill. App. 3d 623, 299 N.E. 2d 344 (App. Ct. 1973); General Acc. Fire & Life Assur. Corp. v. Judd , 400 S.W. 2d 685 (Ky. Ct. App. 1966); King v. Ins. Co. of North America , 273 N.C. 396, 159 S.E. 2d 891 (Sup. Ct. 1968). Other cases have recognized this general rule but have permitted such damages to be awarded if the insurer's breach of contractual obligation assumed the character of a tort. McIntosh v. Aetna Life Ins. Co. , 268 A.2d 518 (D.C. Ct. App. 1970); Export Ins. Co. v. Herrera , 426 S.W. 2d 895 (Tex. Civ. App. 1968); see Richardson v. Employers Liab. Assur. Corp. , 25 Cal. App. 3d 232, ...