UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

No. 92-7446

Summary Calendar

HANS CONSTRUCTION COMPANY, INC.,

Plaintiff-Appellant,

versus

PHOENIX ASSURANCE COMPANY OF

NEW YORK,

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of Mississippi

( June 25, 1993 )

Before POLITZ, Chief Judge, DAVIS and JONES, Circuit Judges.

POLITZ, Chief Judge:

Hans Construction Company, Inc. appeals an adverse summary

judgment. Finding no error, we affirm.

Background

On June 17, 1987 a crane owned by Hans Construc tion Co. was

damaged in the process of dismantling an asphalt plant. Hans'

equipment, including the crane, was covered under an Inland Marine

Transit Floater Policy issued by Phoenix Assurance Company of New

York. The policy did not cover damage caused by overloading the2

equipment.

Upon receiving not ice of the accident, Phoenix assigned

Adjusting Services Unlimited to investigate the claim . John

Dominick, an ASU adjuster, interviewed the Hans cra ne operator,

Mike Greer. Greer stated that the crane was lifting a bucket

conveyor weighing about 52,000 pounds at the time of the accident.

Considering the e xtent of the boom, the angle, and the radius of

the load, the maximum load should have been about 50,000 pounds.

Neither Dominick, nor any other adjuster, ever indepe ndently

determined the actual weight of the bucket conveyor when the crane

failed.

ASU requested and was granted authority by Phoenix to hire an

engineer to inspect the crane and determine the cause of the

accident. Two experts, Dr. Courtney Busch and Robert Fleishmann,

examined the crane; both determined that the damage was caused by

an overload. In addition, at Hans' request, a representative of

the manufacturer examined the crane and also opined that the damage

was caused by an overload. He concluded that the crane could not

be repaired SQ the boom and outrigger s ections would have to be

completely replaced.

Disagreeing with the conclusions of t he experts, Hans hired

John Taylor of Non-Destructive Testing Services to examine the

crane. Taylor found imperfections in the welds. Taylor's report

was sent to Busch whose opinion rem ained the same. Busch noted

that Taylor did not addre ss the fact that the primary failure of

the crane was in the base metal, not the welds . Based upon the1 Hans seeks the following extra-contractual damages: company

president Joe Hans' mental anguish, loss of income, depreciation of

the crane caused by being forced to repair rather than replace its

damaged parts, attorneys' fees, and costs of litigation.

2 610 So.2d 290 (Miss.1992), reh'g denied , January 8, 1993.

3 experts' opinions that the crane was overloaded, Phoenix invoked

the policy exclusion and denied Hans' claim.

Hans sued Phoenix und er the policy, alleging denial of the

claim in bad faith. Hans sought contract, extra-contractual, 1 and

punitive damages. The district court granted summary judgment in

favor of Phoenix on all claims except the claim for coverage under

the policy. The parties consented to trial of the remaining claim

before a magistrate judge.

Prior to trial, t he Mississippi Supreme Court announced its

decision in Universal Life Insurance Co. v. Veasley

, 2 in which the

plaintiff was permitted to recover mental anguish damages resulting

from the insurance company's failure to pay a claim, even though

the failure was the result of sim ple negligence, not conduct

warranting punitive damages. Hans moved the district court for

reconsideration of its prio r summary judgment on the extracontractual damages claim in light of Veasley ; the district court

found that because the insurance company had an arguable basis for

denying the claim, the extra-contractual damages claim was properly

denied. The parties settled the policy coverage claim and final

judgment was entered dismissing the case.

Hans timely appealed. He argues that the district court erred

in granting summary judgment in favor of Phoenix on the claim for3 U .S. Fidelity & Guaranty Co. v. Wiggington

, 964 F.2 d 487

(5th Cir.1992); Baton Ro uge Building & Const. Trades Council v.

Jacobs Constructors, Inc. , 804 F.2d 879 (5th Cir.1986).

4 Celotex Corp. v. Catrett , 477 U.S. 317, 322 (1986).

5 S alve Regina C ollege v. Russell , __ U.S. __, 111 S. Ct.

1217, 113 L. Ed. 2d 190 (1991); Jones , 931 F.2d at 1088.

6 Jackson v. Johns-Manville Sales Corp. , 781 F.2d 394, 397

(5th Cir.), cert. denied 478 U.S. 1022 (1986).

4 punitive damages and the claim for other extra-contractual damages.

Analysis

Standard of Review

We review summary judgment de novo , considering the evidence

and inferences therefrom in the light most favorable to the

nonmoving party. 3 "[T]he plain language of Rule 56(c) mandates the

entry of summary judgment, after adequate time for di scovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which th at party will bear the burden of proof at

trial." 4 In addition, the district court's interpretations of

applicable Mississippi law are reviewed by this court de novo

. 5 In

this diversity case, "we must do that whic h we think that the

Mississippi Supreme Court would deem best." 6

I. Punitive Damages

It is well-settled under Mississippi law that "before punitive

damages may be recovered from an insurer, the insured must prove by

a preponderance of the evidence that the insurer acted with (1)7 V easley

, 610 So.2d at 293 (citing Weems v. American

Security Ins. Co.

, 486 So.2d 1222, 1226-27 (Miss.1986); Aetna

Casualty & Surety Co. v. Day , 487 So.2d 830, 832 (Miss.1986)).

8 V easl ey , 610 So.2d at 293; S tandard Life Ins. Co. of

Indiana v. Veal , 354 So.2d 239 (Miss.1977).

5 malice, or (2) gross ne gligence or reckless disregard for the

rights of others." 7 If the insurer has a legitimate or arguable

reason for denying coverage, punitive damages are unavailable. 8

The district co urt found that because Phoenix hired

independent experts to determine the cause of the crane failure, it

had, at the very least, an arguable basis for denying the claim.

We agree. Hans contends that Phoenix "manufactured" the expert

opinions by providing the experts with an inaccurate estimate of

the weight of the crane's load. If the expert reports indicated

that they were based solely on calculations using such a weight, we

might be inclined to accept Hans' argument. Both experts, however,

personally inspected the crane, viewed the damage to the boom and

outrigger, reviewed various records and charts and determined that

the damage was consistent with an overload. In addition, the

manufacturer's representative, at Hans' request, inspected the

crane and opined that the damage was caused by an overload.

Phoenix's reliance on the res ults of these inspections was

reasonable and manifestly does not warrant punitive damages.

II. Extra-contractual Damages

As to Hans' claim for extra-contractual damages, Mississippi

law is somewhat less settled. In V easley

, the plaintiff was9 The court characterized the insurance company's conduct as

a "clerical" error and "an unfortunate episode of a failure of

competence." 610 So.2d at 293-94.

1 0 610 So.2d at 295 (citing P ioneer Life Ins. Co. of Illinois

v. Moss

, 513 So.2d 927, 932 (Miss.1987) (Sullivan, J., concurring,

joined by D. Lee, Prather and Robertson, JJ.)).

6 permitted to recover damages for mental anguish because of the

insurance company's failure to pay a life insurance claim following

the death of her daughter, even though the failure was the result

of simple negligence. The court found, however, that the insurer

did not have an arguable basis for denying her claim. 9 The court

reasoned as follows:

Applying the familiar tort law principle that one is liable

for the full measure of the reaso nably foreseeable

consequences of her actions, it is entirely foreseeable by an

insurer that the failure to pay a valid claim through the

negligence of its employees should cause some adverse result

to the one entitled to payment.

. . . Additional inconvenience

and expense, attorneys fees and the like should be expected in

an effort to have the oversight corrected. It is no more than

just that the injured party be compensated for these injuries.

The holding in Veasley appears to be limited to damages for mental

anguish occasioned by failure to pay an insurance claim in those

instances when the insurer lacks even an arguable basis for denial.

The Veasley majority noted that "[s]ome justices on this court have

suggested that extra-contractual damages ought to be a warded in

cases involving a failure to pay on an insurance contract without

an arguable reason even where the circumstances are not such that

punitive damages are proper." 10 In summarizing the results of the

opinion, the court held: "the assessment of actual damages caused

by the anxiety resulting from delay without an arguable reason is11 610 So.2d at 296.

12 Erie R. Co. v. Tompkins , 304 U.S. 64 (1938).

1 3 Recently in L awrence v. Virginia Ins. Reciprocal

, 979 F.2d

1053 (5th Cir.1992), we suggested in dicta that under Mississippi

law pursuant to Veasley and Strickland v. Rossini , 589 So.2d 1268

(Miss.1991), mental anguish damages may be recovered upon a finding

of simple negligence in the breac h of a contract. Now faced

directly with that issue, we must give those cases a close reading.

Strickland set out the standard for recovering mental anguish

damages in the tort context. The plaintiff, Rossini, purchased a

h ome from the Federal Land Bank Association. As part of the

agreement, she required the Land Bank to provide her with a

certificate that the home was free of termite damage or

infestation. Land Bank hired Redd Pest Control to inspect the home

and provide the appropriate certificate. Redd's certification that

the home was termite-free was in error. As a result, Rossini sued

Land Bank for breach of contract and Redd under a negligence

theory. The S trickland court discussed her right to recover mental

anguish damages only from Redd. It is in this setting that it

announced that "a plain tiff may recover for emotional injury

proximately resulting from negligent conduct, provided only t hat

the injury was foreseeable by the defendant." 589 So.2d at 1275.

7 . . . affirmed." 11

Making our best Erie 12 prognostication, we conclude in light

o f V easley that Mississippi will allow extra-contractual damages

for failure to pay on an insurance policy only when there is no

arguable reason for such failure. An arguable reason, therefore,

shields the insur ance company from liability for both punitive

damages and extra-contractual damages. 13 As we noted earlier,

Phoenix had an arguable basis for den ying Hans' claim.

Accordingly, The district court properly granted summary judgment

in favor of Phoenix on both the punitive damages and extracontractual damages claims.

AFFIRMED.