Opinion ID: 1859163
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Heading: Allstate's duty to its insured

Text: Our case law states that bad faith does not exist if an insurance company can give the insured a legitimate or arguable reason for denying a claim. See Pioneer Life Ins. Co. of Illinois v. Moss, 513 So.2d 927, 929 (Miss. 1987). In an action for breach of contract, punitive damages are appropriate only where the breach is attended by intentional wrong, insult, abuse or such gross negligence as to consist of an independent tort. Independent Life & Acc. Ins. Co. v. Peavy, 528 So.2d 1112, 1115 (Miss. 1988); Fedders Corp. v. Boatright, 493 So.2d 301, 311 (Miss. 1986); Progressive Cas. Ins. Co. v. Keys, 317 So.2d 396, 398 (Miss. 1975). Punitive damages are only appropriate when the insurer has acted with malice or gross negligence or reckless disregard for the insured's rights. Independent Life & Acc. Ins. Co., 528 So.2d at 1115; Aetna Cas. & Sur. Co. v. Day, 487 So.2d 830 (Miss. 1986). A clerical error or honest mistake does not give rise to punitive damages. Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1187 (Miss. 1990); Weems v. American Sec. Ins. Co., 486 So.2d 1222, 1227 (Miss. 1986); Consolidated American Life Ins. Co. v. Toche, 410 So.2d 1303, 1306 (Miss. 1982). It is clear that the relationship between an insurance company and its insured is contractual in nature, with the rights and duties set out by the provisions of the insurance policy. Cauthen v. National Banks Life Ins. Co., 228 Miss. 411, 88 So.2d 103 (1956). Like all other contracts, insurance policies which are clear and unambiguous are to be enforced according to their terms as written. Davidson v. State Farm Fire & Cas. Co., 641 F. Supp. 503 (N.D.Mass. 1986); Aero International v. United States Fire Ins. Co., 713 F.2d 1106 (5th Cir.1983). According to Sessoms's insurance policy, Allstate's two duties toward its insured included the duty to defend Sessoms if sued and the duty to pay any damages caused by Sessoms's operation of a vehicle. Allstate fulfilled these obligations when it settled Bellinger's claim against Sessoms for $9,000 and they paid $1,962.83 to cover Sessoms's medical expenses. In return for these payments, Sessoms executed a release to Allstate. Sessoms's insurance policy is silent about any kind of disclosure requirements that might assist an insured who desires to sue a third party. The duty of an insurer to an insured arising out of a first-party insurance claim is different from that arising out of a third-party claim. Davidson, 641 F. Supp. at 513. In distinguishing between a first-party policy claim and a third-party liability claim, the federal district court stated: `[T]he dilemma presented by the absolute control of trial and settlement vested in the insurer by the insurance contract and the conflicting interests of the insurer and the insured' in the third-party claim requires that the insurer recognize the conflict and give due regard to the interests of the insured. This dilemma is lacking in the first-party claim. The insurer is not in a position to expose the insured to a judgment in excess of the policy limits through its unreasonable refusal to settle a case, nor is it in a position to otherwise injure the insured by virtue of exclusive control over the defense of the case. Davidson, 641 F. Supp. at 513 (quoting Lawton v. Great Southwest Fire Ins. Co., 118 N.H. 607, 392 A.2d 576, 580-81 (1978)). In the present case, Sessoms is not making a first-party claim under her policy, but is trying to force Allstate to help her in a third-party claim against White. The case of Jordan v. State Farm Mut. Auto. Ins. Co., 774 F. Supp. 424 (S.D.Miss. 1991), involved a similar set of facts wherein the two vehicles involved in the accident were both insured by State Farm Insurance Company. Following a $33,000 jury verdict in his favor, Jordan brought suit against State Farm alleging that State Farm owed him a duty as its insured to properly investigate the accident. Jordan claimed that had State Farm properly investigated the accident, it would have realized its insured was at fault and promptly paid his claim as opposed to going to trial. However, the District Court did not agree with Jordan, and stated: Plaintiff's claim, regardless of how he chooses to characterize it, is that State Farm owed him a duty as its insured to properly investigate the accident, which duty it breached, resulting in State Farm's denial of Jordan's claim for recovery under Hood's liability policy. Such an action is clearly not permitted under Mississippi law. First, any duty that State Farm may have owed Jordan, as its insured, to conduct an adequate investigation of the accident must necessarily derive from plaintiff's own policy with State Farm. Since Jordan acknowledges that the claims he made under his policy were paid by State Farm without delay, any failure by State Farm to adequately investigate the circumstances of the accident did not result in a failure to pay benefits under plaintiff's policy. To the extent that Jordan complains of State Farm's refusal to pay benefits under Hood's liability policy, the action is properly considered a direct action against State Farm which is not attainable under Mississippi Law. Id. at 425-26. Although Allstate initially denied liability in the present case, it later determined that both Sessoms and White were each 50% liable. From that point on Allstate never denied the claim. Any failure to investigate the accident or correspond with Sessoms did not result in any nonpayment of policy benefits. Allstate paid all of the claims under the Sessoms policy and has therefore lived up to its end of the bargain. To impose an additional duty would, in effect, be rewriting the insurance contract. Sessoms filed a motion with the lower court to compel Allstate to comply with her discovery requests, seeking both the entire Sessoms file as well as White's file. Allstate had previously sent the Sessoms's attorney a ninety-three page copy of the Sessoms file, which Sessoms claims to be incomplete. In an attempt to show that the file was incomplete, Sessoms's attorney presented testimony from Peter Joseph Quave, a proposed expert in the area of insurance claims, who testified that several pertinent aspects of the file were missing. According to Quave, the file had a gap in its transactional history. Also, no evidence could be found of any reserve being set up prior to the payment of any claim, which he stated is a customary procedure in settling claims. Quave stated that there was a gap in the diary sheets where the supervisor usually adds his own comments in areas left open between the claims representative's entries. Next, there was no request for authority in the file, which usually indicates the claims representative's valuation of the claim as well as the basis for this opinion. Finally, Quave stated that the only photos found in the Sessoms file were of Sessoms's vehicle, and not any others involved in the accident. Sessoms argues that none of the letters which she sent to Allstate requesting information concerning her claim, as well as seeking information concerning White, were present in the file which Allstate supplied. Nor was there any information concerning the actual cash value of the Sessoms vehicle, any record of offers or negotiations with Sessoms, or any records of payments regarding property damage to White's vehicle. At this hearing, the lower court judge issued an order requiring that Allstate allow Sessoms's attorney and Quave to inspect the original Sessoms file at the offices of Allstate's attorneys in Jackson. The trial judge also ordered Allstate to allow Sessoms's attorney access to its operations manual pertaining to the settling of claims. Allstate, however, was allowed to withhold any documents that it felt constituted mental impressions, material produced in the anticipation of litigation, privileged material, and material deemed prejudicial to White. These withheld materials, as well as a copy of White's claim file and that of Sally Gray, Sessoms's initial attorney in this action, would be submitted to the court for in camera inspection. Allstate initially hired Sally Gray to represent Sessoms when it became apparent that a conflict of interest might result between Allstate and its insureds. Gray has since withdrawn from representing Sessoms. Since the record is silent as to the events of the in camera inspection, we are left in the dark concerning the trial judge's findings. Medical payments to Brenda Sessoms Sessoms argues that Allstate acted in bad faith when it failed to pay the entire policy limits. Allstate made payments totalling $1,962.83 on behalf of Brenda Sessoms for medical bills she submitted. However, since Allstate did not pay the remaining $37.17 of the $2,000 policy limit, Sessoms claims Allstate acted in bad faith. Allstate, on the other hand, maintains that it was willing to pay the remaining $37.17 within the policy limits but that Sessoms never requested that it be paid. Bob Hodges, an Allstate claims representative, sent Sessoms a letter dated May 20, 1987, outlining the payments that Allstate had made on Sessoms's behalf and stated that $37.17 remained under the policy's medical coverage. This letter acknowledging the remaining $37.17 coverage does not show Allstate's intention of denying Sessoms her remaining coverage under the policy limits. Sessoms's attorney admitted that a formal request was never made for the additional monies, but claims to have forwarded additional bills following the receipt of the May 20 letter. Nothing could be found in the record to confirm Sessoms's attorney's assertions. Although Sessoms's claims that Allstate's failure to pay the remaining $37.17 is a contributing factor of bad faith, throughout the record her attorney stated that the failure to pay the remainder of the policy limits was not really the basis of the appeal, but it was Allstate's failure to supply Sessoms with information relating to the accident that would aid in the third-party claim against White. Contrary to Sessoms's claim, Allstate did not place any new conditions precedent for the payment of the remaining $37.17. We have held that when an insurance policy makes a submission of a proof of loss form a condition precedent to payment of medical payments, in the absence of waiver, punitive damages are not recoverable for failure to make medical payments where the insured failed to furnish the required medical reports and authorizations. See New Hampshire Ins. Co. v. Smith, 357 So.2d 119, 121 (Miss. 1978). In Cossitt v. Federated Guaranty Mutual Insurance Company, 541 So.2d 436 (Miss. 1989), this Court was faced with a bad faith claim in which Federated Insurance Company had not paid the policy limits on medical payments following the insured's submission of a proof of loss form due to confusion as to the amount of coverage. The insurer quoted the policy coverage as being $1,000 in medical payments coverage, while Cossitt's attorney was under the impression that the policy had $5,000 worth of medical payments coverage. This Court held that Federated Guaranty was liable to Cossitt for $1,000 upon Cossitt's supplying the insurer with a proof of loss, but could not determine whether Federated Guaranty's actions amounted to bad faith. This aspect of the case was remanded to the lower court for further development of the facts surrounding Federated Guaranty's failure to pay medical benefits. Id. at 445. Allstate promptly paid Sessoms's medical bills when they were submitted to the company. In its letter, dated May 20, 1987, Allstate showed a willingness to pay the remaining amount of policy coverage. No conditions precedent were present which would prevent payment of the remaining $37.17. Therefore, Sessoms's claim is without merit.