979 F.2d 1053 (5th Cir. 1992), 91-7057, Lawrence v. Virginia Ins. Reciprocal

Docket Nº:91-7057.
Citation:979 F.2d 1053
Party Name:Juedell T. LAWRENCE, Plaintiff-Appellant, v. VIRGINIA INSURANCE RECIPROCAL, Defendant-Appellee.
Case Date:December 09, 1992
Court:United States Courts of Appeals, Court of Appeals for the Fifth Circuit
 
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Page 1053

979 F.2d 1053 (5th Cir. 1992)

Juedell T. LAWRENCE, Plaintiff-Appellant,

v.

VIRGINIA INSURANCE RECIPROCAL, Defendant-Appellee.

No. 91-7057.

United States Court of Appeals, Fifth Circuit

December 9, 1992

Page 1054

Paul M. Neville, Minniece, Hamill, Wilson & Mitts, Jackson, Miss., for plaintiff-appellant.

J. Robert Ramsey, Michael T. Jaques, Bryant, Colingo, Williams & Clark, Hattiesburg, Miss., for defendant-appellee.

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

Before POLITZ, Chief Judge, SMITH, and BARKSDALE, Circuit Judges.

BARKSDALE, Circuit Judge:

For the most part, this appeal turns on whether an insurer, which did not defend an underlying action against its insured, is therefore estopped from asserting sovereign immunity in defending against a garnishment by the plaintiff from the prior action. Juedell T. Lawrence appeals from a summary judgment granted Virginia Insurance Reciprocal (VIR) on her garnishment action to collect punitive and mental anguish damages awarded her in a state court action against VIR's insured, Southwest Mississippi Regional Medical Center (Southwest). Because VIR is not estopped, we AFFIRM in part and REVERSE and REMAND in part.

I.

Lawrence suffered a work-related injury while an employee of Southwest. 1 In April 1987, she sued Southwest in state court, alleging breach of her employment contract and bad faith refusal to pay benefits due under it. In that contract, Southwest had agreed to pay Lawrence benefits equivalent to workers' compensation, even though it was not legally obligated to participate in the Mississippi workers' compensation program.

Southwest had an insurance contract with VIR, in which VIR agreed, inter alia, to pay on behalf of Southwest all sums Southwest became legally obligated to pay for damages sustained by employees resulting from the negligent administration of Southwest's "employee benefit programs". But, upon Southwest's inquiry early in the case, VIR denied coverage and, therefore, did not defend Southwest at trial.

By a jury verdict in October 1990, Lawrence was awarded, inter alia, $216,000 against Southwest: $66,000 for compensatory damages (benefits); $50,000 for mental anguish damages; and $100,000 for punitive damages. But, the judgment provided that, "pursuant to [Miss.Code Ann. § ] 41-13-11(2)", in seeking to recover the

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mental anguish and punitive damages, Lawrence would "have recourse only to the proceeds or right to proceeds of any liability policy covering [Southwest] for such damages, if any".

Promptly after entry of judgment, Lawrence sought to garnish VIR to collect the mental anguish and punitive damages. The action was removed to district court, which granted VIR summary judgment. In accordance with the law at the time, the district court treated the mental anguish damages as "exemplary damages", as it did the punitive damages. VIR was not estopped from relitigating coverage for exemplary damages in district court, as a result of the court's holding that VIR had no duty to defend Southwest because the exemplary damages "were barred as a matter of law" by the hospital's sovereign immunity "and thus not covered under the insurance policy...."

II.

Lawrence contends that (1) the issue of sovereign immunity was fully litigated in state court by Southwest and thus VIR should have been collaterally estopped from relitigating it in federal court, (2) Mississippi law allows recovery of punitive and mental anguish damages against a community hospital to the extent that it has insurance coverage, and (3) the VIR policy provides coverage for the punitive and mental anguish damages awarded her. 2

Needless to say, we apply Mississippi law in resolving these issues. Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938); Allison v. ITE Imperial Corp., 928 F.2d 137, 138 (5th Cir.1991). And, we review de novo the district court's interpretation of that law. Salve Regina College v. Russell, --- U.S. ----, ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). In deciding an unsettled point of state law, Erie requires that we determine how the Mississippi Supreme Court would interpret its own law if presented with the question. American Waste & Pollution Control Co. v. Browning-Ferris, Inc., 949 F.2d 1384, 1386 (5th Cir.1991). When we are required to make an Erie guess, it is not our role to create or modify state law, rather only to predict it. Id.

A.

Lawrence maintains that, in state court, Southwest "hotly contested" its sovereign immunity with respect to exemplary damages, but lost when the court ruled that the issue could be submitted to the jury. She asserts that VIR is estopped from relitigating the issue in federal court, under the principle that an insurer that breaches its duty to defend an action against its insured is bound in subsequent litigation by all issues litigated in the first suit. See Travelers Ins. Co. v. General Refrigeration & Appliance Co., 218 So.2d 724, 727 (Miss.1969) ("The insurer acts at its peril when it refuses to defend a suit against its insured"); Southern Farm Bureau Casualty Ins. Co. v. Logan, 238 Miss. 580, 119 So.2d 268, 270-72 (1960). 3 It makes no difference that Lawrence is a judgment creditor seeking garnishment, rather than the insured. E.g., Ridgway v. Gulf Life Ins. Co., 578 F.2d 1026 (5th Cir.1978) (applying analogous rule under Texas law). And, for purposes of this opinion, we assume that VIR had a duty to defend Southwest. (As discussed, infra, this will be an issue on remand.) Therefore, estoppel vel non comes into play. The Mississippi Supreme Court has stated, however, that collateral estoppel can apply only if there is "an identity of parties from one suit to the next, and of their capacities as well". State Ex. Rel. Moore v. Molpus, 578 So.2d 624, 640 (Miss.1991). This identity requirement can be expressed as a "succession in interest" between the two parties. Id. Therefore, we look to the respective interests of Southwest and VIR in litigating the sovereign immunity issue.

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Southwest would not have been obligated to pay any exemplary damages awarded against it, because Miss.Code Ann. § 41-13-11 allows recovery only against the hospital's insurer to the extent the hospital obtains coverage in accordance with the statute. 4 If coverage does not exist, Southwest is protected by immunity. Miss.Code Ann. § 41-13-11(1). Although Southwest...

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