Coastal Hardware v. Certain Underwriters at Lloyds

• Decision Date: 26 March 2013
• Docket Number: No. 2011–CA–00765–COA.,2011–CA–00765–COA.
• Parties: COASTAL HARDWARE AND RENTAL COMPANY, LLC, Appellant/Cross–Appellee v. CERTAIN UNDERWRITERS AT LLOYDS, LONDON, Appellees/Cross–Appellants.
• Court: Mississippi Court of Appeals

120 So.3d 1017

COASTAL HARDWARE AND RENTAL COMPANY, LLC, Appellant/Cross–Appellee

v.CERTAIN UNDERWRITERS AT LLOYDS, LONDON, Appellees/Cross–Appellants.

No. 2011–CA–00765–COA.

Court of Appeals of Mississippi.

March 26, 2013.

J. Brad Pigott, Jackson, attorney for appellant.

Whitman B. Johnson III, Michael F. Myers, Jackson, Paul L. Fields Jr., Richard E. Zelonka Jr., attorneys for appellees.

Before GRIFFIS, P.J., MAXWELL and FAIR, JJ.

MAXWELL, J., for the Court:

¶ 1. This case involves a dispute between a hardware store leveled by Hurricane Katrina and its insurer, who denied coverage for the wind damage. The trial judge granted summary judgment in the store's favor on the wind-coverage issue, and the case proceeded to trial on damages. A jury returned a verdict of $1.17 million in the store's favor on its insurance-contract claim against the insurer. But the trial judge directed a verdict in the insurer's favor on the store's tort claim for lost net profits allegedly caused by the insurer's denial of insurance proceeds. The trial judge also denied the store's post-trial request for attorney's fees and pre-judgment interest. Both parties appeal.

¶ 2. As to the wind-coverage issue, we affirm the grant of partial summary judgment. The damage occurred after the insurer issued the store a written binder for all-risk coverage but before a more formal policy was delivered. Based on the circumstances surrounding the formation of this agreement to be bound to coverage and the language of the written binder and quote, we cannot find that wind was an excluded risk.

¶ 3. We also affirm the grant of a directed verdict against the hardware store for failure to prove its tort claim against the insurer. We find the trial judge properly exercised her gatekeeper role when excluding expert testimony about the hardware store's lost net profits. Without this testimony, the store lacked evidence of the only extra-contractual damages it alleged were proximately caused by the insurer's bad-faith refusal to pay under the contract.

¶ 4. Finally, we affirm the trial judge's denial of the hardware store's request for attorney's fees and pre-judgment interest, which it sought in a post-judgment motion. As the Mississippi Supreme Court recently held, the award of attorney's fees is not a collateral matter that the judge can address through a post-trial motion.¹ We acknowledge the trial judge's authority to award pre-judgment interest had she found the insurer's denial of wind coverage was in bad faith. But we find she did not abuse her discretion in finding that an ambiguity in the binder and quote gave the insurer a legitimate basis to deny wind coverage.

Background Facts

¶ 5. Coastal Hardware (Coastal) is located in Kiln, Mississippi. Prior to Hurricane Katrina, Coastal operated a 22,000 square foot retail space, containing lumber, hardware, and some clothing. Certain Underwriters at Lloyds, London (the Underwriters) are a group of underwriters that subscribed to the Certificate No. JA000700Y/0040, the particular policy that was to be issued to Coastal.²

¶ 6. In July 2005, Coastal worked with its insurance agent, Dan McManus of Statewide Insurance, to renew its insurance that was to expire at the end of the month. For the previous policy year (July 2004–July 2005), Coastal had obtained through Lloyds, London a named-risk policy in which flood, earthquake, and wind were not named risks. Coastal had a separate wind policy with XL Specialty Insurance. Coastal had renewed its wind policy with XL Specialty Insurance for the July 2005–July 2006 policy year but let it lapse through nonpayment after it negotiated a new contract with the Underwriters.

¶ 7. Instead of offering another named-perils policy, the Underwriters had quoted an “all-risk” policy that expressly excluded flood, earthquake, and mold. Wind was not expressly listed as an excluded risk. However, in several places, when deductibles were addressed, the quote either stated wind was “excluded” or “not required.” McManus called the Underwriters' American agent, John Hulen, and asked if wind was covered under the offered all-risk policy. Hulen refused to state a position but instead advised McManus to read the quote himself. On July 14, McManus sent XL Specialty a fax informing the insurer that, after renewing the wind policy, Statewide had “obtain[ed] a renewal quote on [Coastal's] fire policy [in which] we were able to include wind and hail.” McManus asked for advise on the best way to cancel the separate wind policy and, prior to Katrina, intentionally allowed the wind policy to lapse due to nonpayment of the premium.

¶ 8. Coastal accepted the Underwriters' quote and paid the $9,800 premium. The Underwriters agreed to bind coverage beginning July 23, 2005. On July 29, the Underwriters' agent issued a two-page written binder for an “all perils” policy, listing “mold” as the only notable exclusion. But the binder did state that Coastal should “READ THIS CONFIRMATION CAREFULLY AND COMPARE IT WITH ANY QUOTE AND SUBMISSION DOCUMENTS AND REVIEW THE POLICY FORMS FOR THE ACTUAL COVERAGE PROVIDED.” The binder also stated: “THIS INSURANCE BINDER WILL BE TERMINATED AND SUPERSEDED UPON DELIVERY OF THE FORMAL POLICY(IES) ISSUED TO REPLACE IT.” (Emphasis added).

¶ 9. According to Hulen's records, on Wednesday, August 24, Hulen received an electronic copy of the formal policy—which contained a wind exclusion—from the Underwriters. Hulen purportedly printed a hard copy and mailed the policy to Statewide. But a representative of Statewide ³ claimed Statewide neither received the policy nor delivered it to Coastal. By Friday, August 26, the Mississippi Gulf Coast was bracing for Hurricane Katrina. Statewide closed its office early that day, having never checked the mail. When the storm struck Monday, August 29, both Statewide's office and the U.S. post office in Kiln were destroyed. The mailed policy was never recovered.

¶ 10. The storm also destroyed Coastal's 22,000 square foot building, forcing the hardware store to operate out of a much smaller building during hurricane recovery. Several weeks after the storm, Coastal contacted Hulen to make a claim. In a brief phone conversation, Hulen told Coastal that the policy did not cover wind damage and that Coastal should make a claim with its wind carrier.

Procedural History

¶ 11. Coastal sued the Underwriters, seeking both damages under the insurance contract and tort damages. Both parties moved for partial summary judgment on the issue of coverage under the insurance contract.

¶ 12. Mississippi Rule of Civil Procedure 56(c) directs that summary judgment “shall be rendered ... if the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” ⁴ “Under Mississippi law, the interpretation of an insurance policy is a question of law, not one of fact[,]” so this issue was appropriate for summary judgment. Shelter Mut. Ins. v. Simmons, 543 F.Supp.2d 582, 585 (S.D.Miss.2008) (citing Noxubee Cnty. Sch. Dist. v. United Nat'l Ins., 883 So.2d 1159, 1165 (¶ 13) (Miss.2004)). The day before trial, the trial judge granted partial summary judgment in Coastal's favor, finding that, through the insurance binder, the Underwriters had agreed to cover wind damage.

¶ 13. With coverage deemed established, trial proceeded on the issue of contract damages—what amount Coastal was owed under the policy. The jury heard evidence on this issue and awarded Coastal $1.17 million under the insurance policy. But Coastal's tort claim for lost net profits never reached the jury.

¶ 14. As to Coastal's tort claim—that the Underwriters' willful and/or negligent failure to pay Coastal under the policy led to lost profits it would have realized if it had been able to timely invest the insurance proceeds it was due—the trial judge held Coastal's accounting expert could not testify about lost net profits. Coastal's tort claim for lost profits was separate from its claim for losses due to business interruption, a loss covered under the insurance contract.⁵ The trial judge excluded the expert's testimony on lost net profits, finding the accountant could not identify the differences between business-interruption loss and lost net profits in a way that would not confuse the jury. The judge also found the expert, in his report and deposition, had failed to address lost net profits but instead opined about lost market share and lost gross sales.

¶ 15. The only tort damages Coastal sought to prove to the jury were damages for lost profits. And having excluded Coastal's only evidence of lost net profits proximately caused by the Underwriters' allegedly negligent denial of coverage, the trial judge directed a verdict in the Underwriters' favor on Coastal's tort claim.

¶ 16. The trial judge did submit the issue of punitive damages to the jury, which found punitive damages should not be assessed against the Underwriters.

¶ 17. After a judgment was entered, Coastal moved to alter and amend the judgment, seeking an award of pre-judgment interest, attorney's fees, and litigation expenses. SeeM.R.C.P. 59(e). Because the jury did not find the Underwriters' denial of coverage warranted punitive damages, and because the trial judge likewise found no bad faith, she denied Coastal's request. Coastal also moved for a new trial on its tort claim, arguing its expert testimony on lost net profits was wrongly excluded.⁶ This motion was also denied.

¶ 18. Both sides now appeal. Coastal claims the trial judge improperly excluded expert testimony on lost net profits and thereby wrongly granted a directed verdict on its tort claim. Coastal also appeals the denial of its post-trial motion to alter or amend the judgment to include pre-judgment interest and attorney's fees.

¶ 19. The Underwriters cross-appeal the partial...