Guideone Elite Insurance Co., et al v. Mount Carmel Ministries, et al

Filing

UNPUBLISHED OPINION FILED. [15-60915 Affirmed ] Judge: CDK , Judge: PRO , Judge: CH Mandate pull date is 02/13/2017 [15-60915]

Case: 15-60915

Document: 00513845205

Page: 1

Date Filed: 01/23/2017

IN THE UNITED STATES COURT OF APPEALS
United States Court of Appeals
FOR THE FIFTH CIRCUIT
Fifth Circuit

FILED
No. 15-60915

January 23, 2017
Lyle W. Cayce
Clerk

GUIDEONE ELITE INSURANCE COMPANY; GUIDEONE INSURANCE
COMPANY,
Plaintiffs - Appellees Cross-Appellants
v.
MOUNT CARMEL MINISTRIES; ALPHA CHRISTIAN SCHOOL; SEAWAY
BANK AND TRUST COMPANY,
Defendants - Appellants Cross-Appellees

Appeals from the United States District Court
for the Southern District of Mississippi
USDC No. 2:13-CV-134
Before KING, OWEN, and HAYNES, Circuit Judges.
PER CURIAM: *
After a tornado severely damaged properties in Hattiesburg, Mississippi,
this insurance coverage dispute ensued.

The district court concluded on

summary judgment that coverage was in place at the time of the tornado, and
then awarded damages after a four-day bench trial. The insurer appeals the
district court’s conclusions that its notice of cancellation of the insurance policy
Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
*

Case: 15-60915

Document: 00513845205

Page: 2

Date Filed: 01/23/2017

No. 15-60915
was ineffective, and therefore, there was coverage at the time of the loss. The
insured and its mortgage holder appeal various aspects of the district court’s
damages award, as well as several evidentiary rulings. Finding no reversible
error by the district court, we AFFIRM.
I. FACTS AND PROCEEDINGS
Mount Carmel Ministries, which owns and operates the Alpha Christian
School in Hattiesburg, Mississippi (collectively, Mount Carmel), purchased a
commercial property insurance policy, effective July 7, 2012 to July 7, 2013
(the policy), from GuideOne Elite Insurance Company (GuideOne). On October
2, 2012, Seaway Bank and Trust Company (Seaway), Mount Carmel’s
mortgagee, initiated foreclosure proceedings against Mount Carmel due to
Mount Carmel’s default on its mortgage note. GuideOne, after learning of the
impending foreclosure, sent Mount Carmel a notice canceling the policy. The
notice was dated October 29, 2012, and stated an effective date of cancellation
of November 20, 2012—22 days later.
Mount Carmel and Seaway entered into a forbearance agreement on
November 7, canceling the foreclosure sale. When Seaway discovered that
GuideOne had canceled the policy, Seaway purchased force-placed coverage 1
for Mount Carmel’s buildings, effective January 7, 2013 to February 7, 2013.
On January 29, 2013, Mount Carmel asked GuideOne to reinstate the policy,
but GuideOne did not immediately respond.

Though Seaway allegedly

informed Mount Carmel that it would continue purchasing force-placed

“Force-placed insurance is the insurance that a lien holder places on a property to
provide coverage in the event the borrower allows the coverage to lapse or when the
borrower’s coverage actually lapses. . . . Costs of the insurance are typically paid up-front by
the lien holder, but then added to the balance of the lien.” Baxter v. PNC Bank Nat. Ass’n,
541 F. App’x 395, 396 n.1 (5th Cir. 2013) (per curiam).
1

2

Case: 15-60915

Document: 00513845205

Page: 3

Date Filed: 01/23/2017

No. 15-60915
insurance, Seaway apparently mistakenly failed to renew the coverage after
February 7.
On February 10, 2013, after the force-placed coverage had expired, a
tornado struck Hattiesburg, severely damaging several of Mount Carmel’s
buildings.

The evidence shows that the next day, GuideOne employees

communicated amongst themselves about the tornado and Mount Carmel’s
pending request for reinstatement. On February 18, GuideOne denied the
request for reinstatement, explaining that the policy “was canceled on
November 20, 2012.” The pastor of Mount Carmel then signed an affidavit
stating that Mount Carmel had no insurance other than force-placed
insurance. However, on April 22 and 23, Seaway and Mount Carmel sent
GuideOne letters asserting that the cancellation of the policy was ineffective.
GuideOne then filed suit in the District Court for the Southern District
of Mississippi seeking a declaration that the policy was cancelled and not in
force on the date of the loss. Mount Carmel and Seaway each filed defenses
and counterclaims. Each party then moved for summary judgment. Seaway
and Mount Carmel argued that GuideOne’s cancellation of the policy was
ineffective because it did not provide sufficient notice of cancellation under
either Mississippi law or the terms of the policy. 2
The district court granted Mount Carmel’s and Seaway’s motions for
partial summary judgment on the issue of coverage and partially granted
GuideOne’s motion for summary judgment on the issue of punitive damages.
The district court first determined that GuideOne’s notice of cancellation was

Mississippi law provides that a cancellation of an insurance policy is “not effective”
unless notice is mailed not less than 30 days prior to the effective date of cancellation. Miss.
Code. Ann. § 83-5-28(1). And the policy contained a notice clause requiring GuideOne to give
Mount Carmel 60 days’ notice prior to cancellation, and Seaway 30 days’ notice.
2

3

Case: 15-60915

Document: 00513845205

Page: 4

Date Filed: 01/23/2017

No. 15-60915
ineffective under both the Mississippi statute and the policy, and therefore, the
policy was in effect at the time of the tornado. The district court also found
that GuideOne breached the policy by providing insufficient notice of
cancellation and granted summary judgment to Seaway on its breach of
contract counterclaim.

However, it determined that GuideOne had an

arguable basis for denying coverage at the time, and thus, punitive damages
were not proper under Mississippi law.

It accordingly partially granted

GuideOne’s motion for summary judgment with respect to Mount Carmel’s
counterclaims for punitive damages.
Following the court’s ruling, the parties proceeded to a four-day bench
trial to determine the amount of damages. In a written order following the
trial, the district court awarded Mount Carmel and Seaway $1,693,035 in
damages, representing what would have been the cost to repair or replace the
property roughly six weeks after the tornado, less depreciation. Mount Carmel
and Seaway had sought a much higher amount to compensate for the severe
deterioration in the buildings that occurred after the initial damage estimate.
Mount Carmel and Seaway appeal, challenging various aspects of the
district court’s damages award.

Mount Carmel also appeals various

evidentiary rulings. GuideOne cross-appeals the court’s determination that
the notice of cancellation was ineffective and thus the policy coverage was in
place at the time of the tornado.
II. STANDARDS OF REVIEW
We review the district court’s grant of summary judgment de novo,
applying the same standard as the district court. Rogers v. Bromac Title
Servs., L.L.C., 755 F.3d 347, 350 (5th Cir. 2014). Summary judgment is proper
“if 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.
4

Case: 15-60915

Document: 00513845205

Page: 5

Date Filed: 01/23/2017

No. 15-60915
56(a). We also review the district court’s interpretation of an insurance policy
de novo. Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 428 (5th Cir.
2007).

We review the district court’s damages award for clear error.

Delahoussaye v. Performance Energy Servs., L.L.C., 734 F.3d 389, 394 (5th Cir.
2013). “To reverse for clear error, this court must have ‘a definite and firm
conviction that a mistake has been made.’” Id. at 392 (quoting Canal Barge
Co. v. Torco Oil Co., 220 F.3d 370, 375 (5th Cir. 2000)). We review the district
court’s evidentiary rulings and discovery orders for abuse of discretion. Gen.
Elec. Co. v. Joiner, 522 U.S. 136, 141 (1997). “A trial court abuses its discretion
when its ruling is based on an erroneous view of the law or a clearly erroneous
assessment of the evidence.” Brown v. Ill. Cent. R. Co., 705 F.3d 531, 535 (5th
Cir. 2013) (quoting Knight v. Kirby Inland Marine, Inc., 482 F.3d 347, 351 (5th
Cir. 2007)).

Finally, we generally review the district court’s denial of

prejudgment interest for abuse of discretion. Reyes–Mata v. IBP, Inc., 299 F.3d
504, 507 (5th Cir. 2002).
III. NOTICE OF CANCELLATION
GuideOne appeals the district court’s grant of summary judgment on the
issue of coverage, arguing that there was no coverage in place because it had
effectively canceled the policy before the tornado. Mississippi law provides
that the cancellation of an insurance policy “is not effective . . . unless notice is
mailed or delivered . . . not less than thirty (30) days prior to the effective date
of such cancellation.” Miss. Code. Ann. § 83-5-28(1). 3 In addition to this

3

Miss. Code Ann. § 83-5-28 provides in full:

(1) A cancellation . . . in coverage . . . of liability insurance coverage, fire
insurance coverage or single premium multiperil insurance coverage is not
effective as to any coverage issued or renewed after June 30, 1989, unless
notice is mailed or delivered to the insured and to any named creditor loss
payee by the insurer not less than thirty (30) days prior to the effective date of

5

Case: 15-60915

Document: 00513845205

Page: 6

Date Filed: 01/23/2017

No. 15-60915
statutory requirement, the policy contained a notice clause requiring
GuideOne to give Mount Carmel 60 days’ notice prior to cancellation, and
Seaway 30 days’ notice. While much of the parties’ briefing focuses on the
district court’s interpretation of the Mississippi statute, we first analyze the
effectiveness of GuideOne’s notice of cancellation under the policy’s more
burdensome requirements.
The policy provided that GuideOne could cancel the policy (for any
reason other than nonpayment) via a “written notice of cancellation” to the
insured mailed “at least . . . 60 days before the effective date of cancellation.”
The policy further stated that the “[n]otice of cancellation will state the
effective date of cancellation” and that the “[t]he policy period will end on that
date.” (Emphases added.)

GuideOne mailed the notice of cancellation to

Mount Carmel on October 29, 2012, and the notice stated an effective date of
November 20, 2012—22 days later. Clearly, this 22 day notice of cancellation
did not comply with the policy’s directives that notice of cancellation be mailed
no less than 60 days prior to the effective date of the cancellation and that the
notice state an effective date in accordance with this notice period.
Accordingly, GuideOne’s notice of cancellation was not effective under the
policy, and therefore, coverage was still in effect at the time of the tornado
(February 10, 2013).

such cancellation, reduction or nonrenewal. This section shall not apply to
nonpayment of premium unless there is a named creditor loss payee, in which
case at least ten (10) days’ notice is required.
(2) The provisions of subsection (1) shall be incorporated into each
liability, fire and multiperil policy issued or renewed after June 30, 1989; and
if such provisions are not expressly stated in the policy, such provisions shall
be deemed to be incorporated in the policy.

6

Case: 15-60915

Document: 00513845205

Page: 7

Date Filed: 01/23/2017

No. 15-60915
GuideOne’s arguments to the contrary are unavailing. GuideOne notes
that the “majority rule” amongst other jurisdictions is that a too-short notice
of cancellation nevertheless becomes effective after the passing of the required
notice period. It urges that here too its notice to Mount Carmel should be
considered effective 60 days after it sent the notice, i.e., cancellation was
nevertheless effective before the tornado struck. Yet, this argument flies in
the face of the Mississippi Supreme Court’s directive to enforce the plain and
unambiguous terms of an insurance policy as they are written. See, e.g.,
Noxubee Cty. Sch. Dist. v. United Nat’l Ins. Co., 883 So. 2d 1159, 1165 (Miss.
2004). The plain terms of the policy do not allow for such an exception for tooshort notices, and we therefore decline to read such an exception into the
policy.
GuideOne also cites a Mississippi Supreme Court case in which a
cancellation notice’s failure to provide the notice required under the policy did
not render it ineffective, but merely delayed its effectiveness until after the 5day notice period required by the policy had passed. See Phenix Ins. Co. of
Brooklyn v. Hunter, 49 So. 740, 741 (Miss. 1909). However, Hunter is easily
distinguishable. The policy at issue there merely provided that “[t]his policy
shall be canceled . . . by the company giving five days’ notice of such
cancellation.” Id. at 740. The Mississippi Supreme Court reasoned that a
notice of cancellation providing less than 5 days’ notice nevertheless became
effective upon the 5 days passing. Id. at 741. Yet, here, the policy required
both a minimum days’ notice of cancellation, as the policy in Hunter did, and
that the notice of cancellation specify the effective date of the cancellation.
Thus, to be effective under the policy, a notice of cancellation must not only be
sent at least 60 days in advance but also specify an effective date no sooner
than 60 days from its mailing. Thus, we conclude that GuideOne’s notice of
7

Case: 15-60915

Document: 00513845205

Page: 8

Date Filed: 01/23/2017

No. 15-60915
cancellation was ineffective under the policy and coverage did not expire upon
the lapse of the required notice period.

The district court did not err in

granting summary judgment against GuideOne on this issue. 4
IV. DAMAGES
Mount Carmel and Seaway appeal various aspects of the district court’s
damages award. We address each argument in turn.
A. Damages Owed Under the Policy
Mount Carmel and Seaway challenge the district court’s interpretation
of the policy and calculation of the damages GuideOne owed under the policy,
primarily on the basis that the district court erred in failing to award damages
for loss occurring subsequent to the tornado.
The policy required GuideOne to “pay for direct physical loss of or
damage to Covered Property . . . caused by or resulting from any Covered
Cause of Loss.” 5 The policy provides how GuideOne will pay for loss:
4. Loss Payment
a. In the event of loss or damage covered by this Coverage
Form, at our option, we will either:
(1) Pay the value of lost or damaged property;
(2) Pay the cost of repairing or replacing the lost or
damaged property, subject to b. below;
(3) Take all or any part of the property at an agreed or
appraised value; or
(4) Repair, rebuild or replace the property with other
property of like kind and quality, subject to b. below.
We will determine the value of lost or damaged property, or
the cost of its repair or replacement, in accordance with the
applicable terms of the Valuation Condition in this Coverage
4

Because we conclude that the notice of cancellation was ineffective under the
requirements of the policy, we do not analyze whether it was also ineffective under the lesser
requirements of Mississippi law. See Miss. Code. Ann. § 83-5-28(1).
5 The parties do not dispute that the tornado was a “Covered Cause of Loss” and
caused “direct physical loss.”

8

Case: 15-60915

Document: 00513845205

Page: 9

Date Filed: 01/23/2017

No. 15-60915
Form or any applicable provision which amends or
supersedes the Valuation Condition.
The “Valuation Condition,” describes how GuideOne determines the value of
damaged property.
The policy included a declaration that adjusted this loss calculation, the
“Actual Cash Value” endorsement. This endorsement replaced the standard
valuation conditions, providing that loss or damage would be calculated as the
lesser of:
a. The amount it would cost to repair or replace covered property
with material of like kind and quality, subject to a deduction for
deterioration, depreciation or obsolescence, however caused; or
b. The market value of covered property, based upon recent sales
of comparable property, if available.
(Emphases added.)
The district court determined that GuideOne was obligated to pay as
damages under the policy the “direct physical loss of or damage to” the
property, as measured by the lesser of the “cost to repair or replace” (minus
depreciation) or the “market value,” as stated in the Actual Cash Value
definition. Having made this determination, the district court then turned to
expert testimony on the cost to repair or replace the damaged buildings. Each
party had a different expert assess the damage to the property. The parties
generally credit the validity of each expert assessment and agree that the
difference in assessments was “attributable solely to the timing of the
assessments.” GuideOne’s expert assessed the damage about 6 weeks after the
tornado and found $1,660,535.31 in damages; Mount Carmel’s expert assessed
the damage twice, 11 months and 17 months after the tornado, and found
$8,326,418.92 in damages; and Seaway’s expert assessed the damage 16–17
months after the tornado and found $7,527,830.76 in damages.
9

Case: 15-60915

Document: 00513845205

Page: 10

Date Filed: 01/23/2017

No. 15-60915
The district court similarly credited all expert assessments but
ultimately relied on GuideOne’s expert assessment, as it occurred the closest
to the date of the tornado. The court did not use either Mount Carmel’s or
Seaway’s expert assessments because they were done many months after the
tornado and, as a result, included “damages caused by factors subsequent to
the tornado, such as water intrusion, exposure to the elements, and humidity.”
The court reasoned that to award damages for this subsequent loss would be
contrary to the plain text of the policy, which obligated GuideOne to pay only
for the “‘direct physical loss of or damage to’ [Mount Carmel’s buildings] caused
by the tornado.” According to the district court, Mount Carmel’s and Seaway’s
expert assessments did not provide the court any non-arbitrary means to
delineate between damages directly caused by the tornado and those incurred
subsequently because they were performed so long after the tornado occurred.
In contrast, the court found that GuideOne’s expert assessment “provide[d] the
most relevant evidence on [direct physical loss of or damages]” to Mount
Carmel’s buildings from the tornado because it was done less than two months
after the tornado. Using GuideOne’s expert assessment, 6 the district court
found the cost to repair or replace Mount Carmel’s damaged buildings was
$1,693,035.31. And using the undisputed testimony from Seaway’s expert on
the market value of Mount Carmel’s buildings, the district court found their
pre-loss market value was $2,450,000. Finally, following the loss calculation
formula provided in the Actual Cash Value definition, the district court took

The district court supplemented GuideOne’s expert assessment with structural
engineering fees and the costs of asbestos and mold testing from the other expert
assessments, because GuideOne’s expert admitted that these costs should be included in the
final estimate but were not.
6

10

Case: 15-60915

Document: 00513845205

Page: 11

Date Filed: 01/23/2017

No. 15-60915
the smaller sum—the cost to repair or replace—as the Actual Cash Value and
thus the appropriate damages award under the policy.
Mount Carmel and Seaway offer no compelling argument for disturbing
the district court’s well-reasoned interpretation of the policy and detailed
calculation of damages owed under the policy. The district court properly
found that the loss should be valued using the policy’s Actual Cash Value
definition as the lesser of (1) the cost to repair or replace (minus depreciation)
or (2) the market value of the property. We enforce the plain and unambiguous
terms of actual cash value provisions like the one at issue in this case, see, e.g.,
Real Asset Mgmt., Inc. v. Lloyd’s of London, 61 F.3d 1223, 1230–31 (5th Cir.
1995), and accordingly do not find this determination to be in error.
Mount Carmel nevertheless argues that loss under the policy should be
calculated under another provision of the policy, the Agreed Value
endorsement, rather than the Actual Cash Value endorsement. The Agreed
Value endorsement is optional coverage that renders the policy’s coinsurance
clause inapplicable. Coinsurance clauses in property insurance discourage
insureds from underinsuring property. See 15 Couch on Insurance § 220:3. If
Mount Carmel underinsured the property, i.e., insured for a value less than
the actual value of the property, the coinsurance clause in the policy only
requires GuideOne to pay the loss multiplied by the proportion of the Limit of
Insurance value compared to the actual value. The Agreed Value endorsement
gets around coinsurance by using an agreed upon value for each of Mount
Carmel’s buildings, set at each building’s Limit of Insurance value. The policy
set the agreed values for the two buildings in question at $2,555,000 and
$4,286,000. Mount Carmel argues that the Agreed Value endorsement dictates
the policy’s loss coverage, setting an “agreed actual cash value amount of
$6,841,000.”

Mount Carmel further argues that GuideOne, through its
11

Case: 15-60915

Document: 00513845205

Page: 12

Date Filed: 01/23/2017

No. 15-60915
employees, admitted at trial that this was the proper amount of coverage under
the policy.
Mount Carmel’s argument is inconsistent with the plain language of the
policy.

The policy included the Actual Cash Value endorsement, and the

method for valuation is clearly spelled out in the Actual Cash Value definition.
The Agreed Value endorsement did not set the amount of loss coverage; rather
it simply waived the policy’s coinsurance clause. Though the Agreed Value
Endorsement includes a Statement of Values that lists the “Actual Cash
Value,” Mount Carmel offers no support for its argument that the actual cash
value listed in the Agreed Value endorsement should supplant the clear
method of valuation provided in the Actual Cash Value endorsement. The
policy never states that GuideOne will pay the Agreed Value in the event of
loss, but instead that it will pay the Actual Cash Value. And the district court
did not err in holding that any statements by GuideOne employees to the
contrary were irrelevant. Under Mississippi law, an insured may not rely on
an insurer’s agent’s representations that are contrary to the terms of the policy.
Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 438 (5th Cir. 2007). Mount
Carmel seeks to distinguish this rule by calling the employees’ statements
“admissions,” not merely representations. However, even were we to consider
the employees’ testimony, the testimony Mount Carmel cites is ambiguous at
best and does not confirm “that the values in the Agreed Value Endorsement
[were] controlling,” as Mount Carmel claims.
Mount Carmel also argues that the district court’s refusal to use its
expert’s assessment in calculating the cost to repair or replace was clearly
erroneous. The district court made the finding of fact that GuideOne’s expert
estimate provided “the clearest picture of the damages directly caused by the
tornado.” We find no clear error in this finding. The policy required GuideOne
12

Case: 15-60915

Document: 00513845205

Page: 13

Date Filed: 01/23/2017

No. 15-60915
to pay for only the “direct physical loss of or damage to” Mount Carmel’s
buildings.

The district court thoroughly considered each parties’ expert

estimate, ultimately selecting GuideOne’s because it was done nearest to the
date of the tornado and thus best captured the resulting “direct physical loss.”
And GuideOne’s expert assessment was well supported—there was testimony
that it took over 183 hours of work to compile, with 5 people on site a total of
228 hours; that it accounted for all known issues; and that it represented
“numbers that [GuideOne’s builder, Taylor Ball] would have been willing to
write a contract with the insured at that time.” The district court also carefully
supplemented GuideOne’s expert’s assessment with structural engineering
fees and the costs of asbestos and mold testing from the other expert
assessments. The district court thoroughly weighed and considered the expert
evidence and ultimately found that GuideOne’s assessment most accurately
captured the direct physical loss caused by the tornado. We will not disturb
this finding because we are not left with a definite and firm conviction that the
district court made a mistake. 7
B. Punitive Damages
Mount Carmel and Seaway argue that the district court erred in
granting GuideOne’s motion for summary judgment with regard to Mount
Carmel’s and Seaway’s counterclaims for punitive damages.

“To recover

Because we find no error in the district court’s calculation of direct physical loss
under the Actual Cash Value endorsement, we do not address Seaway’s and Mount Carmel’s
arguments on their duty to mitigate losses, as the district court explicitly stated that its
finding that Mount Carmel failed to take reasonable measures to mitigate its damages was
“irrelevant to the Court’s decision insofar as the policy requires GuideOne to pay ‘the amount
it would cost to repair or replace the ‘direct physical loss of or damage to’ Mount Carmel’s
[buildings] caused by the tornado.” Nor do we address Seaway’s and Mount Carmel’s
arguments regarding why the market value is not a cap on damages, because the cost to
repair or replace, not the market value, was the measure of damages under the formula
provided in the Actual Cash Value endorsement.
7

13

Case: 15-60915

Document: 00513845205

Page: 14

Date Filed: 01/23/2017

No. 15-60915
punitive damages for bad faith denial of [an] insurance claim, [insureds] ‘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.’” Broussard v. State Farm Fire & Cas. Co., 523 F.3d
618, 628 (5th Cir. 2008) (quoting U.S. Fid. & Guar. Co. v. Wigginton, 964 F.2d
487, 492 (5th Cir. 1992)).

Whether an insurer possessed an arguable or

legitimate reason to deny coverage is a question of law, which we review de
novo. James v. State Farm Mut. Auto. Ins. Co., 743 F.3d 65, 70 (5th Cir. 2014).
The district court concluded that although it had ultimately rejected
GuideOne’s argument that the cancellation was effective, GuideOne had an
arguable basis for its decision to deny coverage. The district court accordingly
terminated its punitive damages analysis at the first prong of the test and did
not consider whether GuideOne acted with malice or gross negligence.
Mount Carmel and Seaway challenge this conclusion on appeal. They
argue that GuideOne’s defective notice of cancellation, which violated the
express notice requirements of both Mississippi law and the policy, was
sufficient as a matter of law to defeat summary judgment on the issue of
punitive damages. They urge that because the district court found that the
notice of cancellation was defective under both Mississippi law and the policy,
GuideOne’s misinterpretation of these sources cannot serve as an arguable
basis for the denial of coverage.
Yet these arguments overlook the fact that GuideOne relied on the
majority rule in interpreting both Mississippi law and the policy, which allows
a defective notice of cancellation to become effective after the notice period has
lapsed. And, as GuideOne notes, the Mississippi Supreme Court has not
spoken on this precise issue. Although we do not believe the Mississippi
Supreme Court would do so under the circumstances presented in this case,
14

Case: 15-60915

Document: 00513845205

Page: 15

Date Filed: 01/23/2017

No. 15-60915
courts in other jurisdictions have disregarded policy provisions similar to that
at issue here (i.e., requiring a cancellation notice to specify the effective date of
cancellation) and found the notices to be effective upon expiration of the period
set forth in the policy. See, e.g., Wright v. Grain Dealers Nat. Mut. Fire Ins.
Co., 186 F.2d 956, 958 (4th Cir. 1950) (addressing a policy that required notice
to state “when not less than five days” after mailing cancellation would be
effective). Thus GuideOne’s interpretation of Mississippi law and the policy,
though ultimately wrong, had an arguable basis given that it is the majority
rule in other jurisdictions.
Mount Carmel and Seaway also claim that GuideOne did not rely on its
alleged arguable basis for denying coverage—that the cancellation was
effective after the notice period—until the start of litigation. Mississippi law
requires that courts, in assessing whether there is an arguable basis, evaluate
solely “the reasons for denial of coverage given to the insured by the insurance
company.” Sobley v. S. Nat. Gas Co., 210 F.3d 561, 564 (5th Cir. 2000); see also
Bankers Life & Cas. Co. v. Crenshaw, 483 So. 2d 254, 273 (Miss. 1985) (en banc)
(“[T]he issue is not the defense which [the insurer] at trial finally settled upon
to defend the suit, but the reason it gave [the insured] for denying the claim.”),
aff'd on other grounds, 486 U.S. 71 (1988). At the time GuideOne denied
reinstating coverage, GuideOne took the position that the policy was canceled
on the date stated in the notice of cancellation, November 20. Once litigation
commenced, GuideOne described its decision not to reinstate coverage as being
based on the fact that “cancellation became effective once the required 60 days
elapsed.” Notwithstanding this change in explanation, GuideOne’s underlying
basis for denying coverage remained the same throughout: the policy was not
in effect at the time of the loss because it had been cancelled. We conclude that
the arguable basis that GuideOne initially relied upon for denying coverage is
15

Case: 15-60915

Document: 00513845205

Page: 16

Date Filed: 01/23/2017

No. 15-60915
fundamentally the same as it relies on now, and accordingly, the district court
did not err in granting summary judgment in GuideOne’s favor on the issue of
punitive damages.
Finally, Mount Carmel appears to argue for the first time that, even if
GuideOne did have an arguable basis for denying coverage, it should still be
subject to punitive damages.

Generally, under Mississippi law, punitive

damages may not be awarded in the presence of an arguable basis for the
insurer’s denial of coverage. Andrew Jackson Life Ins. Co. v. Williams, 566 So.
2d 1172, 1184 (Miss. 1990). However, there are “extreme factual situations,”
such as an insurer unduly delaying payment and using the insured’s dire
financial position as settlement leverage, in which punitive damages may be
awarded notwithstanding the presence of an arguable basis for the insurer’s
denial. Id. at 1186 (quoting Aetna Cas. & Surety Co. v. Day, 487 So. 2d 830,
834 (Miss. 1986)). This is because the insurer’s conduct “breaches ‘an implied
covenant of good faith and fair dealing’ and rises to the level of an independent
tort.” Broussard, 523 F.3d at 629 (citing Stewart v. Gulf Guar. Life Ins. Co.,
846 So. 2d 192, 202 (Miss. 2002)). In support of this argument, Mount Carmel
contends that GuideOne “knowingly place[d] [Mount Carmel] in financial
hardship” because it knew Mount Carmel would have trouble finding a
replacement policy. This argument was not raised in the district court and
therefore we review it for at most plain error. McCann v. Tex. City Ref., Inc.,
984 F.2d 667, 673 (5th Cir. 1993). We conclude that the district court did not
plainly err in barring punitive damages. Taking the facts in the light most
favorable to Mount Carmel, GuideOne’s alleged conduct did not rise to the
necessary level of an independent tort that would warrant punitive damages.
Mount Carmel merely alleges that GuideOne had “knowledge of the financial
harm that would result” from its cancellation of the policy. But this type of
16

Case: 15-60915

Document: 00513845205

Page: 17

Date Filed: 01/23/2017

No. 15-60915
knowledge is likely present for many cancellations and alone is not sufficient
to rise to the level of an independent tort. Accordingly, it does not warrant
punitive damages.
C. Consequential Damages
Mount Carmel argues that the district court erred in excluding
consequential damages, namely subsequent loss from the deterioration of the
property over time, from its damages award. Subsequent loss is important in
this case because all parties agree that Mount Carmel’s buildings suffered
extensive deterioration in the years following the tornado.

Consequential

damages are “losses proximately resulting from [a contractual] breach . . .
which the parties at the time of contracting had reason to foresee as a probable
result of the breach.”

Day, 487 So. 2d at 835.

Under Mississippi law,

“[i]nsurers who are not liable for punitive damages may nonetheless be liable
for ‘consequential . . .damages . . .’ where their decision to deny the insured’s
claim is without ‘a reasonably arguable basis’ but does not otherwise rise to
the level of an independent tort.” Broussard, 523 F.3d at 628 (quoting Andrew
Jackson Life Ins. Co., 566 So. 2d at 1186 n.13). The district court concluded
that, although GuideOne had breached its contract with Mount Carmel, Mount
Carmel was not entitled to consequential damages because “GuideOne had a
reasonably arguable basis for denying coverage.”
In arguing that the district court’s denial of consequential damages was
in error, Mount Carmel cites to Aetna Casualty & Surety Co. v. Day, which held
that insureds can recover from an insurer “any losses proximately resulting
from the [insurer’s] breach” that were foreseeable, even when the insurance
policy “expressly limits coverage to a specific amount.” 487 So. 2d at 835. But
in the years since Day, the Mississippi Supreme Court appears to have moved
away from a contract-based theory of recovering consequential damages in
17

Case: 15-60915

Document: 00513845205

Page: 18

Date Filed: 01/23/2017

No. 15-60915
first-party insurance cases, instead permitting them only in cases where there
was no arguable basis for the insurer’s denial of the insured’s claim—
essentially, a negligence-based theory of recovery. See Windmon v. Marshall,
926 So. 2d 867, 874 (Miss. 2006) (addressing argument that insured “may still
be entitled to consequential or extra-contractual damages for lack of a
reasonably arguable basis” for denial (footnote omitted)); State Farm Mut.
Auto. Ins. Co. v. Grimes, 722 So. 2d 637, 643 (Miss. 1998) (en banc) (discussing
“those cases in which the insurer has no reasonable basis to deny and is
therefore liable for consequential damages”); Andrew Jackson Life Ins. Co., 566
So. 2d at 1186 n.13 (recognizing that “consequential . . . damages . . . may be
awarded in cases involving a lack of a reasonably arguable basis—
notwithstanding that the insurer is not liable for punitive damages”). And this
court has similarly characterized Mississippi law as requiring that an insurer’s
denial of coverage lack “a reasonably arguable basis” in order for the insurer
to be liable for consequential damages.

See Broussard, 523 F.3d at 628.

Although we recognize that Day may suggest to the contrary, “we give great
deference to the district court’s interpretation of the law of the state in which
its sits when,” as here, that state’s law is unclear. See Coatings Mfrs., Inc. v.
DPI, Inc., 926 F.2d 474, 476 (5th Cir. 1991). Accordingly, we defer to the
district court’s conclusion that consequential damages are only available under
Mississippi law when an insurer denies the insured’s claim without an
arguable basis. 8

To the extent that Seaway separately appeals the district court’s grant of partial
summary judgment barring recovery of Veasley damages, we affirm the district court on
essentially the same basis. Because we conclude that GuideOne had an arguable basis for
denying coverage, Veasley damages are not available. See Essinger v. Liberty Mut. Fire Ins.
Co., 534 F.3d 450, 451 (5th Cir. 2008) (explaining that Veasley damages are warranted “where
8

18

Case: 15-60915

Document: 00513845205

Page: 19

Date Filed: 01/23/2017

No. 15-60915
V. EVIDENTIARY AND DISCOVERY ORDERS
Mount Carmel appeals three pretrial orders: the exclusion of expert
testimony, the exclusion of a sealed document, and the denial of a motion to
compel certain documents.
Mount Carmel first appeals the district court’s exclusion of an expert
witness Mount Carmel had designated to testify on whether GuideOne had an
arguable basis for denial of coverage. However, this testimony was rendered
irrelevant by the district court’s legal determination that GuideOne had an
arguable basis for denial. Further, the question whether GuideOne had an
arguable basis for denial was “an issue of law for the court” to decide,
Broussard, 523 F.3d at 628 (quoting Wigginton, 964 F.2d at 492), but experts
may render opinions on only factual issues, not legal issues, see Goodman v.
Harris Cty., 571 F.3d 388, 399 (5th Cir. 2009) (“[A]n expert may never render
conclusions of law.”). Thus, it was not an abuse of discretion for the district
court to exclude this testimony.
Second, Mount Carmel appeals the district court’s exclusion of a
document that the court found was privileged and inadvertently disclosed. The
court granted GuideOne’s motion to strike this document on two alternative
grounds. First the court found that Mount Carmel was procedurally barred
from challenging the privileged status of the document because it failed to
timely move for a determination of privilege. Alternatively, the court found
that document was subject to GuideOne’s attorney-client privilege and that its
inadvertent disclosure of this document did not constitute a waiver of this
privilege.

On appeal Mount Carmel challenges only the district court’s

the insurer lacks an arguable basis for delaying or denying a claim, but the conduct was not
sufficiently egregious to justify the imposition of punitive damages”).

19

Case: 15-60915

Document: 00513845205

Page: 20

Date Filed: 01/23/2017

No. 15-60915
privilege determination; it does not challenge the court’s procedural ruling.
Thus even were we to find error in the district court’s privilege determination,
its alternative procedural basis for excluding the document would still stand.
Accordingly, we decline to address this argument any further.
Finally, Mount Carmel appeals the district court’s denial of its motion to
compel certain documents. The district court affirmed the magistrate judge’s
order denying this motion to compel because it was untimely under the court’s
local rules. On appeal, Mount Carmel makes no argument that the court’s
ruling was arbitrary or clearly unreasonable, as required for this court to
overturn the order, Angus Chem. Co., 782 F.3d at 179, nor does it offer an
explanation for the untimeliness of the motion. Accordingly, the district court
did not abuse its discretion in denying the motion to compel.
VI. PREJUDGMENT INTEREST
Mount Carmel argues that the district court should have awarded it
prejudgment interest, at minimum, on GuideOne’s damages estimate. “State
law governs the award of prejudgment interest in diversity cases.” Meaux
Surface Prot., Inc. v. Fogleman, 607 F.3d 161, 172 (5th Cir. 2010) (quoting
Harris v. Mickel, 15 F.3d 428, 429 (5th Cir. 1994)). Under Mississippi law, an
award of prejudgment interest may be available “in cases where the amount
due is liquidated when the claim is originally made or where the denial of a
claim is frivolous or in bad faith.” Hans Const. Co., 653 So. 2d at 264 (quoting
Warwick v. Matheney, 603 So. 2d 330, 342 (Miss. 1992)); see also Upchurch
Plumbing, Inc. v. Greenwood Utils. Comm’n, 964 So. 2d 1100, 1116 (Miss. 2007)
(“Prejudgment interest has been denied where there is a bona fide dispute as
to the amount of damages as well as the responsibility for the liability
therefor.” (quoting Microtek Med., Inc. v. 3M Co., 942 So. 2d 122, 132 (Miss.
2006))). Here, the amount of damages was not fixed; rather it was highly
20

Case: 15-60915

Document: 00513845205

Page: 21

Date Filed: 01/23/2017

No. 15-60915
disputed during a four-day bench trial involving several expert witnesses and
a multitude of detailed exhibits. Further, the district court determined that
GuideOne had an arguable basis for denying coverage, and thus its denial was
not frivolous or in bad faith. We conclude the district court did not abuse its
discretion in denying prejudgment interest.
VII. CONCLUSION
For the foregoing reasons, the judgment of the district court is
AFFIRMED

21

Case: 15-60915

Document: 00513845205

Page: 22

Date Filed: 01/23/2017

No. 15-60915
OWEN, Circuit Judge, concurring:
I concur fully in all but Part III of the court's opinion, and I concur in the
judgment. I would resolve whether the termination notice was effective based
on the Mississippi statute rather than GuideOne's policy language.

The

statute provides:
A cancellation . . . of liability insurance coverage, fire insurance
coverage or single premium multiperil insurance coverage is not
effective . . . unless notice is mailed or delivered to the insured and
to any named creditor loss payee by the insurer not less than thirty
(30) days prior to the effective date of such cancellation. 1
GuideOne concedes throughout its briefing that if this statute is read
literally, then the cancellation notice was ineffective. There is no indication
that the Mississippi Supreme Court would apply the statute other than as it is
written. Accordingly, I agree that the notice of cancellation was ineffective.

1

MISS. CODE. ANN. § 83-5-28(1).

22