Arcadia Farms P'ship v. Audubon Ins. Co.

• Decision Date: 05 January 2012
• Docket Number: No. 2009–CT–00903–SCT.,2009–CT–00903–SCT.
• Parties: ARCADIA FARMS PARTNERSHIP v. AUDUBON INSURANCE COMPANY.
• Court: Mississippi Supreme Court

77 So.3d 100

ARCADIA FARMS PARTNERSHIP

v.AUDUBON INSURANCE COMPANY.

No. 2009–CT–00903–SCT.

Supreme Court of Mississippi.

Jan. 5, 2012.

David D. O'Donnell, Oxford, Sidney Ray Hill, III, attorneys for appellant.

Michael O. Gwin, Louis B. Lanoux, Jackson, attorneys for appellee.

EN BANC.

WALLER, Chief Justice, for the Court.

¶ 1. A fire destroyed a cotton-picking machine owned by Arcadia Farms Partnership. Though insurance coverage initially was denied, Audubon Insurance Company eventually paid Arcadia $100,000 for the loss. Arcadia then filed suit against Audubon, asserting that Audubon's failure to submit prompt payment constituted a “bad faith breach of the policy terms, inter alia.” Audubon filed a motion for summary judgment. Audubon asserted that, since Arcadia had been paid on its claim prior to filing suit, Arcadia's only potential form of compensatory damages would be prejudgment interest. Yet, according to Audubon, Section 75–17–7 of the Mississippi Code prohibits Arcadia from recovering prejudgment interest prior to the filing of the complaint. Moreover, Audubon argued that Arcadia had not specifically requested prejudgment interest in its complaint. Thus, Audubon argued that Arcadia's entire suit must fail; without compensatory damages, Arcadia could not recover punitive damages on its bad-faith claim. The trial court granted summary judgment for Audubon and denied Arcadia's motion for reconsideration or, in the alternative, motion to amend its complaint to plead specifically for prejudgment interest. The Court of Appeals held that summary judgment was improper. It held that Arcadia could seek prejudgment interest from the date of breach, prior to the filing of the complaint, and that the trial court had abused its discretion in denying Arcadia's motion to amend. We agree with the Court of Appeals in both respects. We granted certiorari, however, to address some uncertainty in the law surrounding Section 75–17–7. We clarify that, in contract cases, Section 75–17–7 does not restrict prejudgment interest to the post-complaint period; prevailing parties in a breach-of-contract suit may seek interest from the date of breach.

FACTS

¶ 2. The following history is taken, for the most part, from the facts and trial-court proceedings set out in the Court of Appeals' opinion.

¶ 3. In August 2001, Arcadia purchased three cotton-picking machines from Wade, Inc., a farm-equipment dealer located in Clarksdale, Mississippi. At the time of purchase, Arcadia had a farm-operations insurance policy issued by Audubon. This policy provided coverage for “replacement” equipment and “additional acquired property” equipment. The effective coverage date of the policy was May 7, 2001, to May 7, 2002.

¶ 4. The Mitchell Company and J.H. Johnson and Company served as Arcadia's local insurance agents. Wade was to inform The Mitchell Company of Arcadia's purchases so the equipment would be insured.

¶ 5. On October 16, 2001, one of the new pickers was destroyed by fire. The next day, an Arcadia employee provided the Mitchell Company a list of the newly acquired cotton pickers and mentioned that one of the pickers had been destroyed. The Mitchell Company informed Arcadia that its insurance policy did not cover the pickers because they had not been listed in the schedule of equipment insured under the policy. On October 19, 2001, J.H. Johnson and Company, an insurance broker for the Mitchell Company, learned of the loss. It sent a letter to Audubon stating that Arcadia had been informed that the destroyed picker was not covered, and that Arcadia had said that Wade “should have had this insured,” since the picker had been bought and financed through Wade. It also told Audubon that: “There has been no demand on us as of now [,] and we are sending this for information purposes only.”

¶ 6. In early 2002, Arcadia requested that the Mitchell Company provide it with information about how to file a claim. Arcadia again was told that the destroyed picker was not covered under the policy.

¶ 7. In June 2002, Arcadia filed a complaint for negligence against the Mitchell Company for failure to obtain insurance for the destroyed picker. In October 2003, the Mitchell Company informed Johnson that Arcadia wanted to submit a claim to Audubon for the damaged picker. Following an investigation of the claim, Audubon concluded that the damaged picker was covered under the policy as newly acquired equipment. Thus, on March 23, 2004, Audubon paid Arcadia $100,000 for its loss.

¶ 8. On October 14, 2004, almost seven months after receiving payment from Audubon, Arcadia amended its complaint to join Audubon as a party. Arcadia claimed that the damaged picker had been “replacement” equipment, and, therefore, it should have received “not less than $150,000” under the terms of the policy. Arcadia maintained that Audubon's failure to remit that amount constituted bad-faith denial of payment. Arcadia further alleged that Audubon had refused to investigate the loss, that it had delayed payment for two and a half years without an arguable basis, and that its agent had fraudulently represented that the damaged picker was not covered under the policy. Based on these allegations, Arcadia asserted claims for bad-faith breach of contract and bad-faith denial. As relief, Arcadia sought “an award of compensatory and punitive damages against Audubon ... in the amount of $3.5 million, together with an award of costs, interest and attorney fees.”

¶ 9. On December 14, 2007, Audubon filed a motion for summary judgment. The trial court conducted a hearing, but neither granted nor denied the motion. Then on September 11, 2008, Audubon filed a Motion to Limit Damages Proof. In that motion, Audubon argued that Arcadia was not entitled to prejudgment interest (1) because such damages had not been properly pleaded or proven, and (2) because Section 75–17–7 of the Mississippi Code allows prejudgment interest only from the date of the filing of the complaint for judgments founded upon a contract that lacks a rate of interest. Alternatively, Audubon requested that Arcadia be limited to the compensatory damages identified in its March 4, 2008, interrogatory response. In that response, Arcadia had stated that it sought compensatory damages in the amount of $61,000, which included two items: (1) the interest on the $100,000 that was wrongfully withheld for three years and (2) attorneys' fees.¹

¶ 10. On March 9, 2009, the trial court ruled upon Audubon's motion for summary judgment and its Motion to Limit Damages Proof. The court denied summary judgment on the basis that genuine issues of material fact existed as to whether Audubon had acted in bad faith and whether its bad faith, if any, warranted punitive damages. But the court partially granted Audubon's Motion to Limit Damages Proof. It stated that:

As for the claims of prejudgment interest, the Court finds [Arcadia] has failed to specifically plead such damages in its complaint. Further, even if [Arcadia] had specifically pled prejudgment interest, the Court finds that Miss[issippi] Code Ann[otated Section] 75–17–7 precludes the recovery of prejudgment interest in this matter.

As for any other compensatory claims [Arcadia] may have, the Court finds that [it] [is] entitled to seek at trial whatever damages [it] can establish to a reasonable degree of certainty....

¶ 11. Shortly thereafter, on March 16, 2009, Audubon filed a second motion for summary judgment. Audubon asserted that, as a result of the court's limitation of damages in its prior order, Arcadia could neither prove nor recover any damages-it had no compensatory damages, which, consequently, rendered it unable to recover punitive damages as well. Audubon thus claimed that it was entitled to summary judgment as a matter of law.

¶ 12. Days later, on March 26, 2009, Arcadia filed a Motion for Reconsideration or, in the Alternative, Motion for Leave to Amend Complaint. Arcadia asked the court to reconsider its order partially granting Audubon's Motion to Limit Damages Proof and to allow Arcadia to assert a claim for prejudgment interest from the date of the breach of the contract. Alternatively, it sought leave to amend its complaint to seek prejudgment interest from the date of Audubon's alleged breach, October 19, 2001.

¶ 13. On April 1, 2009, the trial court conducted a hearing on the two motions. At the conclusion of the hearing, the trial judge stated that “in view of the existing authority ... pre-judgment interest is inappropriate in this case.” Thereafter, the trial court entered a final judgment granting Audubon's second motion for summary judgment and denying Arcadia's motion for reconsideration/leave to amend.

¶ 14. Arcadia's appeal was assigned to the Court of Appeals.² Arcadia argued (1) that it should be able to seek prejudgment interest calculated from the date of the alleged breach of the insurance contract and (2) that its complaint contained a demand for prejudgment interest or, alternatively, that it should have been allowed to amend its complaint. The Court of Appeals unanimously held that the trial court had erred in granting summary judgment for Audubon. Arcadia Farms P'ship v. Audubon Ins. Co., 77 So.3d 107 (Miss.Ct.App.2011). It determined that Section 75–17–7 of the Mississippi Code did not prohibit Arcadia from seeking prejudgment interest from the date of the breach of contract. Id. at 112–14. Accordingly, the Court of Appeals found that genuine issues of material fact existed as to whether Arcadia is entitled to prejudgment interest. Id. at 109. Additionally, the court found that, even though Arcadia had not specifically requested prejudgment interest in its complaint, its request for compensatory damages, including interest, was sufficient to put Audubon on notice of the damages being sought. Id. at 114–16. It further found that, to the extent that Arcadia's complaint lacked a specific request for prejudgment interest, the trial...