Opinion ID: 60392
Heading Depth: 1
Heading Rank: 4

Heading: Dwelling Open Peril Coverage

Text: We also reverse the district court's grant of JMOL to the Broussards on their dwelling open peril coverage. The district court granted JMOL because it found that there was no sound evidence upon which the finder of fact could rationally determine that [State Farm] had met its burden of proof to show that the Broussards' home was destroyed by an excluded peril. This Court reviews ... the determinations that the parties met their burdens [of proof] under the clearly erroneous standard. Stevens Shipping & Terminal Co. v. JAPAN RAINBOW II MV, 334 F.3d 439, 443 (5th Cir.2003). The district court's conclusion that State Farm failed to meet its burden of proof under the dwelling coverage was clear error. State Farm's experts introduced sufficient evidence to permit a reasonable jury to find in its favor. Two of State Farm's experts, Kurt Gurley and Robert Dean, testified that the damage to the actual structure of the Broussards' home came from the storm surge. Gurley stated that it was 75% likely that wind caused a relatively small amount of damage to the Broussards' roof before the storm surge arrived, but that Hurricane Katrina's winds were not strong enough to cause structural damage to the home. Gurley also opined that, given the data available regarding the Broussards' home, no other wind engineer could state more definitively whether there was wind damage or specify the extent of the damage more precisely. State Farm's evidence was more than sufficient to withstand a motion for JMOL. A rational jury could conclude, based on the testimony of State Farm's experts, that the Broussards' home and personal property were destroyed by water. Wall v. Swilley, 562 So.2d 1252, 1256 (Miss. 1990) (Unless the evidence is so lacking that no reasonable jury could find for plaintiffs, the motion must be denied.). We reverse the district court's entry of JMOL for the Broussards on the dwelling coverage and remand for a new trial.
State Farm also argues that the district court erred in allocating the burdens of proof. This Court reviews the allocation of the burden of proof de novo .... Stevens Shipping, 334 F.3d at 443. Under Mississippi law a plaintiff has the burden of proving a right to recover under the insurance policy sued on, and this basic burden never shifts from the plaintiff. Britt v. Travelers Ins. Co., 566 F.2d 1020, 1022 (5th Cir.1978); see also Home Ins. Co. v. Greene, 229 So.2d 576, 579 (Miss.1969) (An insured seeking recovery on a policy insuring against fire has the burden of proving the loss and its extent.). In this case, the parties agreed that the home and its contents were a total loss, and the disputed issue is which peril caused the loss. The parties bear different burdens of proof under the personal property and dwelling coverages. For [personal property] named peril coverage ... the plaintiff has the burden of proving that any losses were caused by a peril covered by the policy. Under [dwelling] open peril coverage... the plaintiff still has the basic burden of proving his right to recover. However, under open peril coverage the insurer bears the burden of proving that a particular peril falls within a policy exclusion, and must plead and prove the applicability of an exclusion as an affirmative defense. Tuepker, 507 F.3d at 356-57 (internal quotations and citations omitted). The Broussards' personal property and dwelling coverages are both subject to a water damage exclusion identical to the exclusion in Tuepker. Id. at 350-51. [2] The parties do not dispute that this exclusion applies to any damage caused by the Hurricane Katrina storm surge. State Farm argues that under the dwelling coverage, once it advances evidence to establish its affirmative policy exclusion defenses, the burden shifts back to the Broussards to prove that there is an exclusion to the defenses or to segregate covered from non-covered damages. In support of its theory, State Farm points to Texas cases such as Britt v. Cambridge Mutual Fire Insurance Co., which hold that [o]nce an insurer has pled an exception to the insurance policy, the burden is on the insured to prove that the occurrence in question did not come within the exclusion of the policy. 717 S.W.2d 476, 482 (Tex.App.1986). Mississippi courts have not explicitly addressed shifting burdens of proof under open peril policies, so we must make an educated ` Erie guess' as to how the Mississippi Supreme Court would resolve the issue. Leonard, 499 F.3d at 431. The Mississippi Supreme Court rejected a rule similar to State Farm's shifting back theory in a Hurricane Camille slab case construing a named peril policy. Lititz Mut. Ins. Co. v. Boatner, 254 So.2d 765, 766 (Miss.1971). The factual similarities between Boatner and the case at hand are striking. In Boatner, nothing was left of the insureds' home and its contents but a concrete slab. Id. at 765. The insureds argued that their home was destroyed by wind prior to the arrival of the hurricane-produced tidal wave. Id. at 767. The insurer admitted that some wind damage was probable, but withheld full payment under the policy because it argued that the home was actually destroyed by the tidal wave, an excluded peril. Id. at 766. The jury found in favor of the insureds and the Mississippi Supreme Court affirmed. Id. The court held that the insureds were required to introduce some evidence regarding causation to recover under a named peril policy, but rejected the rule that the burden of proof was upon the homeowners ... [to] also show that [their home] was in no respect damaged by tidal wave.... Id. In Grace v. Lititz Mutual Insurance Co., another Hurricane Camille case, the Mississippi Supreme Court sustained a jury verdict for the insureds under a windstorm policy which excluded water damage. 257 So.2d 217, 219, 224-25 (Miss. 1972). The Grace court stated that [t]he rule is well established in this state that where the question presented to the jury was whether the loss was due to windstorm or to water, the entire question of proximate cause is treated as one of fact independent of the explicit application of any rule of law. Id. (citing Commercial Union Ins. Co. v. Byrne, 248 So.2d 777, 781 (Miss.1971)). The Grace court also reversed the trial court's remittitur of $2500 and awarded damages in the amount of the policy limits because the insurer never contested the fact that the insureds' property was a total loss and did not offer any evidence at any time during the trial of what value or of what part of the [insureds'] property was destroyed by water prior to its destruction by wind. Id. at 225. Boatner and Grace involved named peril policies under which the insured was required to prove that his loss was caused by a specified peril as part of his prima facie case. The Mississippi Supreme Court has not explicitly addressed the shifting back theory when considering an open peril policy. We think it unlikely, however, that the court would reject rules similar to State Farm's shifting back theory when considering named peril policies and embrace them when considering an open peril policy under which the insurer must prove causation by an excluded peril as an affirmative defense. In support of this view, we note that the rule that causation is a fact question for the jury applies equally to open peril and named peril policies. In Byrne, a Hurricane Camille case involving an open peril policy, the Mississippi Supreme Court held that a directed verdict was not proper where the plaintiff introduced some evidence that his house and personal property were damaged by wind prior to the arrival of flood waters from a nearby bayou. 248 So.2d at 781. In language later quoted in Grace, the Byrne court held that causation was a question of fact independent of the explicit application of any rule of law which would take the issue away from the jury. Id.; see Grace, 257 So.2d at 224. State Farm's shifting back theory seems to be the sort of rule of law which would operate in many cases to take the issue of causation away from the jury. In light of Boatner, Grace, and Byrne, we hold that State Farm's shifting back theory is not the rule in Mississippi. Grace, 257 So.2d at 224; Boatner, 254 So.2d at 766; Byrne, 248 So.2d at 781. On remand, the parties must meet their burdens of proof as outlined in Tuepker, 507 F.3d at 356-57, and the ultimate allocation of wind and water damages under the Broussards' dwelling coverage is a question of fact for the jury. Grace, 257 So.2d at 224.
We also reverse the district court's decision to submit the punitive damages question to the jury. In insurance contract cases, the trial court is responsible for reviewing all evidence before it in order to ascertain whether the jury should be permitted to decide the issues of punitive damages. Lewis v. Equity Nat'l Life Ins. Co., 637 So.2d 183, 185 (Miss. 1994) (internal quotations omitted). If, upon reviewing all the evidence, the district court concludes that the insurer acted in bad faith, or that reasonable minds could differ regarding whether the insurer acted in bad faith, then the district court should send the issue of punitive damages to the jury. Id. at 185-86. The district court denied State Farm's motion for JMOL on punitive and extra-contractual damages and sent the issue to the jury. We review the district court's ruling on State Farm's motion for JMOL de novo. Sobley v. S. Natural Gas Co., 302 F.3d 325, 335-36 (5th Cir.2002). Under Mississippi law, insurers have a duty to perform a prompt and adequate investigation and make a reasonable, good faith decision based on that investigation and may be liable for punitive damages for denying a claim in bad faith. Liberty Mut. Ins. Co. v. McKneely, 862 So.2d 530, 535 (Miss.2003); U.S. Fid. & Guar. Co. v. Wigginton, 964 F.2d 487, 492 (5th Cir.1992). The Broussards bear the burden of proving that State Farm acted in bad faith when it denied their insurance claim. Wigginton, 964 F.2d at 492. Section 11-1-65(1)(a) of the Mississippi Code Annotated states that [p]unitive damages may not be awarded if the claimant does not prove by clear and convincing evidence that the defendant against whom punitive damages are sought acted with actual malice, gross negligence which evidences a willful, wanton or reckless disregard for the safety of others, or committed actual fraud. Mississippi law does not permit parties to recover punitive damages unless they first prove that they are entitled to compensatory damages. MISS.CODE ANN. § 11-1-65(1)(b)-(c); Sobley, 302 F.3d at 330. To recover punitive damages for bad faith denial of their insurance claim, the Broussards must show that the insurer denied the claim (1) without an arguable or legitimate basis, either in fact or law, and (2) with malice or gross negligence in disregard of the insured's rights. Wigginton, 964 F.2d at 492. State Farm, on the other hand, need only show that it had reasonable justifications, either in fact or in law, to deny payment. Id. The question of whether State Farm had an arguable basis for denying the Broussards' claim is an issue of law for the court. Id. Insurers who are not liable for punitive damages may nonetheless be liable for consequential or extra-contractual damages ( e.g., reasonable attorney fees, court costs, and other economic losses) where their decision to deny the insured's claim is without a reasonably arguable basis but does not otherwise rise to the level of an independent tort. Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1186 n. 13 (Miss.1990); see also Sw. Miss. Reg'l Med. Ctr. v. Lawrence, 684 So.2d 1257, 1267-69 (Miss.1996) (reversing an award of punitive damages but affirming an award of consequential damages including, inter alia, compensation for the plaintiff's reasonably foreseeable emotional distress following the denial of her claim). We hold that State Farm had an arguable basis for denying the Broussards' claim in October 2005 and that a punitive damages instruction is not warranted on this ground. The State Farm claims adjuster who recommended denying the Broussards' claim examined the position of the home seaward of the debris line and the condition of trees on and around the Broussards' property. The adjuster concluded that the damage to the trees was more consistent with flooding than with tornadic winds and stated that [o]ur investigation shows that the insured location and surrounding neighborhood was damaged by a tidal surge and flood and denied coverage on this ground. Although the Broussards have pointed to some facts which suggest that wind destroyed their home prior to the arrival of the tidal surge, State Farm had an arguable basis for denying their claim based on the observations of its adjuster regarding the position of the debris line and the condition of trees on and surrounding the property. Dunn v. State Farm Fire & Cas. Co., 711 F.Supp. 1362, 1364-65 (N.D.Miss.1988) (denying defendant insurer's motion for summary judgment because there were genuine issues of material fact, but rejecting plaintiff's claim for punitive damages because the facts, although contested, provided the insurer with an arguable basis for denying the plaintiff's claim). [3] Although it is a much closer question, we also hold that State Farm is not liable for punitive damages for continuing to withhold payment under the policy after its expert opined that some covered wind damage likely occurred prior to the arrival of the storm surge. State Farm had a duty to re-evaluate the Broussards' claim which continued even after the claim was refused and the Broussards filed suit. See Gregory v. Cont'l Ins. Co., 575 So.2d 534, 541 (Miss.1990). State Farm's expert Gurley stated that there was a 75% likelihood that between none and 35% of the shingles on the Broussards' roof were damaged by wind prior to the arrival of the storm surge. State Farm was liable to the Broussards for this damage, however minor. See Dixie Ins. Co. v. Mooneyhan, 684 So.2d 574, 584 (Miss.1996). Under the somewhat unusual circumstances of this case, however, punitive damages are not appropriate on this ground. The State Farm claim file reflects that the Broussards received a $2000 advance within ten days of Hurricane Katrina. [4] Counsel for State Farm stated at oral argument that it was State Farm's position that this amount, combined with the Broussards' two-percent deductible of about $2400, was adequate to cover the kind of minor roof damage discussed by Gurley. Without deciding whether this payment was in fact adequate, we hold that State Farm did not act with sufficient malice or gross negligence to merit punitive damages. Wigginton, 964 F.2d at 492. However, as State Farm lacked an arguable basis for denying this portion of the Broussards' claim, on remand the district court should consider whether additional actual or consequential damages are appropriate. Williams, 566 So.2d at 1186 n. 13. Our inquiry does not end there. Mississippi courts have held that under certain limited circumstances, insureds may recover punitive damages even though the insurer had an arguable basis for denying their claim. Lewis v. Equity Nat'l Life Ins. Co., 637 So.2d 183, 185 (Miss.1994). Mississippi courts have sent the issue of punitive damages to the jury when the insurer's behavior in writing the insurance policy or handling the insurance claim breaches an implied covenant of good faith and fair dealing and rises to the level of an independent tort. Stewart v. Gulf Guar. Life Ins. Co., 846 So.2d 192, 202-05 (Miss.2002); Lewis, 637 So.2d at 185. Mississippi courts have found independent torts based on the insurer's behavior in writing the policy, Stewart, 846 So.2d at 202, and on the basis of grossly negligent claim investigation, id. at 204. The district court found that State Farm engaged in both kinds of behavior. [5]