Gorman v. Southeastern Fidelity Ins. Co.

• Decision Date: 05 November 1985
• Docket Number: No. 85-4301,85-4301
• Parties: Karl R. GORMAN, Plaintiff-Appellant, v. SOUTHEASTERN FIDELITY INSURANCE COMPANY, Defendant-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 655

775 F.2d 655

Karl R. GORMAN, Plaintiff-Appellant, v. SOUTHEASTERN FIDELITY INSURANCE COMPANY, Defendant-Appellee.

No. 85-4301.

Summary Calendar.

United States Court of Appeals, Fifth Circuit.

Nov. 5, 1985.

As Amended on Denial of Rehearing Jan. 6, 1986.

Donald C. Dornan, Jr., William C. Walker, Jr., Biloxi, Miss., for plaintiff-appellant.

Floyd G. Hewitt, Jr., Biloxi, Miss., for defendant-appellee.

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

Before RUBIN, JOHNSON and JONES, Circuit Judges.

EDITH HOLLAN JONES, Circuit Judge:

The appellant, Karl R. Gorman, procured an automobile insurance policy from the appellee, Southeastern Fidelity Insurance Company, through the Buntyn and Veazey Insurance Agency of Gulfport, Mississippi. The policy period was June 3, 1982, 3:05 p.m., through June 3, 1983, at 12:01 a.m. The policy premiums were paid by Gorman and a policy was issued and sent by Southeastern to Gorman at his address as indicated on the application for insurance. The insurance policy on Gorman's automobile included collision coverage. It was not a continuing agreement but a one-year contract. At the expiration of the policy period, the insured was required to submit a new application for insurance coverage. The policy explicitly provided that no renewal would be effective prior to receipt of the renewal premium by Southeastern at its offices. ¹

Approximately two months prior to the expiration of his insurance policy, Gorman moved and failed to notify either the Buntyn and Veazey Agency or Southeastern of his new address. Southeastern did not routinely notify its policyholders of upcoming expiration dates but, as a courtesy, provided such lists to the respective agencies through which the policyholders had obtained coverage. Buntyn and Veazey sent notice to Gorman at the address on the insurance application that his policy was due to expire and that he should come in and fill out the paperwork necessary to renew his insurance coverage. Gorman denies ever having received the letter. Gorman failed to make arrangements for the renewal of his policy and, thus, the original policy expired on June 3, 1983, at 12:01 a.m.

On June 4, 1983, at approximately 5:20 p.m., Gorman was involved in a one-car accident in the vehicle that had been insured by Southeastern. On the following Monday, Gorman reported the accident to the Buntyn and Veazey Agency, who informed Southeastern. Southeastern denied the claim on the grounds that no coverage was in effect because the policy had expired by its own terms at 12:01 a.m. on the day before the accident.

When Southeastern denied his claim, Gorman retained counsel who made demand on Southeastern for payment under the policy. Specifically, Gorman's counsel informed Southeastern that, under its interpretation of the Mississippi Code, Gorman's policy automatically renewed when Southeastern failed to give timely notice that the policy was about to expire and that Southeastern was willing to renew it. See Miss.Code Ann. Sec. 83-11-7 (1972). Southeastern reviewed the relevant Mississippi statutes and contacted local counsel. Southeastern then reaffirmed its denial of the claim based on advice of counsel and on their interpretation of the relevant Mississippi statute as not requiring an insurance company to give notice that a policy was due to expire or of the insurer's willingness to renew the policy. Negotiations nevertheless continued and Southeastern eventually determined that it was in the best economic interests of the company to acknowledge the claim and settle with General Motors Acceptance Corporation, the loss payee, as to the amount of its lien on Gorman's automobile. Southeastern paid GMAC and obtained an indemnifying release. Despite this payment, on February 13, 1984, Gorman filed this suit against Southeastern alleging tortious breach of contract, breach of fiduciary duty, and fraud in the inducement. Under each count, Gorman also alleged that Southeastern was guilty of "bad faith" and sought punitive damages.

After conducting extensive discovery, Southeastern filed a motion for summary judgment or, in the alternative, a motion for partial summary judgment on the issue of punitive damages. The district court entered judgment in favor of Southeastern as to Counts II and III of the complaint and granted Southeastern's motion for partial summary judgment under Count I as to punitive damages. The district court further ordered that Gorman's complaint be dismissed unless he could amend Count I of the complaint to allege a claim for pending actual contractual damages exceeding $10,000 pursuant to 28 U.S.C. Sec. 1332. When Gorman's amended complaint failed to assert such a claim, ² the district court entered final judgment in favor of Southeastern. Gorman filed a timely notice of appeal.

In his brief on appeal, Gorman challenges only the district court's entry of summary judgment in favor of Southeastern on the punitive damages issue raised in Count I of the complaint. While Mississippi substantive law governs this case, the federal rules of civil procedure determine the propriety of the district court's entry of summary judgment. See Galindo v. Precision American Corp., 754 F.2d 1212, 1216 (5th Cir.1985). Federal Rule of Civil Procedure 56(c) provides that summary judgment is appropriate when, viewed in the light most favorable to the non-moving party, "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." See also Galindo, 754 F.2d at 1216. The moving party carries the burden of establishing the absence of any genuine issue of material fact. Bynum v. FMC Corp., 770 F.2d 556, 576 (5th Cir.1985). Once this burden has been met, the burden then shifts to the opposing party to demonstrate through affidavits or other competent evidence that a genuine issue of material fact does exist. Id. Contrary to the assertions in his brief on appeal, Gorman failed to respond to Southeastern's motion for summary judgment. See Fed.R.Civ.P. 56(e). ³ The district court, finding that the issue was one of first impression in the Mississippi courts, concluded that Southeastern had an "arguable reason" for denying Gorman's claim and entered summary judgment in its favor.

Under Mississippi law punitive damages are not recoverable for breach of contract unless the breach is attended by an intentional wrong, insult, abuse, or such gross negligence as to constitute an independent tort. Consolidated American Life Ins. Co. v. Toche, 410 So.2d 1303, 1304 (Miss.1982). Because "punitive damages are assessed as an example and warning to others, they should be allowed only with caution and within narrow limits." Id. at 1304-05. See also Standard Life Ins. Co. of Indiana v. Veal, 354 So.2d 239, 247 (Miss.1977). "Mississippi bad faith insurance law permits the award of punitive damages only when the insurer has no 'arguable or legitimate reason' for denying an insured's claim." Starkville Municipal Separate School District v. Continental Casualty Co., 772 F.2d 168, 170 (5th Cir., 1985) (citing Blue Cross & Blue Shield of Mississippi v. Campbell, 466 So.2d 833, 841 (Miss.1984); Veal, 354 So.2d at 248). Furthermore, the issue whether an insurer has been guilty of "bad faith" conduct does not always present an issue of fact for the jury. In Campbell, the Mississippi Supreme Court held that:

When the presentation of all evidence has been completed by both sides, it is the function and responsibility of the trial court to determine whether the insurance carrier had a reasonably arguable basis, either in fact or in law, to deny the claim. If he finds there was a reasonably arguable basis to deny the claim, then the plaintiff is not entitled to have the jury consider any "bad faith" award against the insurance company.

Any plaintiff asking for punitive damages, or any special or extraordinary damages based upon "bad faith" of an insurance company has a heavy burden.

466 So.2d at 842. See also Reserve Life Ins. Co. v. McGee, 444 So.2d 803, 809 (Miss.1983).

On appeal, Gorman argues that automobile policies do not "run out" in Mississippi and that insurers are required to afford their insured's continuous coverage, regardless of whether the insured wishes to stay with its present insurer or has paid the premium. Southeastern, on the other hand, argues that the Mississippi courts have not addressed the issue whether Miss.Code Ann. Sec. 83-11-7 (1972) requires an automobile...