United States Court of Appeals

Fifth Circuit

FILED

April 18, 2005

Charles R. Fulbruge III

Clerk

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 04-60577

CHARLES BLAKELY; CASSANDRA BURKS; ESSIE DONNELLY; TERRY LOCKHART;

RITA MARSHALL; JOETTA SHEARS,

Plaintiffs-Appellants,

versus

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,

 Defendants,

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

Defendant-Appellee,

JIMMY BLAKELY; LEE HOUSE; ARLENE JONES; THOMAS MCCOY; SCHERRIE

PAYNE; JAMES PITTMAN; SAM SHORT; MIKE UZZLE; BOBBIE VAUGHN,

 Plaintiffs-Appellants,

versus

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,

 Defendants,

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

 Defendant-Appellee,

KEVIN BUFFINGTON; VERONICA HUDSON CARR; SHEILA HICKS; DELCINA

MCGLOTHIN; SLOVAKIA MCGRUDER; R L MINOR; PRICILLA MINOR; DAPHANIE

UNDERWOOD; SANDRA WARD,

 Plaintiffs-Appellants,

versus

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,
2

 Defendants,

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,

 Defendant-Appellee.

Appeal from the United States District Court

For the Southern District of Mississippi

Before DAVIS, SMITH, and DeMOSS, Circuit Judges.

PER CURIAM:

Plaintiffs-Appellants Charles Blakely, et al.

(“Appellants”), appeal the district court’s granting of summary

judgment in favor of Defendant-Appellee State Farm Automobile

Insurance Co. (“State Farm”) on Appellants’ various claims and

the court’s denial of Appellants’ motion to alter or amend the

judgment. For the following reasons, we AFFIRM the court’s

orders.

BACKGROUND

Each of the Appellants was an insured policyholder of State

Farm and suffered a partial loss to his or her vehicle as a

result of an automobile accident. Under each Appellant’s

automobile insurance policy with State Farm (the “policy”),

“loss” was defined in part as:

[E]ach direct and accidental loss of or damage to:

1. your car;

2 its equipment which is common to the use

of your car as a vehicle . . . .
3

The policy provided under “Limit of Liability – Comprehensive and

Collision Coverages,” in relevant part:

The limit of [State Farm’s] liability for loss to

property or any part of it is the lower of:

1. the actual cash value; or

2. the cost of repair or replacement.

Under the same Limits of Liability, the policy also expressly

defined the “cost of repair or replacement”:

The cost of repair or replacement is based upon one of

the following:

1. the cost of repair or replacement agreed

upon by you and [State Farm];

2. a competitive bid approved by [State

Farm]; or

3. an estimate written based upon the

prevailing competitive price. The prevailing

competitive price means prices charged by a

majority of the repair market in the area

where the car is to be repaired as determined

by a survey made by [State Farm]. If you

ask, [State Farm] will identify some

facilities that will perform the repairs at

the prevailing competitive price. [State

Farm] will include in the estimate parts

sufficient to restore the vehicle to its preloss condition. You agree with [State Farm]

that such parts may include either parts

furnished by the vehicle’s manufacturer or

parts from other sources including nonoriginal equipment manufacturers.

Any deductible amount is then subtracted.

In addition, the policy contained a subsection titled “Settlement

of Loss – Comprehensive and Collision Coverages.” The

“settlement of loss” provision read, in relevant part:

[State Farm] ha[s] the right to settle a loss with you
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or the owner of the property in one of the following

ways:

1. pay the agreed upon actual cash value of

the property at the time of the loss in

exchange for the damaged property. If the

owner and [State Farm] cannot agree on the

actual cash value, either party may demand an

appraisal as described below. If the owner

keeps the damaged property, [State Farm] will

deduct its value after the loss from [State

Farm’s] payment. The damaged property cannot

be abandoned to [State Farm];

2. pay to:

a. repair the damaged property or

part, or

b. replace the damaged property

or part.

If the repair or replacement results in

betterment, you must pay for the amount of

betterment; or

3. return the stolen property and pay for

any damage due to the theft.

Appellants all submitted claims to State Farm for repairs

and reimbursements for losses suffered. State Farm adjusted and

paid for such repairs and losses. However, Appellants believed

the policy additionally entitled them to payment from State Farm

for the diminished value of their automobiles – the difference in

the fair market value of their vehicles just prior to the

accident and the fair market value of their vehicles post-repair. 

Appellants filed suit in Mississippi state court on or about July

1, 2002, against State Farm and two of its agents. Appellants’

claims included breach of contract, breach of the covenant of

good faith and fair dealing, conspiracy, bad faith, breach of
1Appellants had conceded that their other claims could not be

supported. Moreover, as to those claims the court affirmatively

addressed and dismissed, Appellants do not brief any argument other

than those outlined below.

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fiduciary duty, fraud, and punitive damages.

On July 17, 2002, State Farm and the two agent defendants

filed their notice of removal. On July 24, 2003, the parties

signed an agreed order dismissing the two agents. Appellants

filed an amended complaint on December 17, 2003. State Farm

moved to dismiss on December 24, 2003. The district court

granted this motion on April 26, 2004. The district court first

determined it need only address Appellants’ claims for breach of

contract, bad faith, and fraud.1 The court found the policy

language was unambiguous and did not provide for any recovery by

Appellants for the diminished value in their vehicles; there thus

could be no breach of contract or bad faith claim. The court

also found Appellants raised no issue of material fact on the

fraud claim. Finally, the court found Appellants’ argument that

the policy was unconscionable and thus unenforceable lacked

merit. Appellants then filed a motion to alter or amend the

judgment, which the court denied on June 18, 2004. Appellants

timely appealed.

DISCUSSION

This Court reviews the grant of summary judgment de novo,
2The district court treated the motion to dismiss filed by

State Farm as a motion for summary judgment; we do likewise. See

Stewart v. Murphy, 174 F.3d 530, 532-533 (5th Cir. 1999) (citing

FED. R. CIV. P. 12(b) (“If, [on a 12(b)(6) motion to dismiss],

matters outside the pleading are presented to and not excluded by

the court, the motion shall be treated as one for summary judgment

and disposed of as provided in Rule 56.) (emphasis added)”); Baker

v. Putnal, 75 F.3d 190, 197 (5th Cir. 1996) (“[W]here a district

court grants a motion styled as a motion to dismiss but bases its

ruling on facts developed outside the pleadings, we review the

order as an order granting summary judgment”). Neither party

claims error in the Rule 12(b)(6) motion’s being treated as one for

summary judgment.

6

applying the same standards employed by the district court.2 

Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d

254, 259-60 (5th Cir. 2003). We review the legal question of the

district court’s interpretation of an insurance contract de novo,

id. at 260, as well as its determination of state law, id. Under

Federal Rule of Civil Procedure 56(c), summary judgment is proper

when, viewing the evidence in the light most favorable to the

nonmoving party, the “pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issues as to

any material fact and that the moving party is entitled to

judgment as a matter of law.” FED. R. CIV. P. 56(c); see Celotrex

Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986). 

In this diversity case, we are bound by the substantive
7

insurance law from the forum state, Mississippi. See Erie R. Co.

v. Tompkins, 304 U.S. 64, 78-79 (1938); Am. Nat’l Gen. Ins. Co.

v. Ryan, 274 F.3d 319, 328 (5th Cir. 2001). Mississippi

insurance policies are subject to the same rules of construction

as other contracts. Krebs v. Strange, 419 So. 2d 178, 181 (Miss.

1982). When courts construe a contract, they read the contract

as a whole, to give effect to all of its clauses. Royer Homes of

Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss.

2003) (citing Brown v. Hartford Ins. Co., 606 So. 2d 122, 126

(Miss. 1992)). “Our concern is not nearly so much with what the

parties may have intended, but with what they said, since the

words employed are by far the best resource for ascertaining the

intent and assigning meaning with fairness and accuracy.” Id.

(citation omitted). Policy language that is clear and

unambiguous is construed and must be enforced as written; that

policy is binding and cannot be modified to create an ambiguity

where none exists. Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d

714, 717 (Miss. 2004); State Farm Mut. Auto. Ins. Co. v.

Universal Underwriters Ins. Co., 797 So. 2d 981, 985-86 (Miss.

2001). Policy terms should be understood “in their plain,

ordinary, and popular sense rather than in a philosophical or

scientific sense.” Blackledge v. Omega Ins. Co., 740 So. 2d 295,

298 (Miss. 1999) (citation omitted).

I. Whether the district court erred in finding the policy
8

language unambiguous as not providing for payment to Appellants

for diminished value.

Appellants primarily argue that Mississippi law requires

that the term “cost of repair or replacement” necessarily

includes the concept of diminished value, so that the district

court was erroneous in holding the terms of the policy excluded

diminished value recovery. Appellants rely on a series of

Mississippi cases – Potomac Ins. Co. v. Wilkinson, 57 So. 2d 158

(Miss. 1952); Motors Ins. Co. v. Smith, 67 So. 2d 294 (Miss.

1953); Calvert Fire Ins. Co. v. Newman, 124 So. 2d 686 (Miss.

1960); and Scott v. Transport Indem. Co., 513 So. 2d 889 (Miss.

1987) – for this proposition. 

Appellants stress that in Wilkinson, the Mississippi Supreme

Court defined “measure of loss to an automobile damaged, but not

destroyed, by a collision” as: “the difference between its

reasonable market value immediately prior to the collision and

its reasonable market value after all reasonable and feasible

repairs have been made.” 57 So. 2d at 160. “If, despite such

repairs, there yet remains a loss in actual market value,

estimated as of the collision date, such deficiency is to be

added to the cost of the repairs.” Id. Appellants note the

court in Smith recognized the Wilkinson court’s concept of

diminished value. 67 So. 2d at 296. Next, Appellants note the

court in Newman identically stated Wilkinson’s definition of the
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“measure of loss to an automobile damaged, but not destroyed, by

a collision.” 124 So. 2d at 688. Finally, in Scott, Appellants

again emphasize the court cited both Wilkinson and Newman in

defining “cost of repairs” as including diminished value. 513

So. 2d at 894.

State Farm responds that the district court properly

dismissed Appellants’ complaint. State Farm insists that here

the plain and unambiguous language of the policy each Appellant

purchased from State Farm limited the insurer’s liability to the

cost of repair or replacement. State Farm argues the policy

plainly and unambiguously defined cost of repair or replacement,

which definition did not allow for any additional recovery for

alleged diminished value above the cost of repair or replacement. 

State Farm maintains that because Appellants’ vehicles were not

alleged to be or deemed total losses, the limit of liability

under the policy was the cost to repair or replace the damaged

components of the vehicle. 

State Farm also contends a majority of the state supreme

courts to address the claim that “cost of repair or replacement”

necessarily includes diminished value have rejected that argument

because the most natural reading of the plain and unambiguous

policy language limited the insurers’ liability to the cost of

physical repair or replacement, not including any additional loss

in value. See Given v. Commerce Ins. Co., 796 N.E.2d 1275,
10

1278-79 (Mass. 2003); Schulmeyer v. State Farm Fire & Cas. Co.,

579 S.E.2d 132, 133-34 (S.C. 2003); American Mfrs. Mut. Ins. Co.

v. Schaefer, 124 S.W.3d 154, 158 (Tex. 2003); Siegle v.

Progressive Consumers Ins. Co., 819 So. 2d 732, 735-37 (Fla.

2002); Hall v. Acadia Ins. Co., 801 A.2d 993, 995-96 (Me. 2002);

O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 290-91 (Del.

2001). But see State Farm Mut. Auto. Ins. Co. v. Mabry, 556

S.E.2d 114, 122 (Ga. 2001). According to State Farm, where there

is no dispositive decision from the Mississippi Supreme Court on

an issue, this Court should presume that Mississippi would follow

the majority rule. See Reliance Nat’l Ins. Co. v. Estate of

Tomlinson, 171 F.3d 1033, 1036-37 (5th Cir. 1999); Byrd v. The

Mississippi Bar, 826 So. 2d 1249, 1252 (Miss. 2002). 

The district court sided with State Farm. While the court

recognized Appellants’ contention that particularly in Scott and

Wilkinson the Mississippi Supreme Court recognized that

diminution in value may be recoverable in certain circumstances,

the court explicitly distinguished those cases because the

policies at issue there did not expressly define the term “cost

of repair or replacement.” Thus, the district court found that

the instant policy’s language regarding the limitations on “cost

of repair or replacement” was unambiguous and did not provide for

any recovery for diminished value. 

We agree with the district court’s finding. While it is
11

true the Mississippi Supreme Court initially recognized the

concept of diminished value in Wilkinson, there the policy only

provided that the insurer “may pay for the loss in money or may

repair or replace the automobile or such part thereof . . . or

may take all or any part of the automobile at the agreed or

appraised value, but there may be no abandonment to the company.” 

57 So. 2d at 159. The Wilkinson policy is thus distinguishable

because it did not expressly limit the definition of “repair” or

“cost of repair” as the instant State Farm policy did. There is

also nothing in either Smith or Newman that indicates the

policies at issue in those cases contained an explicit limiting

definition of “repair, “replace,” or “cost of repair or

replacement.” In Scott, the policy merely provided that “in the

event of a covered loss, [the insurer] at its sole election may

pay the lesser of the stated value of the property at the time of

loss or the cost of repairing or replacing the property with

other property of like kind or quality.” 513 So. 2d at 893-94. 

Again, the Scott policy did not expressly limit the “cost of

repair or replacement.” Thus, these cases concerned the

application of diminished value in situations where the policies

only included a label similar to “repair, “replace,” or “cost of

repair or replacement,” without expressly limiting such term, and

so do not control the instant case. As the Mississippi Supreme

Court has stated: “We are concerned not nearly so much with
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labels as with language.” Id. at 893. 

Although we agree with State Farm that several state supreme

courts have taken the opposite view than that argued by

Appellants, most of those cases are of limited, if any, relevance

to the instant situation because they also involved policies that

did not expressly limit the term “repair,” “replace,” or “cost of

repair or replacement.” Only the policy in Schulmeyer expressly

defined “cost of repair or replacement” as: 

1. the cost of repair or replacement agreed upon by you

and us; 

2. a competitive bid approved by us; or 

3. an estimate written based upon the prevailing

competitive price ... [which] means prices charged by a

majority of the repair market in the area where the car

is to be repaired . . . .

579 S.E.2d at 133. There, the court specifically noted that

distinct unambiguous limitation on the “cost of repair or

replacement”: 

The State Farm policy sub judice does not recognize

value as inherent in the concept “repair or

replacement.” The policy recognizes the cost of repair

or replacement may be determined by a rate agreed

between insurer and insured; a competitive bid approved

by the insurer; or an estimate based upon the

prevailing competitive market price. The policy, read

as a whole, defines repair or replacement as restoring

the vehicle to pre-accident mechanical function and

condition and not as restoring value.

To read value into the repair clause would arbitrarily

read out of the policy the insurer's right to determine

whether to repair the vehicle or to pay for its loss. 

The language provision in the present case expressly

limits coverage to the lesser of the actual value or

the cost of repair. These are alternatives, which do

not include an additional obligation to pay for
13

diminished value when the cost of repair is chosen.

Id. at 135-36 (internal citation omitted). The above analysis 

informs our determination here.

This particular policy did not merely define loss, explain

the limit of liability as the lower of cash value or cost of

repair or replacement, and describe the three ways that a loss

can be settled between the insured and State Farm, but it also

explicitly outlined the three bases for such “cost of repair or

replacement.” That is, the “cost of repair or replacement” could

be based upon either the cost of repair or replacement agreed

upon by the insured and State Farm, a competitive bid approved by

State Farm, or a written estimate based upon the prevailing

price. There is no mention of additional recovery for any loss

in, or diminished, value; nor can any policy text be understood

in its “plain, ordinary, and popular sense,” see Blackledge, 740

So. 2d at 298, to mean such diminished value is recoverable. 

Thus, based on our plain reading of the distinct, unambiguous

policy language here that expressly defined the limited

alternatives of the “cost of repair or replacement,” and adhering

to the traditional contract principle that the policy is to be

read as a whole such that each clause is given effect, see Royer

Homes, 857 So.2d at 752, we conclude this policy did not provide

for additional recovery by Appellants of any diminished value on

their vehicles.
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II. Whether the district court erred in finding that the policy

did not violate public policy and was not unconscionable so as to

be unenforceable.

Appellants argue that even if we read the policy as not

providing for recovery of diminished value, the policy should be

invalidated as against Mississippi public policy because it does

not permit recovery for diminished value. Appellants contend

that Wilkinson and its progeny establish a strong public policy

in favor of recovery for diminished value. Appellants

alternatively argue that the policy is both procedurally and

substantively unconscionable: procedurally, because while the

insured cannot receive diminished value, State Farm can be

reimbursed should any increase in the vehicle’s value result; and

substantively, because the policy is an oppressive contract of

adhesion. 

State Farm responds that Appellants cannot meet their burden

to overcome an insurance policy’s plain meaning: “[I]n

Mississippi, an insurance policy’s plain meaning controls unless

an affirmative expression of an overriding public policy by the

legislature or judiciary allows us to reach a different result.” 

Centennial Ins. Co. v. Ryder Truck Rental, Inc., 149 F.3d 378,

382 n.11 (5th Cir. 1998). State Farm argues Appellants have not

pointed to any legislative or judicial pronouncement that

insurers must provide for payment of diminished value in all

issued automobile policies. In fact, State Farm suggests the
15

only public policy at issue is the one favoring certainty in

contracts. See Smith v. Simon, 224 So. 2d 565, 566 (Miss. 1969)

(describing right to contract and have contracts enforced as a

basic and constitutionally guaranteed right). State Farm insists

the “cost of repair or replacement” term is not an unconscionable

bargain, such that “no man in his senses and not under a delusion

would make on the one hand, and [that] no honest and fair man

would accept on the other.” Entergy Miss., Inc v. Burdette Gin

Co., 726 So. 2d 1202, 1207 (Miss. 1998) (internal quotation marks

and citation omitted). Finally, State Farm argues that the

policies cannot be unconscionable simply because they are

standardized and cover certain risks but not others. State Farm

also notes each policy must be submitted to the Mississippi

Department of Insurance before public issuance. MISS. CODE ANN. §

83-2-7 (1999).

We find no pronouncement by Mississippi, either legislative

or judicial, requiring that diminished value be a part of all

automobile insurance policies. We thus agree with the district

court that Appellants’ arguments regarding the policy’s being

void as against public policy or due to unconscionability lack

merit. 

CONCLUSION

Having carefully considered the record, and the parties’

respective briefing and arguments, for the reasons set forth
16

above, we AFFIRM the district court’s orders.

AFFIRMED.