Court Opinion

ID: 3033640
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:49:50.438319+00
Date Added: 2024-06-11T11:48:25.066678
License: Public Domain

United States Court of Appeals
                           FOR THE EIGHTH CIRCUIT
                                    ___________

                                    No. 03-1890
                                    ___________

Southern Pine Helicopters, Inc.,          *
                                          *
             Appellant,                   *
                                          * Appeal from the United States
      v.                                  * District Court for the Eastern
                                          * District of Arkansas.
Phoenix Aviation Managers, Inc.;          *
Old Republic Insurance Company,           *
                                          *
             Appellees.
                                    ___________

                              Submitted: January 15, 2004

                                   Filed: February 27, 2004 (Corrected 3/10/04)
                                    ___________

Before WOLLMAN, MORRIS SHEPPARD ARNOLD, and COLLOTON, Circuit
      Judges.
                         ___________

MORRIS SHEPPARD ARNOLD, Circuit Judge.

        A helicopter owned by Southern Pine Helicopters, Inc. (Southern Pine), was
damaged when a fire broke out in its engine compartment. Southern Pine had a
property damage insurance policy on the helicopter that was issued by Old Republic
Insurance Company through Phoenix Aviation Managers, Inc. (we hereinafter refer
to these two companies collectively as "the insurer"). After unsuccessfully attempting
to resolve a claim under the insurance policy relating to the fire, Southern Pine filed
suit, alleging that the insurer had breached the insurance contract and engaged in bad-
faith conduct. The district court1 granted the insurer's motion for partial summary
judgment both "as to the claim for damages other than those incurred by the direct
physical damage to the helicopter caused by the accident" and "on the claim for bad
faith." The case then proceeded to trial; the jury awarded Southern Pine $297,000,
which was the insured value of the damaged helicopter, on its claim for compensatory
damages. Following the jury verdict, Southern Pine filed a motion for attorneys' fees,
pre-judgment interest, costs, and a twelve-percent statutory penalty. The district court
held that Southern Pine was entitled to prejudgment interest and certain costs, but that
it was not entitled to attorneys' fees or the twelve percent penalty because it had failed
to meet the requirements of the Arkansas statute that authorizes fees and penalties in
insurance cases. Southern Pine appeals the district court's denial of the statutory
penalty and attorneys' fees. We affirm.

                                          I.
       The statute in question, Ark. Code Ann. § 23-79-208, provides for the recovery
of damages and attorneys' fees against insurers in certain circumstances. It states that
when an insurer liable for a loss fails to pay it within the time specified in the
insurance policy after demand is made, the insurer is liable to pay the policyholder,
in addition to the amount of the loss, damages in the amount of twelve percent of the
loss, together with reasonable attorneys' fees for the recovery and collection of the
loss. Ark. Code Ann. § 23-79-208(a). The availability of such damages and
attorneys' fees is, however, contingent upon the amount of money that the
policyholder demands or seeks in a suit from the insurer. The statute states, in
relevant part:

      Recovery of less than the amount demanded by the person entitled to
      recover under the policy shall not defeat the right to the twelve percent

      1
       The Honorable George Howard, Jr., United States District Judge for the
Eastern District of Arkansas.

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 (12%) damages and attorney's fees provided for in this section if the amount
recovered for the loss is within twenty percent (20%) of the amount demanded or
which is sought in the suit.

Ark. Code Ann. § 23-79-208(d). Prior to an amendment in 1991, see 1991 Ark.
Acts 349, § 23-79-208 required an insured to have recovered the full amount that was
demanded or sought in the suit in order to be entitled to the penalty and attorneys'
fees. See, e.g., Miller's Mut. Ins. Co. v. Keith Smith Co., 284 Ark. 124, 126,
680 S.W.2d 102, 103 (1984). The Arkansas Supreme Court has stated that the
purpose of this statute is to punish "unwarranted delaying tactics" by insurers and that
the statute, being penal in nature, is to be strictly construed. National Standard Ins.
Co. v. Westbrooks, 331 Ark. 445, 449, 962 S.W.2d 355, 357 (1998); State Farm Mut.
Auto. Ins. Co. v. Thomas, 316 Ark. 345, 347-48, 871 S.W.2d 571, 573 (1994).

       The sole point of contention between the parties is the amount of money that
was "demanded" or "sought in the suit" by Southern Pine, and whether "the amount
recovered for the loss" was within twenty percent of that amount. Southern Pine's
complaint contained two counts: Count I was entitled "Breach of Contract," and
Count II was entitled "Bad Faith." In the breach of contract count, Southern Pine
alleged that the insurer had failed to comply with the express terms of a valid
insurance contract, that Southern Pine had reasonably complied with the terms and
conditions of that contract, and that the insurer had acted unreasonably in performing
its obligations under the contract. The breach of contract count concluded by stating
that "Southern Pine has suffered damages, including but not limited [sic], financial
damages in the amount of $576,750.00 and the $297,000.00 insured value of the
subject helicopter."

      In the bad faith count, Southern Pine, after alleging that the defendants had
engaged in certain conduct, alleged that the "aforementioned affirmative, dishonest
and oppressive conduct of the Defendants has resulted in Southern Pine incurring

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substantial financial damages in the amount of $576,750.00 and the $297,000.00
insured value of the subject helicopter," that it "sought recovery of all compensatory
damages" that it had incurred as a result of such conduct, and that, in addition,
"punitive damages should be assessed against the defendants to deter like conduct in
the future." Southern Pine concluded its complaint by praying for judgment in its
favor "for a sum in excess of $873,750.00 plus interest, attorney's fees, costs of suit;
for any and all statutory penalties and remedies allowed by law; for punitive damages,
and for all other remedies which this court may deem proper."

                                             II.
       From Southern Pine's complaint, it is apparent that it "demanded" or "sought
in the suit" $873,750 under two alternative theories, breach of contract and bad faith,
and that it also sought to recover an unspecified sum for punitive damages to sanction
the insurer for its alleged bad faith, together with "all statutory penalties and remedies
allowed by law." Southern Pine recovered $297,000 in damages. Section 23-79-208
plainly states that, to recover the twelve percent penalty and attorneys' fees, an
insured's recovery must be within twenty percent of the amount that it demanded or
sought in the suit. We need not decide whether alleged tort damages constitute part
of the "amount demanded" or "sought in the suit" because even if we consider only
the amount of money sought in the suit by Southern Pine that was specifically
pleaded as damages in the breach of contract claim, which was $873,750, the jury
award falls well short of the statutory threshold.

       Southern Pine contends that the district court's grant of summary judgment
against it on its bad faith claim and on its claim for consequential damages
functionally disposed of its demand for any sum of money greater than $297,000.
According to Southern Pine's argument, the summary judgment ruling effectively
served to reduce the amount of money that it sought in the suit to $297,000, which
was one hundred percent of the amount that it recovered for the loss following the
jury verdict, and it is thus eligible for the attorneys' fees and statutory damages under

                                           -4-
§ 23-79-208. Any more inclusive conception of the amount that it demanded in the
suit, Southern Pine argues, would be unduly formalistic. We think, however, that this
argument does not comport with the plain language of § 23-79-208 or the approach
followed by Arkansas courts applying that statute.

       Arkansas courts have interpreted the language "amount demanded or which is
sought in the suit" as " 'the amount sued for.' " Westbrooks, 331 Ark. at 449,
962 S.W.2d at 357 (quoting Mutual Relief Ass'n v. Poindexter, 178 Ark. 205, 208,
10 S.W.2d 17, 18 (1928)). The Arkansas Supreme Court has stated that "no demand
other than the filing of suit is required under section 23-79-208 .... Moreover, a new
and lesser demand may be made by amendment after suit is filed." R.J. Bob Jones
Excavating Contractor, Inc. v. Fireman's Ins. Co. of Newark, New Jersey, 324 Ark.
282, 288, 920 S.W.2d 483, 486-87 (1996). When such an amendment is made, the
insurer's liability under § 23-79-208 is "determined by whether it elects to contest the
claim rather than offering to pay the reduced amount or asking for time in which to
pay." Id.

       The parties agree that Southern Pine's lawsuit served as its demand for money
allegedly owed to it by the insurer for physical damage to the helicopter, and
Southern Pine clearly "demanded" that the insurer pay it at least $873,750. Rule 15
of the Federal Rules of Civil Procedure allows for the liberal amendment of
complaints "when justice so requires." Southern Pine could have amended its
complaint by reducing its demand after the district court's summary judgment ruling.
This would have given the insurer a clear opportunity to pay the amount demanded
in the amended complaint and dispose of the suit, thus saving the significant
transaction costs associated with a trial and avoiding the possibility of a penalty.
Southern Pine, however, failed to reduce its demand at any time during the litigation.
After the summary judgment ruling, the insurer had no reason to believe that Southern
Pine was abandoning its consequential damages claim for $576,750, as Southern Pine
had a right to continue pursuing that claim on appeal.

                                          -5-
       Section 23-79-208 punishes the unwarranted delaying tactics of insurers and
encourages plaintiffs to state their claims accurately. As the Arkansas Supreme Court
has explained, the "penalty and attorneys' fees is for the benefit of the one who is only
seeking to recover, after demand, what is due him under the terms of his contract, and
who is compelled to resort to the courts to obtain it." Pacific Mut. Life Ins. Co. v.
Carter, 92 Ark. 378, 387, 123 S.W. 384, 388 (1909). As became evident during the
course of litigation, Southern Pine demanded substantially more in its complaint than
it was entitled to receive. The district court's denial of relief pursuant to § 23-79-208
was thus consistent with both the clear language of that statute and the policy that the
statute was designed to serve.

                                         III.
     For the reasons stated, we affirm the district court's denial of Southern Pine's
motion for attorneys' fees and statutory damages pursuant to § 23-79-208.
                       ______________________________

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