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James v. State Farm Mut. Auto. Ins. Co.

United States Court of Appeals, Fifth Circuit

January 28, 2014

FAITH JAMES, Plaintiff - Appellant,

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Appeals from the United States District Court for the Southern District of Mississippi.

For FAITH JAMES, Plaintiff - Appellant: Stephen Paul Wilson, Attorney, Robert Kevin Hamilton, Esq., Hamilton Law Firm, P.L.L.C., Meridian, MS.

For STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Defendant - Appellee: Philip W. Gaines, Esq., William Henry Creel, Jr., Esq., Michael Franklin Myers, Esq., Currie Johnson Griffin & Myers, P.A., Jackson, MS.


Before STEWART, Chief Judge, and GARZA and ELROD, Circuit Judges. EMILIO M. GARZA, Circuit Judge, concurring in part and dissenting in part.


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CARL E. STEWART, Chief Judge:

IT IS ORDERED that the opinion previously filed in this case, James v. State Farm Mut. Auto. Ins. Co., No. 11-60458, 719 F.3d 447 (5th Cir. June 21, 2013), is WITHDRAWN. The following opinion is substituted therefor:

Defendant-Appellee State Farm Mutual Automobile Insurance Co. (" State Farm" ) tendered the policy limit on its uninsured motor vehicle coverage to Plaintiff-Appellant Faith James nearly thirty months after James was injured in a car accident. James brought a bad faith claim under Mississippi law, and the district court granted State Farm's motion for summary judgment. For the following reasons, we AFFIRM in part, REVERSE in part, and REMAND.


A. Facts

On February 3, 2006, James was involved in a car accident with Jarvis Smith. The parties do not dispute that Smith's negligence was the sole cause of the accident. James's vehicle turned over at least once, and she was taken from the scene in an ambulance to Wayne General Hospital. James received numerous stitches for a head wound and testified in her deposition that she felt significant pain in her chest, back, and head immediately after the accident.

At the time of the accident, James and/or her husband owned four State Farm insurance policies. The policy on the vehicle James was driving at the time of the accident included $5,000 in medical payments coverage, collision coverage, and $10,000 per person in uninsured/underinsured motor vehicle (" UM" ) coverage. Each of the other three policies also provided $10,000 per person UM coverage for a stacked total of $40,000 in UM benefits. The parties do not dispute that James's policies were in effect at the time of the accident. After James promptly notified State Farm of the accident, State Farm quickly paid out under its medical payments and collision coverage.

At issue is State Farm's delay in paying James benefits under her UM coverage. As the timeline of events contained in the record underpins our analysis of James's claims, we refrain from a lengthy factual recitation here and instead present critical events in our below discussion. We now continue our summary of this case's background with an overview of its procedural history.

B. Procedural History

On October 23, 2007, James and her husband[1] filed a complaint against State Farm in federal district court on diversity grounds. On February 13, 2008, James filed an amended complaint, which alleged

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that State Farm was intentionally engaging in delaying tactics to avoid paying on the policies. Because of this delay, the complaint alleged that State Farm had, inter alia, committed the tort of bad faith.[2] The complaint requested a jury trial and sought $40,000 due under the policy, compensatory damages, and punitive damages.

Over the next several months, the magistrate judge granted two motions to compel against State Farm. On July 29, 2008, State Farm paid its stacked UM policy limit of $40,000 to James. State Farm then filed a motion for summary judgment on October 29, 2008. On May 6, 2011, the district court granted State Farm's motion for summary judgment, entered final judgment in favor of State Farm, and dismissed the complaint with prejudice. No. 4:07-CV-137, 2011 WL 1743421 (S.D.Miss. May 6, 2011). This appeal followed.[3]


On appeal, James makes two arguments related to her bad faith claim: (1) State Farm withheld payment under one policy in order to coerce a lower settlement for claims under other policies, and (2) State Farm unreasonably delayed payment on the claim without a legitimate or arguable basis for doing so.

A. Standard of Review

We review a district court's grant of summary judgment de novo. Bradley v. Allstate Ins. Co., 620 F.3d 509, 516 (5th Cir. 2010) (citation omitted). Summary judgment is appropriate when " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine dispute about a material fact exists when the evidence presented on summary judgment is such that a reasonable jury could find in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). We view all facts and evidence in the light most favorable to the non-movant, here James. Bradley, 620 F.3d at 516 (citation omitted). When a defendant moves for summary judgment and identifies a lack of evidence to support the plaintiff's claim on an issue for which the plaintiff would bear the burden of proof at trial, then the defendant is entitled to summary judgment unless the plaintiff is able to produce " summary judgment evidence sufficient to sustain a finding in plaintiff's favor on that issue." Kovacic v. Villarreal, 628 F.3d 209, 212 (5th Cir. 2010) (citations omitted) (quoting Thompson v. Upshur Cnty, Tex., 245 F.3d 447, 456 (5th Cir. 2001). " [T]he propriety of summary judgment [is] bound up in the burdens of proof at trial...." Steven Alan Childress & Martha S. Davis, 1 Federal Standards of Review § 5.02, at 5-26 (4th ed. 2010) (citing Anderson, 477 U.S. at 247-48, 254).

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We review the district court's interpretation of state law de novo, and we " give no deference to its determinations of state law issues." Bradley, 620 F.3d at 516 (citation omitted).

B. Applicable Law

Because James brought this case in federal court on diversity grounds, Mississippi substantive law applies. See Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). " To determine issues of state law, we look to final decisions of the state's highest court, and when there is no ruling by that court, then we have the duty to determine as best we can what the state's highest court would decide." Westlake Petrochems., LLC v. United Polychem, Inc., 688 F.3d 232, 238 n.5 (5th Cir. 2012) (citation omitted). " In making an [ Erie ] guess in the absence of a ruling from the state's highest court, this Court may look to the decisions of intermediate appellate state courts for guidance." Howe ex rel. Howe v. Scottsdale Ins. Co., 204 F.3d 624, 627 (5th Cir. 2000) (citation omitted).

1. Claim against insurer for bad faith

James asserts that State Farm committed the tort of bad faith when it delayed payment on her UM claim. " [A] bad faith refusal claim is an 'independent tort' separable in both law and fact from the contract claim asserted by an insured under the terms of the policy." Spansel v. State Farm Fire & Cas. Co., 683 F.Supp.2d 444, 447 (S.D.Miss. 2010) (alteration in original) (quoting Hartford Underwriters Ins. Co. v. Williams, 936 So.2d 888, 895 (Miss. 2006)).

The Mississippi Supreme Court has recognized that claimants can bring bad faith claims against and recover punitive damages from insurers who refuse to pay out on a valid claim. See Caldwell v. Alfa Ins. Co., 686 So.2d 1092, 1098 (Miss. 1996) (holding that denial of a valid insurance claim is critical for the submission of punitive damages to a jury). Additionally, although Mississippi courts are skeptical of such claims, they have permitted claimants to recover damages on bad faith claims when resolution of an insurance claim is merely delayed rather than ultimately denied.[4] See, e.g., Travelers Indem. Co. v. Wetherbee, 368 So.2d 829, 834-35 (Miss. 1979) (affirming jury award for punitive damages where insurer withheld payment for eight months); AmFed Cos., LLC v. Jordan, 34 So.3d 1177, 1191 (Miss. Ct. App. 2009) (affirming trial judge's decision to submit punitive damages issue to the jury in a delay-of-payment case); Pilate v. Am. Federated Ins. Co., 865 So.2d 387, 400 (Miss. Ct. App. 2004) (" [T]here may be cases where a delay [of payment for one month] could possibly be sufficient grounds for a bad faith claim." ); see also Essinger v. Liberty Mut. Fire Ins. Co., 529 F.3d 264, 271 n.1 (5th Cir. 2008) (citation omitted) (" Inordinate delays in processing claims and a failure to make a meaningful investigation have combined to create a jury question on bad faith." ); but see Tutor v. Ranger Ins. Co., 804 F.2d 1395, 1399 (5th Cir. 1986) (per curiam) (reversing jury's punitive damage award where payment was delayed during an ongoing dispute between insured and insurer); Caldwell, 686 So.2d at 1098 (affirming grant of summary judgment where insurance company delayed payment for three months in complex wrongful death claim, including a six-week

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delay after it completed its investigation).

Our review of the case law illustrates that whether to submit a delay-ofpayment claim to a jury is a highly fact-sensitive analysis. To establish a claim for punitive damages in the context of a bad faith claim, James must establish three factors: 1) State Farm had a contractual obligation to her; 2) State Farm lacked an arguable or legitimate basis for its delay in paying her claim; and 3) State Farm's failure resulted " from an intentional wrong, insult, or abuse as well as from such gross negligence as constitutes an intentional tort." [5] Jeffrey Jackson, Miss. Ins. Law and Prac. § 13:2 (2012) (internal quotation marks and citations omitted); see U.S. Fidelity & Guar. Co. v. Wigginton, 964 F.2d 487, 492 (5th Cir. 1992); see also Sobley v. S. Natural Gas Co., 210 F.3d 561, 564 (5th Cir. 2000). As a preliminary matter, the trial judge must decide, as a matter of law, that the insurer lacked " a reasonably arguable basis" for denying the claim. See Broussard v. State Farm Fire and Cas. Co., 523 F.3d 618, 628 (5th Cir. 2008) (internal quotation marks and citation omitted) (quoting Andrew Jackson Life Ins. Co. v. Williams, 566 So.2d 1172, 1186 n.13 (Miss. 1990)); Wigginton, 964 F.2d at 492 (citation omitted); Fulton v. Miss. Farm Bureau Cas. Ins. Co., 105 So.3d 284, 288 (Miss. 2012).

2. Arguable or legitimate basis

As noted above, whether an insurer possessed an arguable or legitimate reason is a question of law. Wigginton, 964 F.2d at 492 (citation omitted); Jenkins v. Ohio Cas. Ins. Co., 794 So.2d 228, 232-33 (Miss. 2001). " Arguable reason is defined as nothing more than an expression indicating the act or acts of the alleged tortfeasor do not rise to [the] heightened level of an independent tort." Caldwell, 686 So.2d at 1096 (citation and internal quotation marks omitted). The initial burden placed on the insurer is low: it " need only show that it had reasonable justifications, either in fact or in law" for its actions. Wigginton, 964 F.2d at 492 (citation omitted). Once an insurance company articulates an arguable or legitimate reason for its payment delay, the insured bears the burden of demonstrating that the insurer had no arguable reason. Caldwell, 686 So.2d at 1097. " The plaintiff's burden in this respect likewise exists at the summary judgment stage where the insurance company presents an adequate prima facie showing of a reasonably arguable basis for denial so as to preclude punitive damages." Id. at 1097 n.1 (citation omitted).

Whether a claimant has proven an insurer acted without a reasonable or arguable basis is determined by a preponderance of the evidence. See, e.g., Miss. Power & Light Co. v. Cook, 832 So.2d 474, 484 (Miss. 2002) (approving of jury instructions that used preponderance of the evidence standard); Mut. Life Ins. Co. of N.Y. v. Estate of Wesson, 517 So.2d 521, 530

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(Miss. 1987), abrogated on other grounds by Gen. Am. Life Ins. Co. v. McCraw, 963 So.2d 1111, 1114 (Miss. 2007) (same).[6]

3. Insurer duties under Mississippi law

Mississippi places a duty on insurers to properly investigate the claims asserted by their insured. Specifically, " [u]nder Mississippi law, insurers have a duty 'to perform a prompt and adequate investigation and make a reasonable, good faith decision based on that investigation'...." Broussard, 523 F.3d at 627-28 (quoting Liberty Mut. Ins. Co. v. McKneely, 862 So.2d 530, 535 (Miss. 2003)). " A proper investigation means obtaining 'all medical information relevant to a policyholder's claim.'" McLendon v. Wal-Mart Stores, Inc., 521 F.Supp.2d 561, 565 (S.D.Miss. 2007) (quoting Lewis v. Equity Nat'l Life Ins. Co., 637 So.2d 183, 187 (Miss. 1994)). To do so, an insurer must " make a reasonable effort to secure all ...

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