By CLJ Staff (May 21, 2008) - A Mississippi couple brought suit for punitive damages against Liberty Mutual for its failure to recognize the effect of Mississippi law on the calculation of uninsured motorist (UM) benefits that were owed relating to the death of their daughter. The district court granted the company's motion for summary judgment, finding no malice or gross negligence in the company's initial failure to understand how state law affected what was owed. The Fifth Circuit affirmed.
Seventeen-year-old Jolee Paige Essinger was killed in
a single-car accident in which she was a passenger. The owner of the vehicle maintained coverage under a State Farm policy providing
$25,000 in liability coverage for bodily injury and $15,000 UM coverage. The driver of the vehicle was uninsured. Jolee Essinger was insured under a policy purchased from Liberty Mutual by her parents. The relevant coverage under the Liberty policy was $50,000 in UM
coverage for each of the Essingers' two vehicles and $1,000 in medical coverage.
Initially, the Essingers were notified by Liberty that the coverage available to them relating to the death of their daughter was limited to the $1,000 in medical coverage. After the Essingers submitted requested documentation concerning funeral expenses, Liberty issued them a check for $1000 and took no further action on the file at that time.
The Essingers later contacted Liberty and initiated UM claim. Mrs. Essinger stated that during a phone call, the Liberty adjuster asked whether the Essingers were going to retain counsel and then stated, "I don't care how many lawyers you get, you're only going to get $5,000."
After the Essingers did retain counsel, Liberty offered $75,000, which it claimed to be the limits of the coverage. The Essingers' attorney rejected the offer, asserting that Liberty owed an additional $15,000 but refused to explain why, even after Liberty expressly asked for an explanation. The Essingers later retained "bad faith" counsel who informed Liberty by letter that it had a duty to be aware of state law in a jurisdiction in which it issues automobile policies, including the method of stacking of UM benefits and credits or offsets and the manner in which they are computed for liability payments. However, this attorney also offered no analysis on the issue and advised that it was not his position to render legal advice to Liberty Mutual.
Taking the hint, Liberty eventually retained Mississippi counsel and was advised that the amount owed under its policy was in fact $90,000. Liberty then offered this amount and the Essingers accepted it in settlement of the their coverage claim. The Essingers reserved the right to pursue a claim for bad faith claims handling.
Liberty's error was its failure to comprehend the nuances of Mississippi law relating to the stacking of UM policies, along with the credits or offsets available to it. It arrived at its $75,000 figure by first combining (i.e."stacking") the two $50,000 UM limits under its policy, and then subtracting the $25,000 payment that the Essingers had received from State Farm (the liability insurer for the owner of the vehicle.) Its error was in not including the $15,000 UM limit in the State Farm policy which was technically payable on the claim, but which was not owed by State Farm do to an offset that it received in paying its liability limits. In other words, the correct calculation was to "stack" all UM limits for a total of $115,000 and then subtract the $25,000 for a resulting benefit owed of $90,000.
The Fifth Circuit began its analysis by noting that while the Mississippi stacking rules are complicated, they are central components of the state's insurance law and "for many practitioners and judges, a passionately
protected doctrine in the state". After then determining that the Essingers had abandoned all claims except those for the bad faith refusal to pay a claim, the court reviewed the elements of such a claim under Mississippi law and found them to be as follows:
(1) Was there a refusal to pay a claim or to honor an obligation?
(2) Was the claim actually owed?
(3) Was there no arguable basis for the company's actions?
(4) Did the company's actions amount to an intentional wrong or occur due
to gross negligence?
The court began and ended its analysis with the first element.
The court recognized that Liberty had "created the problem for its insured by failing to understand what those who adjust insurance claims in Mississippi must know" but it declined to characterize this ignorance as a denial. The court noted that Liberty had offered what it considered to be
its policy limits and at various points had indicated that it would consider further information on the issue. As such, the court concluded that: "[t]here never was a denial of a claim or failure to honor an obligation as required to make a jury issue of bad faith".
In reaching its holding, the court recognized that "[a]t some point, an insurance company's conduct may reveal such a refractory attitude...that a denial might arise from what superficially appears to be negotiation." But the court found no dispute of material fact on that point and therefore "no reason to discuss the remaining issue on the relative egregiousness of the conduct."
Liberty was represented on appeal by Clifford K Bailey, III of Wells, Marble & Hurst.
The U.S. Court of Appeals for the Fifth Circuit is one of 13 federal circuit courts which occupy an intermediate level between the federal district courts and the U.S. Supreme Court. The Fifth Circuit is headquartered in New Orleans and hears appeals from the district courts located within Texas, Louisiana and Mississippi.
