Aetna Cas. & Sur. Co. v. Day, 55283

• Decision Date: 30 April 1986
• Docket Number: No. 55283,55283
• Citation: 487 So.2d 830
• Parties: AETNA CASUALTY & SURETY CO. v. Charles M. DAY.
• Court: Mississippi Supreme Court

Page 830

487 So.2d 830

AETNA CASUALTY & SURETY CO. v. Charles M. DAY.

No. 55283.

Supreme Court of Mississippi.

April 30, 1986.

Cary E. Bufkin, Jim Bullock, Shell, Buford, Bufkin, Callicutt & Perry, Jackson, for appellant.

William Waller, Sr., Waller & Waller, Arlin C. Ruthven, Jackson, for appellee.

Before ROY NOBLE LEE, P.J., and DAN M. LEE and PRATHER, JJ.

PRATHER, Justice, for the Court:

At issue in this lawsuit is the propriety of an award of punitive damages on an insurance contract claim where it is alleged an insurance company intentionally refused to pay a valid claim with reasonable promptness. Charles M. Day (hereinafter referred to as Day) sued his insurance carrier, Aetna Casualty and Surety Company, (hereinafter Aetna) for tortious breach of contract in the First Judicial District of Hinds County. ¹ The jury verdict awarded Day $9,000.00 actual and $18,000.00 punitive damages, from which verdict Aetna appeals assigning as error:

(1) The verdict of the jury is contrary to the law and to the overwhelming weight of the competent evidence and evinces bias, prejudice and passion and the trial court erred in overruling defendant's motion for a directed verdict and for judgment notwithstanding the verdict, or in the alternative, defendant's motion for a new trial.

(2) The trial court erred in submitting the question of punitive damages to the jury over appellant's objection.

(3) The trial court erred in granting instructions P-1 and P-3 and in allowing the jury to award certain damages.

(4) The court erred in admitting proof of appellant's net worth and in permitting certain argument of counsel.

I.

George M. Day owned a 1976 Massey Ferguson tractor purchased in 1981 for $8,500.00. The tractor and a three axle trailer were insured to the extent of $13,500.00 under a policy from the Aetna Casualty and Surety Company. Under the policy, the tractor was insured against direct physical loss of or damage to the property caused by specific perils. Relying on this insurance policy, Day made a claim for damages to his tractor by reason of vandalism and theft. Day asserts that his former employee (1) drove the tractor without water in the engine causing the engine to burn up, (2) caused other physical damage, and (3) stole certain items belonging to Day.

After investigation of the claim, Aetna offered to pay Day for damage incurred as a result of theft in the amount of three hundred thirty-one dollars and ninety cents ($331.90). But Aetna denied that there was any damage to internal engine attributed to vandalism and claimed vandalism was not covered as a specific peril in the policy. Aetna's position was that the internal damage resulted from normal wear to the engine, not vandalism or theft. This decision was communicated to Day. The adjuster, although unable to recall Day's exact response to the offer, concluded that the claim was resolved and executed a check for the damage, less the deductible amount provided in the policy. The check was never negotiated, but this suit was instituted.

II.

The threshold issue is the determination of Aetna's contractual liability. Day's claim for physical damage is based upon vandalism and theft; the policy clearly covers the peril of theft, however, theft is not defined. Day contends that theft includes damage incurred during vandalism. This Court addressed a similar argument in National Fire Insurance Co. of Hartford v. Slayden, 227 Miss. 285, 85 So.2d 916 (1956) and stated:

Where a machine or vehicle is insured against theft, without words defining the term "theft" and some unauthorized person unlawfully takes possession of such vehicle or machine for use by the unlawful taker for so long as he sees fit, and the vehicle or machine is damaged, the loss is covered by the policy and the insurer is liable therefor. Id. at 917.

Therefore, upon this principle, this Court holds that the vandalism allegation for engine damage was within the covered peril of theft under the insurance policy.

III.

The first and second assigned errors address the propriety of punitive damages in this case. To recover punitive damage from an insurer for amounts over and above policy benefits an insured must prove by a preponderance of the evidence either (1) that the insurer acted with malice or (2) that the insurer acted with gross negligence or reckless disregard for the rights of others. Weems v. American Security Ins. Co., 486 So.2d 1222 (Miss.1986). Recently this rule has been definitively set forth in State Farm Fire and Casualty Co. v. Simpson, 477 So.2d 242 (Miss.1985).

Simpson, supra, clearly sets forth the Mississippi law on insurance contract punitive damage claims. In Simpson, this Court reviewed its decisions on this issue. Hood v. Moffett, 109 Miss. 757, 69 So. 664 (1915) (damages for breach of contract are not recoverable unless act or omission constitutes a tort); American Ry. Express Co. v. Bailey, 142 Miss. 622, 107 So. 761 (1926) (no punitive damage award except by some intentional wrong, insult, abuse, or gross negligence amounting to independent tort); D.L. Fair Lumber Co. v. Weems, 196 Miss. 201, 16 So.2d 770 (1944) (punitive damages may not be recovered for a mere contract violation); Fowler Butane Gas Co. v. Varner, 244 Miss. 130, 141 So.2d 226 (1962) (punitive damages recoverable when aggression or some coloring of insult, malice or gross negligence); Seals v. St. Regis Paper Co., 236 So.2d 388 (Miss.1970) (punitive damages recoverable for a willful and intentional wrong); Lincoln National Life Insurance Co. v. Crews, 341 So.2d 1321 (Miss.1977) (mere denial of claim by insurer does not justify punitive damages); Standard Life Insurance Co. of Indiana v. Veal, 354 So.2d 239 (Miss.1978) (punitive damages are mandated by absence of an arguable reason); Blue Cross-Blue Shield of Mississippi v. Campbell, 466 So.2d 833 (Miss.1984); Southern United Life Insurance Co. and First State Bank of Waynesboro v. Caves, 481 So.2d 764 (Miss.1985) (failure of plaintiff to obtain summary judgment or a directed verdict on the underlying policy claim eliminates punitive damage issue); Weems v. American Security Insurance Co., 486 So.2d 1222 (Miss.1986) (rule which permits assessment of punitive damages is the same in bad faith refusal cases as in any other case where defendant acted with malice or gross negligence or reckless disregard of others' rights).

The Simpson opinion further enunciates that "punitive damages are not mandated by the absence of an arguable reason ... because the denial of the claim could be the result of an honest mistake or oversight-- ordinary or simple negligence." The absence of an "arguable reason" does not necessarily establish that the insurer acted with malice or with gross negligence or reckless disregard for the insured's rights. Weems, supra.

Looking to these substantive guidelines, this Court considers the facts of this case.

The facts presented at trial are contradictory with respect to (1) the promptness in investigation and determination of claim, and (2) the reason for denial.

(1) It was George Day's contention that Aetna was dilatory in adjusting his claim for damage. At the outset, the actual date of the report of claim is disputed. Day asserts that he reported his claim on or about January 18, 1982 to his agent's office. The employee at the agent's office testified that the report to her was February 19, 1982. Day's criminal affidavit against his former employee for the theft of this equipment stated the date of the theft as February 13, 1982.

Additionally, Day's testimony is replete with assertions of numerous telephone calls to his agent's officer, the repair shop, and the adjuster in order to secure a decision about coverage for the claim.

Aetna's position, on the other hand, was that the claim investigation moved with diligence. Aetna asserted that the internal engine inspection was delayed because Day withheld permission to inspect the engine and because the repair shop failed to expedite the "break down" of the engine. Aetna also contends that this inspection could not be handled by any adjuster, but required assignment to an independent adjuster, an expert in evaluation of heavy machinery.

The policy provides that claims be paid within a sixty (60) day period of notice. Aetna's file reflected the damages were finalized on April 19, the offer communicated and accepted on April 22, and the check issued on April 23. Therefore Aetna's proof showed that the claim was processed within the time frame of the policy terms.

(2) The second point in dispute is whether there was a valid refusal to pay, or stated differently, did the insurer have an arguable reason to decline coverage.

Day's proof was that the engine was internally burned up by his former employee's malicious attempt to harm Day's equipment in retaliation for being discharged. Day's expert witness testified that this vandalism ruined the engine. Aetna's expert, on the other hand, testified that the internal damage resulted from normal wear and tear and was not the result of vandalism. Consequently, Aetna denied coverage for the engine damage, but offered payment for loss due to theft.

Day asserts that Aetna's adjuster indicated a willingness to pay the total claim until the shop repairman told him that Day had already traded his tractor and secured another one. This information, Day contends, led the adjuster to believe that Day was trying to increase his trade-in value. The adjuster denied this accusation.

At the conclusion of the plaintiff's case, the trial judge ruled upon a directed verdict requested by Aetna stating:

There is a factual question regarding the failure to pay promptly and whether or not these defendants willfully [,] and in bad faith [,] withheld payment for a valid claim.

This Court found that factual issues were present for jury determination. Miss. Const. Art. 3, Sec. 31 (1890). When the defendant insurance company moves for a directed...