Opinion ID: 61758
Heading Depth: 1
Heading Rank: 4

Heading: Overview of bad faith and extra-contractual damages

Text: As we will detail, Mississippi caselaw provides for extra-contractual damages when an insurance company has tortiously breached its contract. That is because often an insurance company's financial default is less than the cost to the insured of judicially forcing a correct payment. When an insurance company breaches its contract with an insured but does not do so in a way that is so egregious as to permit the recovery of punitive damages (a recovery option we will discuss momentarily), the insured in some circumstances will have a right to attorneys' fees and other expenses that were reasonably foreseeable. Universal Life Ins. Co. v. Veasley, 610 So.2d 290, 295 (Miss.1992). The Essingers do not seek those damages, which are an intermediate form of relief between simply receiving incidental costs of suit (but not attorneys' fees and other damages), and getting punitive damages. It is true that the Essingers earlier in the process kept open the possibility of pursuing this relief. The release the Essingers gave Liberty Mutual reserved the right to pursue claims including, but not limited to, breach of contract and/or bad faith. Furthermore, the Essingers in the Complaint asserted a claim for tortious breach of contract and sought actual as well as punitive damages. The Plaintiffs' focus sharpened when they responded to Liberty Mutual's Motion for Summary Judgment that sought dismissal of all claims, explicitly including any claims for extra-contractual damages. The Plaintiffs' response was limited to the their bad-faith claim. Furthermore, when the district court dismissed the Essingers' complaint after discussing only the bad-faith claim, the Essingers never objected or sought clarification. Finally, on appeal, the Essingers' sole argument is that the district court erred in dismissing their bad-faith claim. Therefore, to the extent that the Essingers may have reserved a claim for extra-contractual damages from the release given Liberty Mutual or asserted such a claim in their complaint, the claim has been abandoned. MacArthur v. Univ. of Texas Health Ctr., 45 F.3d 890, 895-96 (5th Cir.1995). Instead, the Essingers allege that Liberty Mutual committed what in Mississippi is usually labeled the tort of bad-faith refusal to pay a claim, but has also been described as bad-faith refusal to honor an obligation under an insurance contract. JACKSON, MISS. INS. LAW, § 13:2. Different precedents have emphasized different elements of the tort, so we find it helpful to state this summary, prepared by someone who made a careful review of all the caselaw: In order to recover punitive damages against an insurance company for bad-faith refusal to pay a claim, or refusal to honor an obligation under an insurance policy, the insured must first demonstrate that the claim or obligation was in fact owed.... Second, the insured must demonstrate that the insurer has no arguable reason to refuse to pay the claim or to perform its contractual obligation. Finally, in order to recover punitive damages from the insurer for bad faith, the insured must demonstrate that the insurer's breach of the insurance contract results from an intentional wrong, insult, or abuse as well as from such gross negligence as constitutes an intentional tort. Id. (quoting Caldwell v. Alfa Ins. Co., 686 So.2d 1092, 1095 (Miss.1996)). We draw from Professor Jackson's analysis these relevant questions: (1) Was there a refusal to pay a claim or to honor an obligation? (2) Was the claim actually owed? (3) Was there no arguable basis for the company's actions? (4) Did the company's actions amount to an intentional wrong or occur due to gross negligence? [1] There is no doubt that the Essingers prevailed on their demand for $90,000 as opposed to the $75,000 that was offered. So the second factor is resolved. The third factor on an arguable basis is satisfied only if the insurer has a reasonable legal or factual basis for denying or delaying payment on the claim. Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1184 & n. 12 (Miss.1990). This factor does not require that there be some unworthy motive, only that nothing legal or factual would have arguably justified the position taken. There was, then, no arguable basis for the position Liberty Mutual took that $75,000 was the policy limit. Whether to sustain the district judge's decision therefore turns on only two of the factors: were Liberty Mutual's actions in the category ( i.e., something akin to a denial) for which the egregiousness of the conduct becomes relevant? If so, were those actions at least grossly negligent? Because of our conclusion that no denial ever occurred, we examine only that issue.