Opinion ID: 9219
Heading Depth: 3
Heading Rank: 2

Heading: Arguable Reason to Deny Payment

Text: We review the district court's ruling on a motion for judgment as a matter of law de novo, applying the same legal standard as did the trial court. Conkling v. Turner, 18 F.3d 1285, 1300 (5th Cir. 1994); Omnitech Int'l, Inc. v. Clorox Co., 11 F.3d 1316, 1322-23 (5th Cir. 1994). Judgment as a matter of law is proper after a party has been fully heard on an issue and 6 Additionally, Williams maintains that the dismissal of Worldwide and Dixie was improper. Beyond noting this in a footnote, however, he does not address this issue. The district court ruled that, because Dixie and Worldwide were agents for Star--a disclosed principal, no proof had been presented from which a reasonable jury could find that either Dixie or Worldwide had done anything that would entitle Williams to obtain a judgment against them. We find that the dismissal of Worldwide and Dixie was not improper. 10 there is no legally sufficient evidentiary basis for a reasonable jury to have found for that party with respect to that issue. Fed R. Civ. P. 50(a). In evaluating such a motion, we view the entire trial record in the light most favorable to the non-movant and draw all inferences in its favor. Conkling, 18 F.3d at 1300; Omnitech, 11 F.3d at 1322-23. The decision to grant a directed verdict is not a matter of discretion, but a conclusion of law based upon a finding that there is insufficient evidence to create a fact question for the jury. Conkling, 18 F.3d at 1300; Omnitech, 11 F.3d at 1322-23 (citations, ellipsis, and internal quotation marks omitted). In insurance contract cases, it is up to the trial court to decide whether the issue of punitive damages should be submitted to the jury. Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172, 1187 (Miss. 1990). To this end, the trial court is responsible for reviewing all evidence before it. Lewis v. Equity Nat. Life Ins. Co., 637 So. 2d 183, 185 (Miss. 1994) (quoting Veasley, 610 So. 2d at 293). The trial court should refuse to grant an instruction on the issue of punitive damages where the insurer had a legitimate or arguable reason for denying the claim. Id. An arguable reason is one in support of which there is some credible evidence. There may well be evidence to the contrary. A person is said to have an arguable reason for acting if there is some credible evidence that supports the conclusions on the basis of which he acts. Guy, 894 F.2d at 1411 (quoting Blue Cross & Blue Shield v. Campbell, 466 So. 2d 11 833, 851 (Miss. 1984) (Robertson, J., concurring in denial of rehearing)). Williams contends that Star had no arguable reason to deny his claim because the insurance policy was ambiguous. He argues that the policy was ambiguous because it was unclear whether he had .50 inches coverage or consecutive dry hours coverage or both. Because an ambiguous contract must be construed against the drafter--the Defendants, in this case, Banks v. Banks, 648 So. 2d 1116, 1121 (Miss. 1994), Williams contends that there could be no arguable reason for Star to deny his claim. Notwithstanding the ambiguous policy, this argument is unpersuasive. See Western Line Consol. Sch. Dist. v. Continental Casualty Co. & CNA, 632 F. Supp. 295, 304 (N.D. Miss. 1986) (finding that insurer had a reasonably arguable basis to deny payment on claims despite ambiguity in policy). The district court found that: [i]n this case there are in fact two ambiguities. One is as to whether there is one coverage or two types of coverage; the other is in regard to the consecutive dry hours coverage as to whether or not that coverage is to be gauged by how much rain fell at the airport during the time period in question. The second ambiguity did not arise as a result of imperfect drafting but as a result of factual circumstances peculiar to this case.7 The district court found that Star had an arguable reason to decline consecutive dry hours coverage because of this 7 The Director of special events at Worldwide testified that the paperwork for consecutive dry hours coverage is different than that for .50 inches coverage, and that it includes a definition of consecutive dry hours. The policy form issued to Williams did not mention or include a definition of consecutive dry hours. 12 fact-based ambiguity. We conclude that the ambiguities regarding Williams's coverage did not justify submitting the issues of extra-contractual and punitive damages to the jury. Under certain circumstances, despite the presence of an arguable reason to deny the claim, the issues of extracontractual and punitive damages may be submitted to the jury.8 Lewis, 637 So. 2d at 185. For example, an insurer who denies a claim on an arguable basis could conceivably be held for punitive damages if the insured's financial straits were used as settlement leverage, Andrew Jackson, 566 So. 2d at 1186, or if the insured committed sufficiently repugnant acts in dealing with the insured and the disputed claim. Id. The Mississippi Supreme Court has enumerated several other such circumstances, including those where the insurer (1) denies a claim because of a material misrepresentation by its own agent, (2) denies a claim without proper investigation, (3) inordinately delays processing the claim, and (4) engages in `post-claim under-writing.' Greer, 58 F.3d at 1074 (citing Lewis, 637 So. 2d at 186-89). Williams argues that the lying exception is applicable in the instant case. This exception arises when an insurance company's defense is based wholly on the issue of the truthfulness of the insurance company's witnesses. Blue Cross, 8 Conversely, [s]ubmission of the punitive-damages issue may not be warranted--notwithstanding an absence of an arguable basis for the denial or breach. Andrew Jackson, 566 So. 2d at 1185. Moreover, even where the insurer is not liable for punitive damages, an award of extra-contractual damages may be proper upon presentation of sufficient proof. Id. at 1186 n.13. 13 466 So. 2d at 852 (Robertson, J., concurring in denial of rehearing). The lying exception is operative only where the jury is asked to reject on grounds of deliberate falsehood or fabrication the insurer's defense to the underlying contract claim. Id. Williams also argues that Star did not properly investigate his claim. The Mississippi Supreme Court has established that the denial of a claim without proper investigation may give rise to punitive damages. [It has] recognized that an insurance company has a duty to the insured to make a reasonably prompt investigation of all relevant facts. Lewis, 637 So. 2d at 187 (citations and internal quotation marks omitted). In the health insurance context, one Mississippi court found that as a part of an insurance company's investigation, the insurance company must interview its agents and employees to determine whether they have knowledge relevant to the claim. Id. (citing Eichenseer v. Reserve Life Ins. Co., 682 F. Supp. 1355, 1366 (N.D. Miss. 1988), aff'd, 881 F.2d 1355 (5th Cir. 1989), vacated on other grounds, 499 U.S. 914 (1991)). In the instant case, the measurement of rainfall at the airport was critical to the denial of Williams's claim. Star's claims adjuster testified that he denied Williams's claim based on an examination of the insurance policy, a memo from the Director of special events at Worldwide, a note and radar maps supplied by Earl Gasson, and the rainfall records of the Jackson Airport. Williams charges that, when Gibson was filling out the 14 insurance application for him, she did not offer Williams the opportunity to choose a different location from which to measure the rain,9 and that, during his investigation, Star's claims adjuster did not talk to Gibson about the choice of Closest National Hourly Weather Station. We find that, with regard to the lying exception and improper investigation, Williams's arguments are meritless. Any plaintiff asking for punitive damages, or any special or extraordinary damages based upon `bad faith' of an insurance company has a heavy burden. Hans Const. Co., Inc. v. Drummond, 653 So. 2d 253, 263 (Miss. 1995). There must be a finding of an independent tort--a finding of bad faith-plus before punitive damages may be awarded. Andrew Jackson, 566 So. 2d at 1188. Ordinary torts do not rise to the heightened level of an independent tort. Id. at 1186 (quoting State Farm Fire & Casualty Co. v. Simpson, 477 So. 2d 242, 250 (Miss. 1985)). Although the Defendants may have made mistakes in handling Williams's coverage, there is no indication that the Defendants or any of their employees deliberately made any misrepresentations. The district court determined, in particular, that there was no indication that Gibson acted in a fraudulent or misleading manner. 9 In addition to Closest National Hourly Weather Station, the only option offered on the insurance application in regard to a recording location was Independent Weather Observer on Location. As to this option the application noted, Independent Weather Observers are available on request at least 14 days prior to the event if you do not have access to a qualified Independent Weather Observer. Williams submitted his application for a quote on May, 26, 1992--less than fourteen days before the concert, which was scheduled for June 7, 1992. 15 Furthermore, the investigation conducted by Star was not so cursory as to rise to the level of gross or willful wrongdoing. [T]he mere fact that an investigation of a claim is deficient or incompetent is not sufficient to establish malice, gross negligence, or reckless disregard of the rights of the insured. Guy, 894 F.2d at 1413 (citing Fedders Corp. v. Boatright, 493 So. 2d 301, 312 (Miss. 1986); Bellefonte Ins. Co. v. Griffin, 358 So. 2d 387, 391 (Miss. 1978)). In the instant case, the Defendants could have handled Williams's insurance coverage with more insight and skill--both at the application stage and the investigation stage. The totality of the circumstances, however, does not suggest more than an unfortunate episode of a failure of competence. Veasley, 610 So. 2d at 294 (holding that insurer's denial of life insurance claim was result of mistake and did not rise to level of gross negligence so as to justify punitive damages award). Finally, Williams acknowledged that he never read the completed insurance application before he submitted it to Worldwide.10 Under Mississippi law, unless a party was induced not to read the contract or have it read to him by fraudulent representations made by another party, he will be required to abide by its terms. Pedersen v. Chrysler Life Ins. Co., 677 F. Supp. 472, 475 (N.D. Miss. 1988). A person is under an obligation to read a contract before signing it, and will not as 10 Williams also testified that he did not read any of the contracts he entered into with the entertainers scheduled to perform at his Kickapoo Park concert. 16 a general rule be heard to complain of an oral misrepresentation the error of which would have been disclosed by reading the contract. Godfrey, Bassett & Kuykendall Architects, Ltd. v. Huntington Lumber & Supply Co., Inc., 584 So. 2d 1254, 1257 (Miss. 1991). We conclude that the lying exception does not apply to this case--nor does the improper investigation exception or any of the other exceptions to the arguable basis rule. Viewing the trial record in the light most favorable to Williams and drawing all inferences in his favor, we find that the conduct of the Defendants in denying Williams's rain insurance claim did not justify submitting the issues of extra-contractual and punitive damages to the jury.