Daniel Dey v. State Farm Mutual Auto Ins Co.

Filing

PUBLISHED OPINION FILED. [14-60300 Affirmed] Judge: PEH , Judge: WED , Judge: LHS. Mandate pull date is 07/08/2015 [14-60300]

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Date Filed: 06/17/2015

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 14-60300

United States Court of Appeals
Fifth Circuit

FILED
DANIEL F. DEY,
Plaintiff - Appellant

June 17, 2015
Lyle W. Cayce
Clerk

v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Defendant - Appellee

Appeal from the United States District Court
for the Southern District of Mississippi
Before HIGGINBOTHAM, DAVIS, and SOUTHWICK, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
Daniel Dey appeals the district court’s grant of summary judgment to
State Farm Mutual Automobile Insurance Company on his claim of bad faith,
and also its grant of State Farm’s motion to amend the judgment entered after
a jury verdict on compensatory damages. We AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
In October 2009, Dey’s vehicle was struck from the rear by a police
officer’s vehicle in Gulfport, Mississippi. At the time of the accident, Dey had
uninsured motorist (“UM”) benefits in the amount of $100,000.

Under

Mississippi law, the police officer was properly considered an uninsured
motorist. In January 2010, Dey put State Farm on notice of a potential UM

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claim, and, in May 2011, he submitted a settlement brochure to State Farm.
The brochure included $12,080.50 in medical bills, $5,777.02 in lost wages and
mileage, and $13,871.02 in “special damages,” for a total of $31,728.54. Dey
demanded $125,000 in “full and final settlement” for the claim.
submission also included medical records.

The

One record was from Dey’s

physician, Dr. Noblin, dated March 9, 2010, stating that Dey “may be moving
towards a surgical treatment.” Another record from Dr. Noblin, dated seven
months later, stated that Dey “has reached maximum medical improvement,”
that Dr. Noblin does “not expect [Dey’s] condition to worsen,” and that
“[f]urther medical or surgical treatment is not expected to result in significant
change in [Dey’s] condition.” Also submitted was a patient history worksheet
which indicated Dey had a history of back pain.
On June 14, a State Farm adjuster prepared an Injury Evaluation
Report which put the value of the claim between $37,000 and $47,000. On
June 17, Dey informed State Farm that he had exhausted his administrative
remedies and demanded the policy limit of $100,000. On July 8, the adjuster
was given authority to settle the claim for up to $47,000. State Farm offered
Dey $37,000. Dey rejected the offer and requested the $100,000 policy limit.
State Farm increased its offer to $45,000. Dey rejected this offer as well.
On February 6, 2012, Dey sent State Farm a letter stating that he
continued to experience medical problems as a result of the accident. He
included a medical report from Dr. Winters, dated November 16, 2011, which
noted that Dey “clearly still has some problems,” but that “[h]e doesn’t have
any signs that would require surgery.” In the letter, Dey again requested the
policy limit of $100,000. On February 23, State Farm advised Dey that an
impasse had been reached and tendered the amount of its initial settlement
offer – $37,000.
In April, Dey demanded that State Farm provide an additional $13,000,
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based on his belief that State Farm’s last settlement offer was for $50,000.
State Farm advised Dey of his misunderstanding of the last offer.

Dey

continued to demand an additional $13,000. On August 17, 2012, Dey provided
State Farm with new medical records. The records, from a June 1 visit to Dr.
Noblin, recommended shoulder surgery.
Dey filed this suit on September 19, 2012, in Mississippi state court. He
sought damages based on an uninsured motorist claim, bad-faith denial of the
claim, and conversion. State Farm removed the case to federal court based on
diversity jurisdiction. On January 24, 2013, the parties’ Rule 26(f) conference
was held. On the same day, State Farm requested a medical authorization
from Dey. On March 7, Dey wrote to State Farm again requesting the policy
limit of $100,000. He submitted records from his surgery that was performed
in December 2012. In all, there were $44,841.50 in medical expenses. He also
informed State Farm that, as a result of the shoulder surgery, he had to take
more time off of work.

State Farm responded that questions remained

regarding the mechanism of injury and causation; thus, its evaluation
remained unchanged. In April, Dey provided State Farm with the medical
authorization to permit review of his previous records. In May, Dey was
deposed. On the day of his deposition, Dey advised State Farm in a letter that
his doctors were available for a deposition and again requested the policy limit.
State Farm responded that it was just beginning to receive records related to
Dey’s medical history and that a response would be forthcoming once the
records were reviewed.
In July, an expert retained by State Farm to evaluate Dey’s medical
records submitted a report which stated he was “unable to determine the
etiology of the need for surgery” and that “any shoulder specialist would be
unable to assign the need for surgery to the accident . . . to any degree of
medical probability given the delay between the initial release [by Dr. Noblin]
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and the determination of the need for surgery.”
On August 13, 2013, State Farm informed Dey that its evaluation
remained unchanged. Two days later, it filed a motion for partial summary
judgment on Dey’s bad-faith and conversion claims. The district court granted
the motion, which removed from the case the possibility of punitive damages.
In February 2014, a trial was held on the uninsured motorist claim. The jury’s
verdict was for $229,400.50, consisting of $54,400.50 in economic damages and
$175,000 in non-economic damages.

The district court entered a final

judgment in the amount of $192,400.50 after deducting the $37,000 that State
Farm had paid to Dey in February 2012. The next day, State Farm filed a
motion to amend the judgment under Federal Rule of Civil Procedure 59(e),
arguing that, because Dey’s uninsured motorist coverage was limited to
$100,000, the judgment should have been for $63,000. The district court agreed
and amended the judgment accordingly. Dey timely appealed.
DISCUSSION
Dey claims error in the dismissal of his bad-faith claim and the grant of
the Rule 59(e) motion to amend the judgment. We examine each claim.
I.

Dey’s bad faith claim for punitive damages
We review a district court’s grant of summary judgment de novo.

Crownover v. Mid-Continent Cas. Co., 772 F.3d 197, 201 (5th Cir. 2014).
Because jurisdiction in this case is based on diversity, we apply the substantive
law of the forum state, which is Mississippi. Id.
Dey states that “[t]he central issue in this Appeal is whether or not State
Farm had an arguable reason to deny payments of the policy limits to Mr. Dey.”
The district court held that it did. It found that, initially, the delay was due
to the parties’ disagreement over the value of the claim, which did not “give[]
rise to a claim for bad faith denial[.]” Further, once Dey provided the new
medical records indicating surgery was necessary, State Farm had an arguable
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basis for the delay or denial as it was “investigat[ing] new information”
provided by Dey. The district court analyzed Dey’s claim in two distinct time
periods. The usual course though, as reflected in state court opinions, is to
examine the entire time period as a unit: “The totality of the circumstances
and the aggregate conduct of the defendant must be examined before punitive
damages are appropriate.” Hartford Underwriters Ins. Co. v. Williams, 936 So.
2d 888, 896 (Miss. 2006) (collecting cases). The district court held that State
Farm’s conduct did “not rise to the level of an independent tort” and dismissed
Dey’s bad faith claim.
Mississippi law imposes on insurers “a duty ‘to perform a prompt and
adequate investigation and make a reasonable, good faith decision based on
that investigation,” and insurers “may be liable for punitive damages for
denying a claim in bad faith.” Broussard v. State Farm Fire & Cas. Co., 523
F.3d 618, 627 (5th Cir. 2008) (first quote from Liberty Mut. Ins. Co. v.
McKneely, 862 So. 2d 530, 535 (Miss. 2003)).

A bad faith claim “is an

independent tort separable in both law and fact from [a] contract claim . . . .”
Hartford Underwriters Ins. Co., 936 So. 2d at 895 (citation and internal
quotation marks omitted). In order to succeed on a bad faith claim, a claimant
“must show that [the insurer] denied the claim (1) without an arguable or
legitimate basis, either in fact or law, and (2) with malice or gross negligence
in disregard of the insured's rights.” Hoover v. United Servs. Auto. Ass’n, 125
So. 3d 636, 643 (Miss. 2013) (citation omitted). Because the issue was resolved
on summary judgment, we give de novo review to whether the evidence
submitted revealed the presence of genuine disputes of material fact.
Dey had to present some evidence to demonstrate a dispute of material
fact as to whether State Farm lacked an arguable or legitimate basis on which
to deny his claim. If there was such evidence, Dey then must provide evidence
that State Farm acted with “malice or gross negligence in disregard of the
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insured’s rights.” Hoover, 125 So. 3d at 643 (citation omitted).
A. Arguable basis for denial of Dey’s claim
A plaintiff has “a heavy burden in demonstrating . . . that there was no
reasonably arguable basis for denying the claim.” Windmon v. Marshall, 926
So. 2d 867, 872 (Miss. 2006) (citation omitted). Dey’s primary arguments are
that State Farm acted in bad faith because it delayed in (1) requesting a
medical authorization and (2) informing him that it had questions related to
the cause of his injuries. We agree with the district court that the undisputed
evidence shows that State Farm had an arguable basis for this delay. Until
Dey provided the new medical records, State Farm had no reason to investigate
the cause of Dey’s injuries. 1 Only in August 2013 did Dey provide State Farm
reports from his doctor indicating that surgery was needed. State Farm did
initially evaluate Dey’s claim on the basis that the accident may have
aggravated a pre-existing condition. Without a recommendation for surgery,
State Farm estimated that Dey’s future medical costs were “nonexistent.” That
left no reason to investigate a potential pre-existing condition, and no need for
a medical authorization to request medical records to aid that investigation.
Once it received new records stating surgery was now thought to be necessary,
State Farm responded properly to those indications.
As to its denial of policy limits before the receipt of the new medical
records, there is no genuine dispute of fact that State Farm had an arguable
basis for denial. The medical bills and expenses submitted by Dey totaled only
$31,728.54, far less than the $125,000 and $100,000 that Dey demanded.

Dey argues in his Reply that State Farm should have known surgery was expected
because Dr. Noblin’s March 2010 medical report, included in the settlement brochure, stated
that Dey “may be moving towards a surgical treatment.” But a report dated seven months
later from the same physician, also included in the settlement brochure, stated that Dey had
reached “maximum medical improvement,” and that his condition was not expected to
worsen.
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Furthermore, we agree with the district court that the parties were engaged in
a disagreement over the value of the claim, a so-called “pocketbook dispute,”
which cannot support a claim for bad faith. See Cossitt v. Alfa Ins. Corp., 726
So. 2d 132, 139 (Miss. 1998).
Dey also asserts that State Farm lacked an arguable basis for its denial
of payment because it did not seek clarification from his treating physicians as
to the additional medical records, did not request Dey be seen by a State Farm
doctor, did not respond to Dey’s offer to depose his physicians for two months,
and did not retain its expert until six days before the litigation deadline. We
disagree that these points support bad faith. Bad faith must be more than
“mere negligence, inadvertence, clerical errors, or honest mistakes.” JEFFREY
JACKSON, MISS. INS. LAW AND PRAC. § 13:8 (2014) (footnoting cases). At best,
the asserted conduct constitutes negligence or bad judgment.

Further,

insurers are “not required to disprove all possible allegations made by a
claimant.

They are simply required to perform a prompt and adequate

investigation and make a reasonable, good faith decision based on that
investigation.” McKneely, 862 So. 2d at 535.
Dey has not shown a genuine dispute of material fact that would have
justified the denial of summary judgment on the claim of bad faith in refusing
to offer payment of the policy limit on his claim.
As a result of our agreement with the district court that State Farm had
an arguable basis for the denial of Dey’s claim for policy limits, we need not
consider whether the conduct was “sufficiently egregious to rise to the level of
an independent tort.” See JACKSON, MISS. INS. LAW § 13:10 (citation omitted). 2
Dey cites James v. State Farm Mutual Automobile Insurance Co., 743 F.3d 65 (5th
Cir. 2014). In James, there was a 30-month delay between the time the insurer was notified
of the accident and the time it tendered any UM benefits. Id. at 71. In contrast, State Farm
tendered payment of $37,000 under Dey’s UM policy eight months after it was notified that
Dey had exhausted his administrative remedies, and made offers of settlement in the interim.
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II.

State Farm’s Rule 59(e) motion to amend the judgment
Where a motion to amend a judgment under Federal Rule of Civil

Procedure 59(e) raises an issue of law, we apply de novo review. Homoki v.
Conversion Servs., Inc., 717 F.3d 388, 404 (5th Cir. 2013). A Rule 59(e) motion
“must clearly establish either manifest error of law or fact or must present
newly discovered evidence and cannot raise issues that could and should have
been made before the judgment issued.” Id. (citation and quotation marks
omitted).
One day after the jury awarded damages of $229,400.50, State Farm
filed a motion to amend the judgment under Rule 59(e). State Farm argued to
the district court that Dey’s recovery was limited to $100,000 because his basis
for recovery was his uninsured motorist policy which had a limit of $100,000.
Dey responded that a Rule 59(e) motion cannot be used to make arguments not
raised before trial.

Furthermore, Dey argued, State Farm waived any

argument that damages should be limited to the policy limit because (1) such
an argument is an affirmative defense and State Farm did not plead it in its
answer, and (2) State Farm moved the court to exclude evidence of the policy
limit at trial.
The district court granted State Farm’s motion. It held that because its
dismissal of State Farm’s bad-faith claim was based on a conclusion that State
Farm had not “acted in bad faith, [Dey’s] recovery at the trial of this matter
was necessarily limited to the policy limit.” As to waiver, the district court
held that while State Farm was not as diligent as it could have been in raising
its argument, its conduct did not rise to the level of waiver as there was no
intention to surrender its right to assert that Dey was limited to the policy
limit. In support of this holding, the district court pointed out that the parties
stipulated in the pretrial order that any damages sustained by Dey were
covered by the policy “pursuant to coverage he purchased for uninsured
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motorist coverage.” The court further held that State Farm, by seeking to
exclude evidence of the policy limit at trial to avoid potentially being prejudiced
by evidence that there was $100,000 in insurance coverage, did not waive its
legal argument that damages were limited to the policy limit.
We agree with the district court. While it is correct that Rule 59(e)
motions may not be used to “raise issues that could and should have been made
before the judgment issued,” they may be used to correct a “manifest error of
law or fact . . . . ”

Homoki, 717 F.3d at 404 (citation omitted). The district

court’s grant of summary judgment to State Farm on Dey’s bad faith claim
effectively limited Dey’s damage award to the policy limit.
Dey also argues that State Farm waived the right to insist that he could
not recover more than his policy limit because it failed to plead the argument
in its answer. We have been provided with no legal support for the contention
that such an argument must be pled as an affirmative defense. Even if this
were an affirmative defense, such a defense may be “raised at a pragmatically
sufficient time, and [if the plaintiff] was not prejudiced in its ability to
respond,” it is not waived. Bradberry v. Jefferson Cnty., 732 F.3d 540, 553 (5th
Cir. 2013) (citation and quotation marks omitted). Dey was not subject to
“unfair surprise” or prejudice. As the district court noted, the pretrial order,
to which both parties stipulated, stated that any damages sustained by Dey
would be covered by his uninsured motorist coverage. Dey, therefore, had no
basis to claim surprise by State Farm’s argument that his damages must be
limited to the amount of his uninsured motorist coverage. Furthermore, while
State Farm did not specifically state in its affirmative defenses that Dey was
limited to policy limits, it did plead that “Plaintiff is not entitled to recover
extra contractual damages, punitive or otherwise . . . .”
Similarly unavailing is Dey’s contention that State Farm waived its
argument that Dey’s damages could not be more that the policy limit because
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it moved to have evidence of the policy limit excluded at trial. State Farm
sought the exclusion of evidence of the policy limit because it would be
prejudicial. Preventing juror’s knowing the amount of available insurance, a
silence that might increase the possibility jurors will award less than the limit,
is a completely distinguishable position from arguing post-verdict that the
judgment cannot be for more than such limit. We see no waiver.
AFFIRMED.

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