Court Opinion

ID: 5726
Source: CourtListenerOpinion
Date Created: 2010-04-25 05:09:01+00
Date Added: 2024-06-11T13:32:30.395178
License: Public Domain

UNITED STATES COURT OF APPEALS

                           FOR THE FIFTH CIRCUIT

                                No. 92-7446
                             Summary Calendar

HANS CONSTRUCTION COMPANY, INC.,
                                                    Plaintiff-Appellant,

                                  versus

PHOENIX ASSURANCE COMPANY OF
NEW YORK,
                                                    Defendant-Appellee.

            Appeal from the United States District Court
              for the Southern District of Mississippi

                       (      June 25, 1993     )

Before POLITZ, Chief Judge, DAVIS and JONES, Circuit Judges.

POLITZ, Chief Judge:

     Hans Construction Company, Inc. appeals an adverse summary

judgment.   Finding no error, we affirm.

                                Background

     On June 17, 1987 a crane owned by Hans Construction Co. was

damaged in the process of dismantling an asphalt plant.            Hans'

equipment, including the crane, was covered under an Inland Marine

Transit Floater Policy issued by Phoenix Assurance Company of New

York.   The policy did not cover damage caused by overloading the
equipment.

     Upon    receiving   notice    of   the   accident,   Phoenix    assigned

Adjusting Services Unlimited to investigate the claim.                   John

Dominick, an ASU adjuster, interviewed the Hans crane operator,

Mike Greer.     Greer stated that the crane was lifting a bucket

conveyor weighing about 52,000 pounds at the time of the accident.

Considering the extent of the boom, the angle, and the radius of

the load, the maximum load should have been about 50,000 pounds.

Neither   Dominick,   nor   any   other     adjuster,   ever    independently

determined the actual weight of the bucket conveyor when the crane

failed.

     ASU requested and was granted authority by Phoenix to hire an

engineer to inspect the crane and determine the cause of the

accident.    Two experts, Dr. Courtney Busch and Robert Fleishmann,

examined the crane; both determined that the damage was caused by

an overload.    In addition, at Hans' request, a representative of

the manufacturer examined the crane and also opined that the damage

was caused by an overload.        He concluded that the crane could not

be repaired SQ the boom and outrigger sections would have to be

completely replaced.

     Disagreeing with the conclusions of the experts, Hans hired

John Taylor of Non-Destructive Testing Services to examine the

crane.    Taylor found imperfections in the welds.         Taylor's report

was sent to Busch whose opinion remained the same.                Busch noted

that Taylor did not address the fact that the primary failure of

the crane was in the base metal, not the welds.                Based upon the

                                        2
experts' opinions that the crane was overloaded, Phoenix invoked

the policy exclusion and denied Hans' claim.

        Hans sued Phoenix under the policy, alleging denial of the

claim in bad faith.        Hans sought contract, extra-contractual,1 and

punitive damages.         The district court granted summary judgment in

favor of Phoenix on all claims except the claim for coverage under

the policy.      The parties consented to trial of the remaining claim

before a magistrate judge.

        Prior to trial, the Mississippi Supreme Court announced its

decision in Universal Life Insurance Co. v. Veasley,2 in which the

plaintiff was permitted to recover mental anguish damages resulting

from the insurance company's failure to pay a claim, even though

the failure was the result of simple negligence, not conduct

warranting punitive damages.             Hans moved the district court for

reconsideration      of    its   prior    summary   judgment   on   the   extra-

contractual damages claim in light of Veasley; the district court

found that because the insurance company had an arguable basis for

denying the claim, the extra-contractual damages claim was properly

denied.      The parties settled the policy coverage claim and final

judgment was entered dismissing the case.

        Hans timely appealed. He argues that the district court erred

in granting summary judgment in favor of Phoenix on the claim for

    1
       Hans seeks the following extra-contractual damages: company
president Joe Hans' mental anguish, loss of income, depreciation of
the crane caused by being forced to repair rather than replace its
damaged parts, attorneys' fees, and costs of litigation.
        2
            610 So. 2d 290 (Miss.1992), reh'g denied, January 8, 1993.

                                          3
punitive damages and the claim for other extra-contractual damages.

                                  Analysis

Standard of Review

     We review summary judgment de novo, considering the evidence

and inferences       therefrom   in   the   light   most   favorable   to   the

nonmoving party.3      "[T]he plain language of Rule 56(c) mandates the

entry of summary judgment, after adequate time for discovery and

upon motion, against a party who fails to make a showing sufficient

to establish the existence of an element essential to that party's

case, and on which that party will bear the burden of proof at

trial."4       In addition, the district court's interpretations of

applicable Mississippi law are reviewed by this court de novo.5              In

this diversity case, "we must do that which we think that the

Mississippi Supreme Court would deem best."6

I.   Punitive Damages

     It is well-settled under Mississippi law that "before punitive

damages may be recovered from an insurer, the insured must prove by

a preponderance of the evidence that the insurer acted with (1)

     3
        U.S. Fidelity & Guaranty Co. v. Wiggington, 964 F.2d 487
(5th Cir.1992); Baton Rouge Building & Const. Trades Council v.
Jacobs Constructors, Inc., 804 F.2d 879 (5th Cir.1986).
     4
             Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
         5
         Salve Regina College v. Russell, __ U.S. __, 111 S. Ct.
1217, 113 L. Ed. 2d 190 (1991); Jones, 931 F.2d at 1088.
     6
        Jackson v. Johns-Manville Sales Corp., 781 F.2d 394, 397
(5th Cir.), cert. denied 478 U.S. 1022 (1986).

                                       4
malice, or (2) gross negligence or reckless disregard for the

rights of others."7    If the insurer has a legitimate or arguable

reason for denying coverage, punitive damages are unavailable.8

      The   district   court      found    that    because    Phoenix   hired

independent experts to determine the cause of the crane failure, it

had, at the very least, an arguable basis for denying the claim.

We agree.    Hans contends that Phoenix "manufactured" the expert

opinions by providing the experts with an inaccurate estimate of

the weight of the crane's load.           If the expert reports indicated

that they were based solely on calculations using such a weight, we

might be inclined to accept Hans' argument. Both experts, however,

personally inspected the crane, viewed the damage to the boom and

outrigger, reviewed various records and charts and determined that

the damage was consistent with an overload.                In addition, the

manufacturer's representative, at Hans' request, inspected the

crane and opined that the damage was caused by an overload.

Phoenix's   reliance   on   the    results    of   these     inspections   was

reasonable and manifestly does not warrant punitive damages.

II.   Extra-contractual Damages

      As to Hans' claim for extra-contractual damages, Mississippi

law is somewhat less settled.             In Veasley, the plaintiff was

        7
          Veasley, 610 So. 2d at 293 (citing Weems v. American
Security Ins. Co., 486 So. 2d 1222, 1226-27 (Miss.1986); Aetna
Casualty & Surety Co. v. Day, 487 So. 2d 830, 832 (Miss.1986)).
       8
          Veasley, 610 So. 2d at 293; Standard Life Ins. Co. of
Indiana v. Veal, 354 So. 2d 239 (Miss.1977).

                                      5
permitted to recover damages for mental anguish because of the

insurance company's failure to pay a life insurance claim following

the death of her daughter, even though the failure was the result

of simple negligence.   The court found, however, that the insurer

did not have an arguable basis for denying her claim.9   The court

reasoned as follows:

     Applying the familiar tort law principle that one is liable
     for the full measure of the reasonably foreseeable
     consequences of her actions, it is entirely foreseeable by an
     insurer that the failure to pay a valid claim through the
     negligence of its employees should cause some adverse result
     to the one entitled to payment. . . . Additional inconvenience
     and expense, attorneys fees and the like should be expected in
     an effort to have the oversight corrected. It is no more than
     just that the injured party be compensated for these injuries.

The holding in Veasley appears to be limited to damages for mental

anguish occasioned by failure to pay an insurance claim in those

instances when the insurer lacks even an arguable basis for denial.

The Veasley majority noted that "[s]ome justices on this court have

suggested that extra-contractual damages ought to be awarded in

cases involving a failure to pay on an insurance contract without

an arguable reason even where the circumstances are not such that

punitive damages are proper."10   In summarizing the results of the

opinion, the court held:   "the assessment of actual damages caused

by the anxiety resulting from delay without an arguable reason is

    9
       The court characterized the insurance company's conduct as
a "clerical" error and "an unfortunate episode of a failure of
competence." 610 So. 2d at 293-94.
    10
610 So. 2d at 295 (citing Pioneer Life Ins. Co. of Illinois
v. Moss, 513 So. 2d 927, 932 (Miss.1987) (Sullivan, J., concurring,
joined by D. Lee, Prather and Robertson, JJ.)).

                                  6
. . . affirmed."11

     Making our best Erie12 prognostication, we conclude in light

of Veasley that Mississippi will allow extra-contractual damages

for failure to pay on an insurance policy only when there is no

arguable reason for such failure.        An arguable reason, therefore,

shields the insurance company from liability for both punitive

damages and extra-contractual damages.13         As we noted earlier,

Phoenix    had   an   arguable   basis    for   denying   Hans'   claim.

Accordingly, The district court properly granted summary judgment

in favor of Phoenix on both the punitive damages and extra-

contractual damages claims.

     AFFIRMED.

     11
610 So. 2d at 296.
     12
           Erie R. Co. v. Tompkins, 304 U.S. 64 (1938).

    13
        Recently in Lawrence v. Virginia Ins. Reciprocal, 979 F.2d
1053 (5th Cir.1992), we suggested in dicta that under Mississippi
law pursuant to Veasley and Strickland v. Rossini, 589 So. 2d 1268
(Miss.1991), mental anguish damages may be recovered upon a finding
of simple negligence in the breach of a contract.        Now faced
directly with that issue, we must give those cases a close reading.
Strickland set out the standard for recovering mental anguish
damages in the tort context. The plaintiff, Rossini, purchased a
home from the Federal Land Bank Association.       As part of the
agreement, she required the Land Bank to provide her with a
certificate that the home was free of termite damage or
infestation. Land Bank hired Redd Pest Control to inspect the home
and provide the appropriate certificate. Redd's certification that
the home was termite-free was in error. As a result, Rossini sued
Land Bank for breach of contract and Redd under a negligence
theory. The Strickland court discussed her right to recover mental
anguish damages only from Redd. It is in this setting that it
announced that "a plaintiff may recover for emotional injury
proximately resulting from negligent conduct, provided only that
the injury was foreseeable by the defendant." 589 So. 2d at 1275.

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