Court Opinion

ID: 4677285
Source: CourtListenerOpinion
Date Created: 2021-04-14 18:00:26.59364+00
Date Added: 2024-06-11T08:03:37.535662
License: Public Domain

Case: 20-30451     Document: 00515821431          Page: 1    Date Filed: 04/14/2021

              United States Court of Appeals
                   for the Fifth Circuit                        United States Court of Appeals
                                                                         Fifth Circuit

                                                                       FILED
                                                                   April 14, 2021
                                   No. 20-30451                   Lyle W. Cayce
                                                                       Clerk

   Melvin Jackson, doing business as MLJ Trucking,L.L.C.; Janet
   Jackson, doing business as MLJ Trucking,L.L.C.,

                                                            Plaintiffs—Appellees,

                                       versus

   Berkshire Hathaway Homestate Insurance Company,

                                                         Defendant—Appellant.

                  Appeal from the United States District Court
                     for the Western District of Louisiana
                            USDC No. 5:18-CV-1146

   Before Jones, Clement, and Graves, Circuit Judges.
   James E. Graves, Jr., Circuit Judge:*
          Plaintiffs-Appellees Melvin and Janet Jackson sued Defendant-
   Appellant Berkshire Hathaway Homestate Insurance Company for its failure
   to pay their policy claim following an accident involving their truck. After a
   bench trial, the district court awarded $19,876.42 in statutory penalties,

          *
            Pursuant to 5th Circuit Rule 47.5, the court has determined that this
   opinion should not be published and is not precedent except under the limited
   circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 20-30451      Document: 00515821431          Page: 2   Date Filed: 04/14/2021

                                    No. 20-30451

   $6,625.47 in attorney’s fees, and $1,665.61 in costs, ruling that Berkshire
   failed to timely pay the claim in violation of Louisiana law. Berkshire appeals
   the judgment. We AFFIRM.
                                  I. Background
          Melvin and Janet Jackson own a small trucking company, MLJ
   Trucking, LLC, which operated two Peterbilt trucks that it leased from
   Brenton Turnipseed. MLJ sought to obtain insurance for the 2014 Peterbilt
   truck through Pace Insurance Managers. Through Pace, MLJ obtained
   insurance for the truck with Berkshire Hathaway Homestate Insurance
   Company. Specifically, the truck was added to an existing Berkshire
   insurance policy, bearing Policy No. 02TRM01928001, on January 13, 2017,
   through the submission of a General Change Endorsement Form.
          On July 31, 2017, the truck was involved in an accident. MLJ reported
   the accident to Berkshire, which assigned the claim to CJ Hester Inc. On
   August 7, 2017, CJ Hester inspected the truck and issued an appraisal report
   estimating the damages to be $40,752.84 (less a $1,000 deductible).
          During the initial evaluation of the claim, Berkshire discovered a
   discrepancy between the VIN of the truck and the VIN on the policy. The
   damaged truck contained VIN 1XPXDP0X9ED233253 (“253 truck”), but
   the policy listed VIN 1XPXDP0X5ED233251 (“251 truck”). This
   discrepancy led to a delay in Berkshire determining whether the damaged
   truck was covered under the policy.
          Berkshire claims notes show that on August 16, 2017, a Berkshire
   employee had a long phone conversation with Pace employees and
   Turnipseed, during which Turnipseed confirmed that there was an error in
   the paperwork—he traded in the 251 truck to a dealership in Shreveport,
   Louisiana, and leased the 253 truck to MLJ. Turnipseed said he had to go to
   the DMV and sort everything out. Pace informed Berkshire that it was

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   “sending an endorsement right now to correct the VIN.” On that same day,
   Pace sent a Commercial Policy Change Request with the corrected VIN
   ending in 253, as well as a revised Automobile Loss Notice listing the “loss
   payee” as “GE TF Trust.”
          On August 17, 2017, Tamara Colley from Pace notified Berkshire that
   the VIN mix-up was corrected with the DMV. Attached to the email was a
   vehicle invoice dated December 27, 2016, listing the vehicle as the 251 truck;
   the seller as BMO Harris Bank NA; and the buyer as Peterbilt Truck Center
   of Shreveport, LLC. The invoice showed that the 251 truck was purchased
   by the Shreveport dealership in late December 2016.
          Robbie Thielen from Berkshire, however, replied that according to
   the Department of Transportation (DOT) records, a truck with a VIN ending
   in 251 had been inspected twice on January 11th and March 14th. Berkshire
   maintained that it would not be amending the VIN on the policy to match the
   truck involved in the claim. Colley emailed back, stating that Turnipseed
   explained to her that when the DOT inspected the truck, the officer only
   checked the registration papers and did not compare the VIN on the
   registration papers to the VIN on the truck door. She also noted that the 251
   truck had a blown-up motor, so it was not in running condition in January
   2017, and that it was later sold to Womack & Sons.
          On September 1, 2017, Colley sent an email with shop records
   confirming that the 251 truck was in the shop from November 2016 to
   February 2017. On September 8, 2017, Berkshire prepared a Policy
   Application Review (PAR), which could trigger additional investigation and
   in-person discussions of the claim. On September 12, 2017, the claim was
   referred for further review because the damaged vehicle “was not scheduled
   on the policy.”

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          On September 22, 2017, Colley emailed Thielen a letter from the
   Peterbilt dealership, which averred that it took possession of the 251 truck
   from AJ Turnipseed Trucking/BMO Harris Bank on December 27, 2016,
   and had it until April 28, 2017, when it was sold to Womack & Sons. Colley
   stated: “I absolutely do not know what else I can provide to you for proof that
   the dealership had the vehicle #251 and the insured had vehicle #253.”
          Berkshire claims notes show that on October 24, 2017, a Berkshire
   employee advised MLJ that it “agreed to pay the claim on a disputed basis.”
   On November 2, 2017, the title to the truck was requested, and Mrs. Jackson
   subsequently provided a copy. Berkshire issued the full payment to MLJ on
   November 28, 2017.
          The Jacksons sued Berkshire for the delay in payment. The case was
   tried before a magistrate judge. Following trial and post-trial briefing, the
   district court issued a memorandum ruling and final judgment, concluding
   that (1) the insurance policy must be deemed reformed to reflect that the
   damaged truck is covered by the policy due to the mutual mistake between
   MLJ and Pace, who acted as Berkshire’s agent; and (2) Berkshire violated
   Louisiana law by failing to pay the claim within thirty days after receipt of
   satisfactory proof of loss. Accordingly, Berkshire was ordered to pay MLJ
   $19,876.42 in statutory penalties. The district court also granted MLJ’s
   motion for attorney’s fees, awarding $6,625.47 in attorney’s fees and
   $1,665.61 in costs. Berkshire timely appeals.
                                II. Legal Standard
          After a bench trial, findings of fact are reviewed for clear error and
   legal issues are reviewed de novo. Luwisch v. Am. Marine Corp., 956 F.3d 320,
   326 (5th Cir. 2020).
                                III. Legal Analysis

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          Berkshire disputes the district court’s conclusion that the policy
   should be deemed reformed to reflect the correct VIN of the truck, as well as
   the award of statutory penalties for the delayed payment. We address each
   issue in turn.
                                 A. Reformation
          “Louisiana law clearly allows contract reformation,” which is “an
   equitable remedy designed to correct an error in the contract.” Fruge v.
   Amerisure Mut. Ins. Co., 663 F.3d 743, 748 (5th Cir. 2011). “An insurance
   policy is a contract between the parties and should be construed by using the
   general rules of interpretation of contracts set forth in the Louisiana Civil
   Code.” Id. (quoting Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La.
   2003)). “As with other written agreements, insurance policies may be
   reformed if, through mutual error or fraud, the policy as issued does not
   express the agreement of the parties.” Id. (citing Samuels v. State Farm Mut.
   Ins. Co., 939 So.2d 1235, 1240 (La. 2006)). “Parole [sic] evidence is
   admissible to show mutual error even though the express terms of the policy
   are not ambiguous.” Id. (quoting Samuels, 939 So.2d at 1240). The party
   seeking reformation has the burden of proving mutual error by clear and
   convincing evidence, but it need only satisfy a preponderance of the evidence
   “to reform a policy in a manner which did not substantially affect the risk
   assumed by the insurer.” Samuels, 939 So.2d at 1240.
          We look to the Louisiana Supreme Court’s decision in Samuels for
   guidance on post-accident contract reformation arising from a mutual
   mistake involving a clerical error. Samuels arose out of an accident in which
   the victim had purchased a State Farm general umbrella policy and an
   Evanston excess policy that would not be activated until State Farm paid its
   limits. 939 So.2d at 1237. However, the Evanston agent misidentified the
   State Farm umbrella policy on the declarations page, calling it a

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   “homeowner’s policy” and providing an incorrect policy number. Id. at
   1238. Thus, a plain reading of the Evanston policy would require State Farm
   and Evanston to pay the excess on a pro-rata basis, contrary to the intent of
   the insured and Evanston. Id.
          The Louisiana Supreme Court reformed the clerical error in the
   insurance contract, finding that Evanston met its burden of proving that the
   parties clearly intended the Evanston policy to be subordinate to the State
   Farm policy. Id. at 1240. As to the affected third party, the court reasoned
   that State Farm was not prejudiced by reformation because it “in no way
   relied on this clerical error,” nor did it issue its policy under the mistaken
   presumption that Evanston would provide pro-rata coverage. Id. In other
   words, the court refused to “ignore the clear intent of the parties to the
   fortuitous benefit of a third party insurance company who did not even rely
   on this error in issuing its own policy.” Id. at 1241.
          We need not address the agency relationship between Berkshire and
   Pace, or the parties’ other arguments, because we conclude that the
   insurance policy should be deemed reformed to reflect the intent of the
   parties; that is, MLJ and Berkshire. The trial evidence shows that Mrs.
   Jackson sought to obtain insurance coverage for a 2014 Peterbilt truck, which
   MLJ had leased from Turnipseed; that during the process of obtaining
   insurance with Berkshire through Pace, she thought the truck in her
   possession “had the VIN 251”; that she was actually in possession of the 253
   truck and never had possession of the 251 truck; and that she learned of the
   truck’s actual VIN only after the accident occurred. Further, Berkshire
   accepted the General Change Endorsement form submitted by MLJ, which
   added a 2014 Peterbilt truck to the existing policy effective January 13, 2017,
   and the form appears to have been electronically processed by Berkshire on

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   January 26, 2017.1 No evidence suggests that Berkshire “relied on this
   clerical error” in issuing the policy or that the mistake affected the risk
   Berkshire assumed in insuring the truck. Id. at 1240.
          Thus, the record clearly establishes that, through the procurement of
   the policy, the parties contemplated and agreed to insuring the 2014 Peterbilt
   truck in MLJ’s possession, which bore the 253 VIN. It would not be equitable
   to allow a mere scrivener’s error to defeat the actual agreement of the parties;
   otherwise, Berkshire would receive an unintended windfall. Like the clerical
   error in Samuels, the mix-up over the truck’s VIN was a mutual mistake that
   warrants contract reformation.
                               B. Statutory Penalties
          Next, we address whether the district court erred in awarding
   statutory penalties, attorney’s fees, and costs under Louisiana Revised
   Statute 22:1892. Section 1892 provides that insurers “shall pay the amount
   of any claim due any insured within thirty days after receipt of satisfactory
   proof of loss from the insured or any party in interest.” La. Stat. Ann. §
   22:1892(A)(1). When insurers fail to do so and “such failure is found to be
   arbitrary, capricious, or without probable cause,” insurers are subject “to a
   penalty, in addition to the amount of the loss, of fifty percent damages on the
   amount found to be due . . . as well as reasonable attorney fees and costs.” Id.
   § 22:1892(B)(1). “The bad faith statute[] [is] penal in nature and should be
   strictly construed.” Feingerts v. La. Citizens Prop. Ins. Corp., 265 So.3d 62, 66
   (La. Ct. App. 2019). To prevail under section 1892, “a claimant must
   establish (1) that the insurer received satisfactory proof of loss; (2) failed to
   pay the claim within the applicable statutory period, or failed to make a

          1
           The form contains superimposed notes of “EBOOKED BY slkeith 1/26/2017”
   and “Processed NCChristensen 1/26/2017” near the signature boxes.

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   written offer to settle the claim, and (3) that the failure to timely tender a
   reasonable amount was arbitrary, capricious, or without probable cause.”
   Bourg v. Safeway Ins. Co. of La., 300 So.3d 881, 891 (La. Ct. App. 2020).
          The district court characterized the timeline of events as follows:
          Berkshire took 46 days, from the September 8 submission of
          the [Policy Application Review] to the October 24 notation, to
          consider the facts and decide that it would pay the claim. To
          that point, it was not being arbitrary or acting without probable
          cause. But after that point, there was no further excuse for
          delay. Berkshire possessed an appraisal report—satisfactory
          proof of loss—for more than two months before it decided to
          pay. Yet, once it decided to pay, it delayed more than 30
          additional days, until November 28, to issue a check. There is
          no explanation for why Berkshire delayed beyond the 30-day
          period once it (1) had facts that showed it no longer had a basis
          for a good faith defense based on the VIN and (2) it decided to
          pay the claim. The court finds that this delay was arbitrary,
          capricious, or without probable cause.
   The August 7, 2017 appraisal report provided a satisfactory proof of loss, and
   the parties do not dispute that 35 days passed between October 24, 2017
   (when Berkshire agreed to pay the claim) and November 28, 2017 (when
   payment was issued). Thus, what remains in dispute is whether Berkshire
   had a legitimate good faith defense, and was therefore not acting arbitrarily,
   for delaying payment on the claim.
          “The phrase ‘arbitrary, capricious, or without probable cause’ . . .
   describe[s] an insurer whose willful refusal of a claim is not based on a good-
   faith defense.” Levy Gardens Partners 2007, L.P. v. Commonwealth Land Title
   Ins. Co., 706 F.3d 622, 635 (5th Cir. 2013) (quoting La. Bag Co. v. Audubon
   Indem. Co., 999 So.2d 1104, 1114 (La. 2008)). “Under Louisiana law,
   ‘penalties should be imposed only when the facts negate probable cause for
   nonpayment,’ not ‘when the insurer has a reasonable basis to defend the

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   claim and acts in good-faith reliance on that defense.’” Id. (quoting La. Bag
   Co., 999 So.2d at 1114). Thus, “an insurer need not pay a disputed amount
   in a claim for which there are substantial, reasonable and legitimate questions
   as to the extent of the insurer’s liability or of the insured’s loss.” First Am.
   Bank v. First Am. Transp. Title Ins. Co., 759 F.3d 427, 436 (5th Cir. 2014)
   (quoting La. Bag Co., 999 So.2d at 1114). “Whether an insured’s conduct is
   arbitrary or capricious ‘depends on the facts known to the insurer at the time
   of its action. . . . Because the question is essentially a factual issue, the trial
   court’s finding should not be disturbed on appeal absent manifest error.’” Id.
   (citations omitted).
           The district court’s finding that Berkshire’s conduct was “arbitrary,
   capricious, or without probable cause” is not manifestly erroneous.
   Rightfully so, Berkshire demanded additional proof and investigated MLJ’s
   claim due to concerns that “MLJ may be operating both of these trucks, 251
   and 253, but only paying a premium with respect to one of those trucks.” But
   during the investigation, Berkshire received more than sufficient proof of
   MLJ’s possession of the 253 truck and that the 251 truck was neither in
   Turnipseed’s or MLJ’s possession since November 2016. Thomas
   Mortland, a Vice President of Berkshire, also testified that the insurer agreed
   to pay the claim after finding no presence of fraud:
          I can tell you that there are situations I described funny
          business, fraud, however you describe it, where there is an
          apparent intent to have these other vehicles. And again, we
          determined that’s not what happened here. We concluded [the
          VIN mix-up] was inadvertent, but at the same time, we were
          not, as the underwriter indicated early on, we were not going
          to issue an endorsement adding that vehicle.
   Importantly, once Berkshire expressly agreed and committed to paying the
   claim on October 24, 2017, it no longer had a reasonable basis for refusing to

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   issue or delaying such payment. At that point, the thirty-day statutory clock
   began to run.
          The thirty-day deadline is strictly construed. “Any insurer who fails
   to pay said undisputed amount has acted in a manner that is, by definition,
   arbitrary, capricious or without probable cause.” La. Bag Co., 999 So.2d at
   1120. “[T]he failure to pay an undisputed amount is a per se violation of the
   statute.” Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729, 739 (5th
   Cir. 2010). Here, the imposition of statutory penalties was appropriate
   because Berkshire failed to pay the amount within thirty days of October 24.
   See La. Bag Co., 999 So.2d at 1119 (finding that as soon as “the blanket
   coverage issue was resolved by September 1, 2003,” the insurer’s “failure to
   tender those undisputed amounts within the statutorily mandated time
   period was, by definition, arbitrary, capricious or without probable cause”);
   see Versai Mgmt. Corp., 597 F.3d at 739 (affirming statutory penalties where
   insurers “possessed adequate knowledge of an undisputed claim” on May
   26th and eventually paid in late July and early August, because “merely
   behaving in a less-arbitrary and capricious manner does not absolve insurers
   of the consequences of delay”).
          We also reject Berkshire’s suggestion that the thirty-day clock started
   on November 2, 2017, when it requested the title to the truck in order to
   verify ownership and who had interest in the vehicle. Berkshire received
   notice that GE TF Trust was the loss payee of the policy on August 16, 2017.
   Cf. Richardson v. GEICO Indem. Co., 48 So.3d 307, 315–16 (La. Ct. App.
   2010). Further, an insurer need not pay a disputed amount where there are
   “substantial, reasonable and legitimate questions as to the extent of the
   insurer’s liability or of the insured’s loss.” La. Bag Co., 999 So.2d at 1114
   (emphasis added). Berkshire’s verification of ownership did not pertain to
   Berkshire’s liability or MLJ’s loss; instead, it was only part of a procedural
   process in issuing the payment to the insured. Therefore, we cannot say that

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   the district court committed “manifest error” in finding that Berkshire acted
   arbitrarily by failing to issue payment within thirty days of agreeing to do so,
   when it also had prior knowledge of who owned or had interest in the truck.
   La. Bag Co., 999 So.2d at 1122.
                                  IV. Conclusion
          For the foregoing reasons, we AFFIRM.

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