Fifth Circuit Issues Notable Insurance Bad Faith Decision Related to Ignorance of Stacking Law
On May 20, 2008, the Fifth Circuit Court of Appeals issued a notable opinion relating to an insurer’s liability for bad faith when it delays payment of total available policy benefits because of its ignorance of Mississippi law. In Essinger v. Liberty Mutual Fire Ins. Co., No. 07-60376 (May 20, 2008), the Fifth Circuit affirmed summary judgment for the insurer despite the undisputed fact that the insurer delayed payment of all available benefits under its uninsured motorist coverage because it misunderstood Mississippi’s stacking law. Liberty Mutual eventually paid the $90,000 due under its policy, but only after pressure from the insured’s coverage counsel and explanation of applicable Mississippi law by its own retained counsel. On appeal, the insured argued that the trial court erred in granting summary judgment on its punitive damages claims.
The Fifth Circuit affirmed on the ground that denial of a claim is the first element in a bad faith case for punitive damages under Mississippi law. The necessary denial may be a constructive denial that arises from bad faith negotiation. In other words, an express denial is not absolutely necessary. However, neither an express nor a constructive denial existed in this case. Reaching that decision, the Fifth Circuit held that an insurer is not required to be pro-active relative to further coverage analysis beyond the insured’s inquiry. Additionally, the Court held that an offer of an amount less than the policy benefits due does not constitute a sufficient denial. In sum, the Court found that Liberty Mutual was always negotiating or leaving the door open to further negotiation until it realized its mistake and corrected that mistake by payment of the total policy benefits due.
The Essinger decision is also notable in that the Fifth Circuit found that the insureds had abandoned their claim for extra-contractual damages even though they had sufficiently raised that issue in their complaint below. The Fifth Circuit held that extra-contractual damages were not at issue on appeal as the insureds:
- Failed to respond to that portion of Liberty Mutual’s motion for summary judgment;
- Following the trial court’s grant of summary judgment never objected or sought clarification relative to the dismissal to the extra-contractual damages claim; and
- On appeal, only argued related to the dismissal of the bad faith claim.
That abandonment may have been significant: at the end of its opinion, the Fifth Circuit suggested that, because of the insurer’s negligence and the insured’s resulting damages (i.e., attorneys fees), this might have been a perfect case for extra-contractual damages under the Veasley decision.
Finally, this opinion contains a good explanation of Mississippi’s stacking law under the particular facts and circumstances of this case and is worth a read on that basis alone.
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