Netto et al v. Atlantic Specialty Insurance Company et al

Filing 150

ORDER granting 121 First Motion to Amend/Correct Complaint; denying 134 Motion for Summary Judgment. Signed by Magistrate Judge Robert H. Walker on June 8, 2018 (King, Steve)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF MISSISSIPPI
SOUTHERN DIVISION
GARY W. NETTO and
DEJUANA L. NETTO
VERSUS

PLAINTIFFS
CIVIL ACTION NO. 1:16CV389-RHW

ATLANTIC SPECIALTY INSURANCE COMPANY et al

DEFENDANTS

ORDER DENYING MOTION FOR SUMMARY JUDGMENT AND GRANTING
MOTION TO AMEND COMPLAINT
Before the Court is Defendant Atlantic Specialty Insurance Company’s (Atlantic
Specialty) motion for summary judgment. Doc. [134]. Also pending is Plaintiffs’ motion to
amend their complaint to allege bad faith. Doc. [121]. On August 14, 2013, Plaintiff Gary W.
Netto was involved in an automobile accident while acting in the course and scope of
employment for Pearl River County. He was the passenger in a vehicle (2013 F-150 Ford)
owned by his employer, Pearl River County, and insured by Atlantic Specialty. An automobile
driven by Jesse Mosley rear-ended Pearl River County’s truck. On October 25, 2016, Plaintiffs
Gary W. Netto and Dejuana L. Netto filed the instant complaint seeking damages pursuant to the
uninsured motorist policy issued to Pearl River County by Atlantic Specialty. Contained within
the policy is a provision excluding coverage for “[a]ny claim settled with the owner or operator
of the ‘uninsured motor vehicle’ without our consent.” Doc. [134-3] at 2.
Counsel for Plaintiffs sent a letter, dated May 29, 2015, addressed to the Pearl River
County Board of Supervisors advising that counsel “has been retained to represent the interests
of Gary Netto, involved in an automobile accident in Pearl River County, Mississippi on August
14, 2013.” Doc. [138-5]. Counsel further stated “[w]e request that you please forward this
correspondence to the insurance carrier in force at the time of this accident and request that they

make contact with our office immediately.” Id. Atlantic Specialty received the letter of
representation, from Pearl River County, on June 2, 2015. Atlantic Specialty also opened a
claim file on June 2, 2015. Doc. [138-6] at 4. A claim file note dated June 2, 2015, states that
the claim is “likely a UIM claim by [Plaintiff]”. Id. Other claim file entries dated June 3 and 4,
2015, confirm that Atlantic Specialty deemed this a “UIM claim”, with potential coverage under
Pearl River County’s policy. Id. at 2-3.
On July 21, 2015, Plaintiff reached a settlement with the tortfeasor and the MS Public
Entity WC Trust. Doc. [134-2]. In relevant part, the Absolute Release signed by Plaintiff
released “Claude A. Mosley. . . and any and all other persons. . . having any liability or alleged
liability. . . on account of or as a result of all injuries sustained to and by Gary Netto resulting
from or arising out of the incident of August 14, 2013, which occurred in Pearl River County,
Mississippi[.] Doc. [134-2] at 1. The Mississippi Workers’ Compensation Commission
approved the settlement on July 29, 2015. Doc. [138-1]. It is undisputed that Plaintiffs entered
into this settlement without first obtaining the consent of Atlantic Specialty.
According to Atlantic Specialty’s claim file notes, Between June 4, 2015, and July 29,
2015, Atlantic Specialty had no activity with respect to its investigation of Plaintiffs’ claim. On
July 29, 2015, the day that the Mississippi Workers’ Compensation Commission approved the
settlement, Atlantic Specialty’s claims examiner placed a telephone call to Plaintiffs’ counsel
and left a message requesting that counsel return her call. Doc. [138-6] at 1. There is no record
that Atlantic Specialty attempted to contact Plaintiffs’ counsel prior to July 29, 2015; however,
the claims examiner did contact a representative of the insured (Pearl River County) on June 3,
2015, to discuss Plaintiff Gary Netto’s potential claim. See id at 3. The insured informed the
claims examiner that Plaintiff had an open workers’ compensation claim and that he had surgery

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to his knee and back. In her deposition, Barbara McConnell admitted that no one with the
insurer provided any information to Plaintiff or his attorney with respect to policy conditions and
requirements. Doc. [138-7] at 13. Pamela Hunt, Pearl River County’s insurance agent, testified
that her office does not provide insurance policy information to Pearl River County employees.
Doc. [145-1].
Having had no direct communication with Atlantic Specialty, Plaintiffs’ counsel sent a
second letter of representation, this time directly to Atlantic Specialty, on September 18, 2015.
Doc. [138-8]. Plaintiffs represent that they became aware that One Beacon/Atlantic Specialty
was Pearl River County’s insurer only after they received information in a completely unrelated
matter where a county employee was injured in a county-owned truck. Doc. [139] at 11.
Plaintiffs’ representations in their pleading do not constitute competent summary judgment
evidence. Nevertheless, Atlantic Specialty has not provided summary judgment evidence
demonstrating Plaintiffs possessed actual knowledge of the provisions of the subject insurance
policy or the identity of Pearl River County’s insurer prior to the July 21, 2015, settlement.
Law and Analysis
Rule 56 provides that “[t]he court shall grant summary judgment 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. 56(a); Sierra Club, Inc. v. Sandy Creek Energy Assocs., L.P., 627
F.3d 134, 138 (5th Cir. 2010). Where the summary judgment evidence establishes that one of
the essential elements of the plaintiff’s cause of action does not exist as a matter of law, all other
contested issues of fact are rendered immaterial. Celotex Corp. v. Catrett, 477 U.S. 317, 323
(1986); Topalin v. Ehrman, 954 F.2d 1125, 1138 (5th Cir. 1992). In making its determinations
of fact on a motion for summary judgment, the court must view the evidence submitted by the

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parties in a light most favorable to the non-moving party. McPherson v. Rankin, 736 F.2d 175,
178 (5th Cir. 1984).
The moving party has the duty to demonstrate the lack of a genuine issue of a material
fact and the appropriateness of judgment as a matter of law to prevail on its motion. Union
Planters Nat’l Leasing v. Woods, 687 F.2d 117 (5th Cir. 1982). The movant accomplishes this
by informing the court of the basis of its motion, and by identifying portions of the record which
highlight the absence of genuine factual issues. Topalian, 954 F.2d at 1131. “Rule 56
contemplates a shifting burden: the nonmovant is under no obligation to respond unless the
movant discharges [its] initial burden of demonstrating [entitlement to summary judgment].”
John v. State of Louisiana, 757 F.3d 698, 708 (5th Cir. 1985). Once a properly supported motion
for summary judgment is presented, the nonmoving party must rebut with “significant probative”
evidence. Ferguson v. Nat’l Broad. Co., Inc., 584 F.2d 111, 114 (5th Cir. 1978).
Where federal jurisdiction is based on diversity of citizenship, as it is here, the Court
applies the substantive law of the forum state. See Erie R.R. v. Tompkins, 304 U.S. 64, 78
(1938). To determine Mississippi law, the Court looks to the final decisions of Mississippi's
highest court. See Am. Int'l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th
Cir. 2003). Because the Mississippi Supreme Court has not addressed the precise issues
presented here, the court has to make an “Erie guess” as to how that court would have resolved
the issues if presented with them. Id.; see also Holt v. State Farm Fire & Cas. Co., 627 F.3d
188, 191–92 (5th Cir. 2010); Batts v. Tow–Motor Forklift Co., 66 F.3d 743, 749–50 (5th
Cir.1995).
The subject policy is for uninsured motorist coverage issued by Atlantic Specialty to
Pearl River County. “The terms and provisions of the Mississippi Uninsured Motorist Coverage

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Act are written into every automobile liability policy issued” in Mississippi. Stevens v. U.S.
Fidelity & Guaranty Co., 345 So.2d 1041, 1045 (Miss. 1977). The UM statute is “liberally
construed so as to provide coverage.” Lawler v. Gov’t Employees Insur. Co., 569 So.2d 1151,
1153 (Miss. 1990). The Mississippi Supreme Court’s jurisprudence requires enforcement of the
“UM Coverage Act as a valid expression of our legislature’s interest in protecting innocent
victims injured at the hands of financially irresponsible drivers.” Id. at 1154.
At issue is whether the claims of Plaintiffs Gary W. Netto and Dejuana L. Netto are
excluded by virtue of the consent-to-settle exclusion contained in the subject policy issued to
Pearl River County. It is undisputed that Plaintiffs entered into a settlement with the owner
(Claude A. Mosley) of the vehicle driven by the tortfeasor (Jesse Mosley) without first receiving
consent to settle from Atlantic Specialty. Such a settlement would appear to violate the consentto-settle provision of the subject policy.
Plaintiffs first argue that the tortfeasor Jesse Mosley was not covered by the release. The
Absolute Release executed by Plaintiffs did not name Jesse Mosley; therefore, Plaintiffs argue
that Atlantic Specialty retained its subrogation rights against him. The Court rejects this
argument. Claude Mosley owned the vehicle driven by the tortfeasor Jesse Mosley. The
agreement released “Claude A. Mosley. . . and any and all other persons. . . having any liability
or alleged liability” resulting from the incident of August 14, 2013. The Court finds that the
language of the release covers Jesse Mosley because he belongs to the category of “any and all
other persons . . . having liability or alleged liability” for the incident and resulting injuries.
Plaintiffs next argue that the policy exclusion should not apply to them, because they
were unnamed insureds on the policy. Plaintiffs argue that they were unaware of the consent-tosettle exclusion and that Atlantic Specialty failed to communicate with them prior to Plaintiffs

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settling with the tortfeasor. Atlantic Specialty counters that Plaintiffs should have known about
the policy exclusion. As proof, it submits a Mississippi Attorney General opinion, dated
December 23, 1981, stating that municipal insurance policies are a matter of public record. Doc.
[144-2].
Plaintiff Gary Netto was an unnamed insured. He was a beneficiary under the policy, but
he was not a party to the insurance contract between Pearl River County and Atlantic Specialty.
On the other hand, the summary judgment evidence demonstrates that as of June 2, 2015,
Atlantic Specialty had actual knowledge of a potential claim by Plaintiff Gary Netto under its
UM policy issued to Pearl River County. Obviously, Atlantic Specialty had knowledge of the
provisions of its own insurance contract and knew that any prospective settlement between
Plaintiffs and the tortfeasor would have to be approved by Atlantic Specialty as a protection
against its subrogation rights. Plaintiffs settled their claims with the tortfeasor on July 21,
2015—seven weeks after Atlantic Specialty received actual notice of Plaintiffs’ potential claim.
There is no evidence that Plaintiffs knew the identity of Pearl River County’s insurer or the
existence and terms of the subject policy during this seven-week interval. Plaintiffs took
measures to protect their right to recovery under any policies issued to Gary Netto’s employer by
sending a letter of representation and requesting that Pearl River County inform its insurance
carrier to contact them. Pearl River County passed the letter of representation on to Atlantic
Specialty. Between June 2, 2015 (when it received a copy of counsel’s letter of representation),
and July 21, 2015 (when Plaintiffs entered into a settlement with the tortfeasor), Atlantic
Specialty apparently took no measures to preserve its subrogation rights, even though it was in a
position of superior knowledge to the Plaintiffs with respect to the insurance policy and its
provisions. Atlantic Specialty did not attempt to contact Plaintiffs until July 29, 2015, eight days

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after the settlement with the tortfeasor, and the same day that the Mississippi Workers’
Compensation Commission approved the settlement. There is no indication in the record that
Atlantic Specialty made any other attempts to contact Plaintiffs prior to receiving a second letter
of representation directly from Plaintiffs’ counsel in September 2015.
If Plaintiffs had been parties to the insurance contract, then the consent-to-settle provision
would prohibit recovery from Atlantic Specialty. See Smith v. Safeco Ins. Co. of Am., 704
F.Supp. 111, 113 (S.D. Miss. 1988); U.S. Fidelity & Guar. Co. v. Knight, 882 So.2d 85, 93
(Miss. 2004); U.S. Fidelity & Guar. Co. v. Hillman, 367 So.2d 914, 919 (Miss. 1979). However,
the Mississippi Supreme Court has recognized a distinction between named insureds and
unnamed insureds with respect to the application of policy exclusions. See Rampy v. State Farm,
278 So.2d 428 (Miss. 1973); see also Lawler, 569 So.2d at 1158 (Robertson, J. dissenting) (“the
law is more lenient with [an unnamed insured] who may be unaware of coverage under the
policy.”). In Rampy, the Mississippi Supreme Court held that a notice of suit exclusion should
not apply to an unnamed insured where it would place “an impossible burden on persons who
were not contracting parties and who did not have possession of the insurance policy, and could
not notify an insurance company of which they had no knowledge.” 278 So.2d at 433.
Likewise, the Fifth Circuit has acknowledged “[t]he special case of the ignorant additional
insured”, albeit in the context of Texas insurance law. See Crocker v. Nat’l Union Fire Insur.
Co. of Pittsburgh, 466 F.3d 347, 358. As noted by the Fifth Circuit, “not all additional insureds
are ignorant of their coverage under the named insured’s policy. Some may be sophisticated
parties that might be charged with knowledge that they are (or are likely) additional insureds.”
Id. at 358 n.11. However, the Fifth Circuit cited with approval from Robert C. Clifford,
Appleman on Insurance Law & Practice (2nd Ed.), § 138.9, “when the insured is an additional

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insured and not a named insured, the insurer must show that the additional insured knew of the
insurance coverage or that some reasonable effort was made to apprise him or her of the
existence of the policy and its conditions.” Id. at 353 n.6.
There is no summary judgment evidence suggesting that Plaintiff possessed knowledge
of the policy’s existence or its terms prior to entering into a settlement with the tortfeasor.
Plaintiffs, while represented by counsel, apparently suspected the existence of coverage under a
policy issued to Gary Netto’s employer. Plaintiffs acted on this suspicion by contacting Pearl
River County and requesting Pearl River County to notify its insurance carrier “in force at the
time” of the automobile accident of August 14, 2013. Doc. [138-5]. Plaintiffs entered into
settlement with the tortfeasor seven weeks after Atlantic Specialty received notice of the
potential claim. Meanwhile, during this seven-week interval, Atlantic Specialty failed to alert
Plaintiffs either to the fact that it had a policy in effect at the time of the accident or to the
existence of a consent-to-settle exclusion. The Court finds there are fact questions precluding
summary judgment on at least two points: (1) whether Plaintiffs acted diligently to discover the
existence of insurance coverage through Gary Netto’s employer prior to settling their claims with
the tortfeasor, and (2) whether the insurer made reasonable efforts to apprise Plaintiffs of the
existence of the policy and its conditions.
Plaintiffs have filed a motion to amend their complaint to include a claim of bad faith.
Plaintiffs filed the motion on January 10, 2018, almost two months before the deadline for filing
motions. The Court did not set a deadline to file motions to amend pleadings. Rather, the Court
entered an abbreviated case management order limited to the issues related to Defendants’
defense to the UM claims. See Amended Minute Entry (2/10/2017); Doc. [26] at 4. The Court
did not establish a deadline to amend pleadings precisely because the parties’ presented the

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threshold issue of whether the consent-to-settle exclusion applied. Accordingly, the Court finds
that the more liberal standard for amendment to pleadings under Rule 15 should apply. Plaintiffs
will be permitted to amend their complaint to assert a bad faith claim. At this time, the Court
makes no finding regarding the viability of Plaintiffs bad faith claim.
IT IS THEREFORE ORDERED AND ADJUDGED that Defendant’s [134] Motion for
Summary Judgment is DENIED, and Plaintiffs’ [121] Motion to Amend the Complaint is
GRANTED.
SO ORDERED AND ADJUDGED, this the 8th day of June, 2018.

/s/ Robert H. Walker
ROBERT H. WALKER
UNITED STATES MAGISTRATE JUDGE

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