Opinion ID: 1097684
Heading Depth: 1
Heading Rank: 3

Heading: The Majority Affirms An Assessment Of Punitive Damages In This Bad Faith Refusal Case By Reference To A Standard Without Precedent In This State And Different From And Lesser Than The Standard Applicable In All Other Punitive Damages Cases

Text: My final complaint is that the majority en route to affirmance has wholly departed from our general substantive rules regarding the assessment of punitive damages. Indeed, the majority has carved out bad faith refusal cases and held that in such cases punitive damages may be assessed upon a lesser showing than we require generally. I would hold that the substantive rule breach of which may subject a party to an assessment of punitive damages is the same in bad faith refusal cases as in any others. The majority opinion, at pages 269-271 and particularly on page 271, appears to hold that punitive damages may be assessed solely upon a showing that the insurer denied the claim without an arguable reason therefor. All of our bad faith refusal cases  from Standard Life v. Veal forward  until today proceeded under the premise that punitive damages could not be assessed against an insurer unless there had been a violation of our general rule that proof of gross, reckless or maliciously intentional conduct must be shown. I read the majority as suggesting that denying a claim or defending a lawsuit without an arguable basis therefor will without more subject one to punitive damages. [16] The confusion on this point  of which the majority here is by no means the first manifestation  appears to emanate from that most overworked sentence from Standard Life v. Veal , which in pertinent part reads: Of course, if an insurance company has ... an arguable reason for failing to pay a claim, punitive damages will not lie, ... . 354 So.2d at 248. This statement makes sense and has appropriately become the bedrock of much of our law in bad faith refusal cases. The problem is that the converse is not necessarily so. That the presence of an arguable reason precludes assessment of punitive damages does not mean that the absence of an arguable reason requires their award. Yet this is precisely the trap into which the majority here  and no doubt others  have fallen, for the majority seems to proceed on the notion that all Crenshaw had to show to recover punitive damages was the absence of an arguable reason for Bankers Life's denial of his claim (see particularly page 271 of majority opinion). I submit that more than the absence of an arguable reason must be shown before punitive damages are recoverable, much more, and that none of our cases prior to today holds to the contrary. The three bad faith refusal cases in which we have heretofore affirmed assessments of punitive damages all proceed under our general rule regarding punitive damages, that such damages are assessable only where the insurer has been guilty of some wilful or malicious wrong or the gross or reckless disregard for the rights of others. Standard Life Insurance Company of Indiana v. Veal, 354 So.2d at 247; Travelers Indemnity Co. v. Wetherbee, 368 So.2d 829, 835 (Miss. 1979), and Reserve Life Insurance Company v. McGee, 444 So.2d 803, 808-09 (Miss. 1983). Where one or more of these labels may fairly be said to describe the conduct of the insurer, no doubt that insurer will have denied the claim without an arguable reason, but again the converse is not necessarily so. The point is driven home by a recognition of the various circumstances in which, objectively speaking, an insurer may have no arguable reason for refusal to pay a claim but may nevertheless not be lawfully subject to an assessment of punitive damages. Where the failure to pay the claim is the result of a clerical error or honest mistake, State Farm Fire & Casualty Co. v. Simpson, supra ; Consolidated American Life Insurance Co. v. Toche, 410 So.2d 1303, 1306 (Miss. 1982), punitive damages do not lie though objectively speaking the insurer has no arguable reason for failure to honor a just claim. A failure to pay may result from negligence on the part of the insurer and punitive damages are not assessable, again assuming arguendo the objective absence of an arguable reason for such failuer to pay. State Farm Fire & Casualty Co. v. Simpson, supra ; Bellefonte Insurance Co. v. Griffin, 358 So.2d 387, 391 (Miss. 1978). I doubt we would uphold an assessment of punitive damages where the insurer acted upon the erroneous advice of counsel, see Freeland, et fil., Bad Faith Litigation: A Practical Analysis, 53 Miss.L.J. 237, 250-56 (1983), again though the trier of fact has determined as a matter of fact that the insurer had no arguable reason for denial of the claim. We have only recently recognized that not every case of fraud is a case for punitive damages. Gardner v. Jones, 464 So.2d 1144, 1148 (Miss. 1985). We have many cases arising in a variety of factual settings where we have purported to state the rule violation of which will subject one to assessment of punitive damages. See, e.g., Gardner v. Jones, 464 So.2d 1144, 1148-49 (Miss. 1985); Snowden v. Osborne, 269 So.2d 858, 860-61 (Miss. 1972); T.G. Blackwell Chevrolet Co. v. Eshee, 261 So.2d 481, 485 (Miss. 1972); Seals v. St. Regis Paper Co., 236 So.2d 388, 392 (Miss. 1970). These opinions are not remarkable for precision in thought or clarity in expression, although I doubt the rule could or should be stated in other than general terms. Out of our cases, nevertheless, there appear two somewhat distinct types of situations where one's conduct may subject him to punitive damages: where the defendant acted with malice and where the defendant acted with gross or reckless disregard for the rights of others. In this setting I would hope that some day soon we would embrace the rule found in Restatement (Second) of Torts § 908(2) (1979) to the effect that Punitive damages may be awarded for conduct that is outrageous, because of the defendant's evil motive or his reckless indifference to the rights of others. I would hope further that this rule would be applied in all punitive damages cases, including bad faith refusal cases. At the very least I hope that at some future date we will return to the view that the rule for assessment of punitive damages is the same in bad faith refusal cases as in all others.
In the final analysis, I would reverse and render so much of the judgment below as assesses punitive damages against Bankers Life. Dr. McParland from the outset and at trial advised the company that the sole cause of the amputation was Crenshaw's pre-existing arteriosclerosis. Whatever else may be said of that opinion, it furnished Bankers Life with an arguable reason for its refusal to pay. Dr. Westphal, Crenshaw's doctor, conceded that Dr. McParland's opinion could be correct, althought he (Dr. Westphal) did not think it was. With respect, I suggest there is no rational basis on which it may be said that Dr. McParland was lying or that his opinion was bogus, contrived, formulated in bad faith. It follows as a matter of law that, when the arguable reason question is viewed under Paymaster Oil rule, Bankers Life is entitled to judgment on Crenshaw's claim for punitive damages notwithstanding the verdict of the jury. Failure to prove that element of the bad faith claim causes the entire claim to fall. On this appeal we should reverse and render on the punitive damages issue. On the other hand, I would affirm the judgment insofar as it awards $20,000.00 in policy benefits to Crenshaw and I would add to that pre-judgment interest and attorneys fees and legal expenses. I will explain. As a part of the positive law of this state, I would have the Court declare that in any action brought by an insured against an insurance company in which the trial court enters judgment in favor of the insured and against the insurer for benefits afforded by a policy of insurance, the judgment shall have added to it (a) pre-judgment interest at the legal rate beginning 30 days after the insured gave notice of his or her claim (b) a reasonable attorney's fee not to exceed 25% of the amount of policy benefits recovered (c) all legal expenses reasonably and necessarily incurred by the insured in the prosecution of the claim.
On the award of attorneys fees, contrary to loose talk in some cases, this Court has long recognized the propriety of awarding attorneys fees absent statutory authorization. In the past we have approved awards of attorneys fees when the evidence was such that assessment of punitive damages was allowable, although no statute authorized such. See, e.g., Aetna Casualty and Surety Co. v. Steele, 373 So.2d 797, 801 (Miss. 1979); Kalmia Realty & Insurance Co. v. Hopkins, 163 Miss. 556, 566, 141 So. 903, 904 (1932); Yazoo & Mississippi Valley Railroad Co. v. Consumers' Ice & Power Co., 109 Miss. 43, 48, 67 So. 657, 658 (1915). This proposal would merely render less stringent the proof required of the plaintiff insured before attorneys fees could be recovered. Shifting the burden of attorneys fees and legal expenses to the party adjudged at fault is a growing practice in litigation arising out of commercial or business transactions. The law requiring this emanates from two principal sources: statutory enactments [17] of the legislature and privately made law embodied in agreements between the parties. In recent years the Mississippi Legislature has enacted a number of statutes authorizing recovery of legal fees and expenses in a business or commercial context. See, e.g., Miss. Code Ann. § 11-31-2(3)(c) (Supp. 1984) (attorneys fees recoverable against party who brings attachment in bad faith); § 11-53-81 (attorneys fees recoverable in suit on an open account); § 75-9-504(1)(a) (1972) (attorneys fees recoverable by secured party disposing of collateral after default); § 75-9-506 (1972) (attorneys fees must be paid to secured party if debtor redeems collateral); § 75-24-15(2) (Supp. 1984) (attorneys fees recoverable against violator of Consumer Protection chapter); § 75-71-717 (Supp. 1984) (attorneys fees recoverable by party who purchased illegal or fraudulent security); § 83-21-51 (1972) (attorneys fees recoverable against foreign insurance company for bad faith). The overwhelming majority of privately made agreements  contracts, leases, promissory notes, deeds of trust, security agreements, and the like  provide that the party guilty of breach shall be liable to the other for reasonable attorneys fees and legal expenses. We routinely enforce such agreements. See, e.g., Vinson v. McCarty, 413 So.2d 1026, 1032 (Miss. 1982) (attorneys fees clause in promissory note); Huey v. Port Gibson Bank, 390 So.2d 1005, 1007 (Miss. 1980) (same); O.J. Stanton & Co. v. Dennis, 360 So.2d 669, 672 (Miss. 1978) (attorneys fee clause in performance bond). The private commercial agreement which does not call for payment of attorneys fees upon breach has become the exception, not the rule, at least numerically speaking. Little perceptiveness is required to discern the reason for this shifting of the burden of attorneys fees. Where this has been done by statute, the lawmakers invariably faced a situation either (a) where enforcement of important substantive rights by private action was being discouraged by imposing the cost of even successful litigation on the plaintiff or (b) where imposition of the reasonable costs (otherwise non-recoverable costs such as attorneys fees and legal expenses) upon a successful plaintiff would so substantially reduce a successful plaintiff's net recovery as to yield an apparent injustice, this particularly where the relative capacities to bear the burden of the expense of the litigation is generally so unequal. Beyond this, it is within our actual and judicial knowledge that, where clauses providing that an unsuccessful defendant must pay reasonable attorneys fees and legal expenses have been made law privately by agreement of the parties, some of the same motivations may be found, principally that otherwise the cost of litigation will substantially reduce the successful plaintiff's net recovery. It should require little imagination to see that these same considerations are present when an insured such as Lloyd Crenshaw brings suit on a health and accident policy against an insurer such as Bankers Life. In this context, the proposal made here would do nothing more than bring insurance claims litigation in line with the extant public policy of the state in business and commercial transactions, within which generic notions insurance contracts certainly lie. [18]
I would award pre-judgment interest on a similar approach. Crenshaw's claim for benefits was submitted to Bankers Life on April 9, 1979. It has not been paid yet though, as we unanimously hold (and, indeed, as Bankers Life concedes), it has been authoritatively determined valid. The insurer's duty in this regard is grounded in part in the insurance contract and in part in the positive law of the state. That duty is not merely to pay valid claims but to pay them promptly. Little awareness of the realities of life is required to know that the failure of an insurer to pay promptly inflicts loss on the insured of at least three kinds. First, the insured has suffered a loss. He has incurred expenses which have to be paid, normally irrespective of whether or when an insurer pays. Thus the insured relatively speaking becomes strapped for cash while the insurer is processing the claim. Delayed payment may thus impose a great burden upon the insured. Prompt payment may alleviate it. Second, the use of one's money by another has value in economic theory and in fact. In a thousand contexts in our society this use is compensated by the charging of interest, such charges being imposed variously under the authority of public and privately made law. Changes made upon the use of one's money or forbearance to collect a debt are called interest. Mississippi Power & Light Co. v. Kusterer & Co., 156 Miss. 22, 34, 125 So. 429, 432 (1930); State Highway Commission v. Wunderlich, 194 Miss. 119, 122, 11 So.2d 437, 438 (1943). The economic value of an insurer's use of an insured's money, pending investigation and processing of a claim, is real and should be compensated via interest. Third, the real economic value of the benefits due an insured decreases if payment is delayed because of inflation. The rate of inflation may be high or it may be low but it is seldom nothing. We have recognized the impact of inflation upon citizens, and its importance, in a variety of contexts. Adams v. Adams, 467 So.2d 211, 215 (Miss. 1985) (child support modification); Jesco, Inc. v. Shannon, 451 So.2d 694, 705 (Miss. 1984) (impact on damage award in personal injury case); First National Bank of Vicksburg v. Caruthers, 443 So.2d 861, 863 (Miss. 1983) (factor justifying enforceability of due on sales clause); Walters v. Inexco Oil Co., 440 So.2d 268, 275 (Miss. 1983) (impact of delay incident to appeal); Tedford v. Dempsey, 437 So.2d 410, 418 (Miss. 1983) (support agreement incident to irreconcilable differences divorce); Mississippi Public Service Commission v. Mississippi Power Co., 429 So.2d 883, 890 (Miss. 1983) (utility rate increase); Kinnard v. Martin, 223 So.2d 300, 302 (Miss. 1969). In this context I would have this Court hold that, as a matter of law, prejudgment interest is payable on all insurance contracts, recognizing that even so the insured's losses as a result of delay in payment may only partially be compensated and that the insurer's temptation to delay in order to enjoy the value of the use of their collective insureds' money may only partially be deterred. Although our cases have been restrictive, we have heretofore recognized the propriety of an award of prejudgment interest in the absence of statute where the evidence is sufficient to justify an award of punitive damages. Stanton & Associates, Inc. v. Bryant Construction Company, Inc., 464 So.2d 499, 502 (Miss. 1985); Dunnam v. State Farm Mutual Automobile Insurance Co., 366 So.2d 668, 672 (Miss. 1979), and in cases where the amount due is liquidated when the claim is originally made, Home Insurance Company v. Olmstead, 355 So.2d 310, 314 (Miss. 1978). I would hold that the circumstances discussed above regarding the losses suffered by the insured through delay in claims holding, and relative abilities to shoulder these losses of insurer versus insured coupled with the relative bargaining power of insurer versus insured requires that we recognize a lowered threshhold showing before prejudgment interest may be allowed. We note that there has been in our sister states in recent years an increased recognition of the importance of awarding prejudgment interest in order to assure that the value of a plaintiff's recovery is not unfairly diluted. E.g., City of Portland v. Hoffman Construction Company, 286 Or. 789, 596 P.2d 1305, 1315 (1979); Bond v. City of Huntington, 276 S.E.2d 539, 546-50 (W. Va. 1981). This is particularly so where the claim sounds in contract and seeks compensation for damages sustained in the past. McIntosh v. Aetna Life Insurance Company, 268 A.2d 518, 521 (D.C. 1970); Restatement (Second), Contracts § 347(b) (1979). The insurer, of course, is entitled to a reasonable period of time within which to investigate and process a claim. This is wholly consistent with the insurer's duty to pay with reasonable promptness. I would hold that prejudgment interest on all first party insurance claims should begin to run thirty days following the insurer's receipt of the proof of claim, unless the equities of a given case clearly indicate that the commencement date should be later.
Applying the foregoing principles to the case at bar, Crenshaw's judgment for $20,000.00 as policy benefits should be affirmed. In addition, I would hold him entitled to interest at the legal rate of eight percent from thirty days after he filed his claim with Bankers Life. This was some time in early 1979. Crenshaw would thus be entitled to at least $9,600.00 in interest (8% of $20,000.00 = $1,600.00 interest per year). In addition, Crenshaw would be entitled to recover his reasonable and necessary attorneys fees and his reasonable and necessary legal expenses, for the determination of which I would remand to the Circuit Court. So much of the judgment below as awards to Lloyd Crenshaw and assesses against Bankers Life punitive damages in any amount I would reverse and render. To the extent that the Court today departs from this view, I respectfully dissent. WALKER, P.J., and PRATHER, J., join in this opinion.