Opinion ID: 60392
Heading Depth: 2
Heading Rank: 2

Heading: Punitive and Consequential Damages

Text: 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]