Mladineo v. Schmidt, No. 2008-CA-02011-SCT.

• Court: Mississippi Supreme Court
• Writing for the Court: PIERCE
• Citation: 52 So.3d 1154
• Decision Date: 17 February 2011
• Docket Number: No. 2008-CA-02011-SCT.
• Parties: John P. MLADINEO and Sherry Mladineo v. Richard Earl SCHMIDT, Michael Felsher Insurance Agency and Nationwide Property & Casualty Insurance Company.

52 So.3d 1154

John P. MLADINEO and Sherry Mladineo
v.
Richard Earl SCHMIDT, Michael Felsher Insurance Agency and Nationwide Property & Casualty Insurance Company.

No. 2008-CA-02011-SCT.

Supreme Court of Mississippi.

Oct. 28, 2010.
Rehearing Denied Feb. 17, 2011.

52 So.3d 1156

Charles R. Wilbanks, Jr., Matthew R. Dowd, Frank T. Moore, Jr., Jackson, attorneys for Appellants.

H. Mitchell Cowan and Laura L. Hill, Jackson, attorneys for appellees.

EN BANC.

PIERCE, Justice, for the Court:

¶ 1. John and Sherry Mladineo sued Richard Schmidt, Michael Felsher d/b/a the Felsher Insurance Agency, and Nationwide Property & Casualty Company (collectively referred to as "the defendants") on multiple counts arising out of noncovered claims made on the Mladineos' homeowner's insurance policy after Hurricane Katrina. The trial court granted summary judgment to the defendants as to all issues. The Mladineos appeal the trial court's grant of summary judgment. After review, this Court reverses the ruling of the trial court in part, affirms in part, and remands the matter to the trial court.

FACTS AND PROCEDURAL HISTORY

¶ 2. The Mladineos purchased a home in Ocean Springs, Mississippi. Prior to closing on the property, John Mladineo discussed obtaining insurance coverage for the home and other structures on the property with Richard Schmidt, a Nationwide insurance salesman employed with the Felsher agency. The Mladineos alleged in their complaint that during those discussions, John Mladineo had requested "full protection" for the dwelling and other structures from all weather conditions. The Mladineos further alleged that Schmidt had responded that John would need to purchase a "hurricane policy" in order to obtain the requested coverage.

¶ 3. The Mladineos averred that John had inquired as to whether such a policy would cover all wind and water damage

52 So.3d 1157

and was assured by Schmidt that all such damage from any named storm was covered. The Mladineos did not obtain a separate flood insurance policy on the property, although John admits he knew such a policy was available. They alleged this was because Schmidt had advised John that the property was not in a flood zone, such a policy would not be required by a mortgage lender, and because the property would be covered for all wind and water damage from a named storm through the "hurricane policy." John testified in his deposition that Schmidt never had offered to sell the Mladineos flood insurance. John further alleged he later had learned that the rear portion of the property does, in fact, lie in a flood zone.

¶ 4. After Schmidt faxed John various quotes for insurance coverage on the Ocean Springs property, John advised Schmidt that he would purchase a "hurricane policy," and chose a particular deductible and limit. Approximately ten days later—on March 10, 2005, the day the Mladineos closed on the Ocean Springs property—the homeowner's policy became effective. The policy premium also was paid on that day. The Mladineos allege that neither Schmidt nor the Felsher Agency had provided a copy of the policy for the Mladineos to review prior to this date. The purchased policy was written through Nationwide Property & Casualty Insurance Company.

¶ 5. The Mladineos received their homeowner's policy approximately six weeks after the closing on their Ocean Springs home. Under the heading of "Hurricane Coverage," the policy states:

Coverage under this policy includes loss or damage caused by the peril of windstorm during a hurricane. It includes damage to a building's interior or property inside a building caused directly by rain, snow, sleet, hail, sand or dust if direct force of the windstorm first damages the building causing an opening through which the above enters and causes damage.

Hurricane coverage does not include loss caused by flooding, including but not limited to flooding resulting from high tides or storm surges.

(Emphasis added.) In the "Property Exclusions" section of the policy, it further states:

We do not cover loss to any property resulting directly or indirectly from any of the following. Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss....

... Loss resulting from water or water-borne material damage described below is not covered even if other perils contributed directly or indirectly to cause the loss. Water and water-borne material damage means:

1) flood, surface water, waves, tidal waves, overflow of a body of water, spray from these, whether or not driven by wind....

(Emphasis added.) John testified in his deposition that, upon receipt of the policy, he filed it away and did not read it. The Mladineos had no further conversations with Schmidt regarding this policy prior to Hurricane Katrina.

¶ 6. Hurricane Katrina hit the Mississippi Gulf Coast on August 29, 2005. Along with extensive damage throughout the entire Gulf region, Katrina severely damaged the Mladineos' Ocean Springs home and the other structures on the property. The Mladineos filed a claim with Nationwide on their Ocean Springs property, and it was denied as to damage caused by water. Nationwide also initially denied coverage on the pier and boathouse that were damaged during Hurricane Katrina, but subsequently paid claims on those structures.

52 So.3d 1158

¶ 7. Thereafter, Schmidt and John had several conversations in person regarding the coverage. The Mladineos allege that Schmidt admitted to John that he never had indicated during negotiations that an exclusion existed in the policy for water damage. Schmidt filed an errors and omissions claim regarding this matter, which he completed in John's presence.

¶ 8. The Mladineos filed suit against Schmidt, the Felsher Insurance Agency, and Nationwide on September 29, 2006, making the following claims:

a. failure of Schmidt and the Felsher Agency to procure the requested coverage;

b. negligence by Schmidt, and through him, the Felsher Agency;

c. negligent misrepresentation of material facts by Schmidt, and through him, the Felsher Agency;

d. independent tort against Schmidt and the Felsher Agency for misrepresentations made in an alleged attempt to cover Schmidt's actions;

e. Nationwide is bound by the representation of its agents and should be required to provide coverage in accordance with such representations;

f. Nationwide breached the implied duty of good faith and fair dealing contained in the contract between itself and the Mladineos;

g. tortuous breach of contract against Nationwide; and

h. Nationwide, Schmidt and the Felsher Agency acted in bad faith.

The Mladineos demanded judgment in their favor and requested the insurance coverage they allegedly had requested originally, compensatory damages, punitive damages, interest and attorney's fees.

¶ 9. The matter was removed to federal court and subsequently was remanded. Thereafter, the Honorable Billy G. Bridges, Senior Status Judge, was specially appointed to preside over the matter in the Circuit Court of Jackson County. The parties began discovery and entered into an Agreed Scheduling Order.

¶ 10. After extensive discovery, the defendants—Schmidt, the Felsher Agency, and Nationwide—filed a motion for summary judgment. In the motion, the defendants asserted that there is no genuine issue of material fact as to any of the Mladineos' claims. The defendants claimed the negligence, negligent-misrepresentation, and independent-tort claims fail because Mississippi law imposes on insureds a duty to read their insurance contracts and imputes to them knowledge of the contents of such contracts. Therefore, the defendants asserted that reliance on any misrepresentation which would have been clarified by reading the policy is per se unreasonable. Further, the defendants asserted that the Mladineos' failure-to-procure claim fails because, once the policy has been delivered, the insured has a duty to read it, is imputed with knowledge of its terms, and has the responsibility to cure any deficiencies regarding what coverage is actually contained in the policy as compared to what coverage was requested.

¶ 11. The defendants' motion for summary judgment further argued that the Mladineos' claims for breach of contract and breach of the implied duty of good faith and fair dealing fail because Nationwide enforced its policy as written. Further, the defendants asserted that the Mladineos' bad-faith claim should be dismissed because Nationwide had a legitimate or arguable reason to deny payment of the Mladineos' insurance claim. For the same reason, the defendants asserted that the Mladineos's claim for punitive damages should be dismissed.

¶ 12. The Mladineos filed a response to the defendants' motion for summary judgment.

52 So.3d 1159

In it, they labeled the "duty-to-read" and "imputed-knowledge" doctrines raised by the defendants an affirmative defense. The Mladineos asserted that the defendants had waived such defense by participating in the litigation for more than two years without raising the defenses. The Mladineos further claimed that the "duty-to-read" and "imputed-knowledge" doctrines do not automatically bar the Mladineos' claims, but rather, there are factual determinations that must be considered and weighed by a jury to evaluate the applicability of those claims.

¶ 13. The defendants filed a rebuttal in support of their original motion for summary judgment, which asserted that the "duty to read" is a settled principle of Mississippi law, not an affirmative defense. Further, the defendants contended their motion for summary judgment was in compliance with the agreed scheduling order entered in the matter. Finally, the defendants argued that each of the Mladineos' claims should be dismissed through summary judgment, as no genuine issue of material fact existed as to any of them.

¶ 14. The Mladineos filed their own motion for partial summary judgment as to the defendants' defenses regarding the "duty-to-read" and "imputed-knowledge" doctrines....