* Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion

should not be published and is not precedent except under the limited

circumstances set forth in 5TH CIR. R. 47.5.4.

IN THE UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT

_______________

No. 97-60646

Summary Calender

_______________

MICHAEL T. SCHAUGER,

Plaintiff-Appellant,

VERSUS

NATIONWIDE MUTUAL INSURANCE COMPANY,

Defendant-Appellee.

_________________________

Appeal from the United States District Court

for the Southern District of Mississippi

(1:96-CV-422GR)

_________________________

June 16, 1998

Before JONES, SMITH, and STEWART, Circuit Judges.

JERRY E. SMITH, Circuit Judge:*

Michael Schauger appeals a summary judgment for Nationwide

Mutual Insurance Company (“Nationwide”) on the issue of punitive

damages for a denial of benefits. Finding no reversible error, we

affirm.
2

I.

Schauger was involved in a motorcycle accident with a hit-andrun driver in September 1995. He sustained injuries resulting in

approximately $60,000 of damages and made a claim for uninsured

motorist (“UM”) coverage on his Nationwide car insurance policy.

When Schauger filed his claim with Nationwide, he requested

“stacking” of his insurance benefits. The policy provided for UM

coverage of $25,000 per person, or $50,000 per accident. Three

cars were covered under the policy. Schauger thus requested

$75,000 worth of benefitsSS$25,000 for each car insured.

Although Nationwide was aware of Mississippi caselaw requiring

the stacking of insurance benefits in some instances, it resisted

a stacked payment to Schauger because it felt that under the

existing law, the Mississippi courts would not require it to pay

more than $25,000 on Schauger's policy. Accordingly, it agreed

only to pay Schauger $25,000 worth of benefits (and apparently it

also offered to pay him a greater amount should it lose litigation

on the issue then pending in the Mississippi Supreme Court).

II.

Schauger sued Nationwide in state court for the unpaid

$50,000, seeking punitive damages for the insurance company's

“unsupportable” and “bad faith” denial of insurance benefits.

Nationwide removed this diversity case.

Before trial, the Mississippi Supreme Court decided the
3

stacking issue adversely to Nationwide in the related litigation;

Nationwide immediately paid Schauger the remaining $50,000, then

sought summary judgment motion on the issue of punitive damages,

contending that there was no material fact issue presented on the

bad faith claim. The district court agreed and held that

Nationwide's legal position, though ultimately rejected, did not

present, absent other evidence, a fact issue concerning the

punitive damages claim. See Schauger v. Nationwide Mut. Ins. Co.,

1997 U.S. Dist. LEXIS 21764 (S.D. Miss. Aug. 29, 1997) (-

No. 1:96cv422GR).

III.

We review a grant of summary judgment de novo. See Hanks v.

Transcontinental Gas Pipe Line Corp., 953 F.2d 996, 997 (5th Cir.

1992). Summary judgment is appropriate “if the pleadings,

depositions, answers to interrogatories, and admissions on file,

together with the affidavits, if any, show that there is no genuine

issue as to any material fact and that the moving party is entitled

to a judgment as a matter of law.” FED. R. CIV. P. 56(c). The

party seeking summary judgment carries the burden of demonstrating

that there is an absence of evidence to support the non-moving

party’s case. See Celotex Corp. v. Catrett, 477 U.S. 317, 325

(1986). After a proper motion for summary judgment is made, the

non-movant must set forth specific facts showing that there is a
4

genuine issue for trial. See Hanks, 953 F.2d at 997.

We begin our determination by consulting the applicable

substantive lawSSin this case the law of MississippiSSto determine

what facts and issues are material. See King v. Chide, 974 F.2d

653, 655-56 (5th Cir. 1992). We then review the evidence relating

to those issues, viewing the facts and inferences in the light most

favorable to the non-movant. See id. If the non-movant sets forth

specific facts in support of allegations essential to his claim, a

genuine issue is presented. See Brothers v. Klevenhagen, 28 F.3d

452, 455 (5th Cir. 1994).

IV.

A.

Under Mississippi law, an insured can recover punitive damages

for an insurer's bad faith breach of an insurance contract. “It is

settled[, however,] that punitive damages are recoverable only

where the breach is attended by some intentional wrong, insult,

abuse or gross negligence which amounts to an independent tort.”

Bellefonte Ins. Co. v. Griffin, 358 So. 2d. 387, 391 (Miss. 1978)

(citing Standard Life Ins. Co. v. Veal, 354 So. 2d 239 (Miss.

1977)).

The plaintiff's right of recovery is a narrow one. “[S]ince

punitive damages are assessed as an example and warning to others,

they should be allowed only with caution and within narrow limits.
1 Schauger's argument that Nationwide acted in bad faith rests solely on

the contention that Nationwide's legal position in denying stacked benefits was

so contrary to the existing Mississippi jurisprudence that it could only be

construed as a willful act to keep insureds from receiving their insurance

benefits. A short summary of the then-existing state court jurisprudence is thus

in order.

Prior to this litigation, the Mississippi Supreme Court had required

stacking when the insurer wrote a “per-vehicle” UM policySSone that defined UM

coverage in terms of the vehicle covered. See Harrison v. Allstate Ins. Co.,

662 So. 2d 1092, 1094 (Miss. 1995). Such policies normally raised their premiums

for UM coverage when the insured had more than one vehicle. See id. The

(continued...)

5

If an insurance company has a legitimate reason or an arguable

reason for failing to pay a claim, punitive damages will not lie.”

Consolidated Am. Life Ins. Co. v. Toche, 410 So. 2d 1303, 1304-05

(Miss. 1982).

The law therefore presents a two-step analysis. First, the

plaintiff must present some evidence of intentional wrongdoing.

Once he has done so, the insurance company may present an “arguable

reason” for why it failed to pay the claim.

B.

In order to reach the jury, the plaintiff must make a

sufficient showing on the first prong of the punitive damages

testSSthat the insurance company “intentionally and unreasonably

refuse[d] payment of a legitimate claim with veritable impunity.”

Veal, 354 So. 2d at 248. Schauger does not present a fact issue on

this prong.

Schauger's sole argument is that there was no legal basis on

which Nationwide could support its stacking claim. Although we set

out in more detail his legal argument in a footnote,1 our review of
1(...continued)

Mississippi Supreme Court found that when the insurance company defined UM

coverage in this waySSand charged what looked like distinct premiums for each

vehicle coveredSSthe court viewed those as separate insurance policies, upon each

of which the insured could recover UM benefits. See id.

In response to this ruling, insurance companies tried to prevent UM

stacking by writing a “per policy” stacking limit into the policy. Such a limit

set UM coverage based on the number of insurance policies that an insured had,

rather than on the number of cars he owned.

The “per policy” arrangement had never been addressed by the Mississippi

courts. But given the economic realities of UM insurance pricing, the companies

hoped that the courts would make a distinction between the “per vehicle”

policySSheld to require stackingSSand the “per policy” language.

To buttress their arguments, the companies pointed to a section of the

insurance code in which the text purportedly limits their UM coverage to the

“policy limit.” See MISS. CODE ANN. § 83-11-101(1) (1991). The Mississippi

Supreme Court had never passed on this section's applicability to the instant

issue. The insurance companies denied benefits under their legal theorySSthus

forcing the state courts to decide the issue. Ultimately, the argument failed.

See U.S. Fidelity and Guar. Co. v. Ferguson, 698 So. 2d 77, 79-81 (Miss. 1997).

6

the arguments, and the district court's opinion, inform us that

Schauger's contention is without merit.

Nationwide's legal position, although in the end discredited

by the state's highest court, was not so outlandish as to give rise

to an inference of bad faith. At the time the arguments were made

to deny benefits, Nationwide's position was advocated by many

insurance companies; the courts had not rejected the insurance

companies' interpretation of the lawSSor for that matter addressed

it; and when the issue finally reached the state's high court, it

commanded the issuance of a published opinion containing that

court's reasoned analysis. We also note that the supreme court,

when finally deciding the issue, made no mention that the losing

arguments were frivolous or otherwise meritless.

We thus agree with the district court that there is
7

insufficient evidence as a matter of law that Nationwide acted in

bad faith in rejecting Schauger's claim. The judgment,

accordingly, is AFFIRMED.