Szumigala v. Nationwide Mut. Ins. Co.

• Decision Date: 26 July 1988
• Docket Number: No. 88-4063,88-4063
• Citation: 853 F.2d 274
• Parties: David SZUMIGALA and Brenda Szumigala, Individually, and as Administratrix of the Estate of Michael Szumigala, Deceased, Plaintiffs-Appellees Cross-Appellants, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant-Appellant Cross-Appellee. Summary Calendar.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 274

853 F.2d 274

David SZUMIGALA and Brenda Szumigala, Individually, and as Administratrix of the Estate of Michael Szumigala Deceased, Plaintiffs-Appellees Cross-Appellants, v. NATIONWIDE MUTUAL INSURANCE COMPANY, Defendant-Appellant Cross-Appellee.

No. 88-4063

Summary Calendar.

United States Court of Appeals Fifth Circuit.

July 26, 1988.

James N. Compton, Peter C. Abide, Biloxi, Miss., for defendant-appellant cross-appellee.

Lyle M. Page, Fred Mannino, Ronald S. Cochran, Biloxi, Miss., for plaintiffs-appellees cross-appellants.

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

Before GEE, RUBIN, and SMITH, Circuit Judges.

JERRY E. SMITH, Circuit Judge:

Appellees David and Brenda Szumigala brought this Mississippi diversity action alleging that appellant Nationwide Mutual Insurance Company ("Nationwide") had refused in bad faith to pay insurance claims for combined, or "stacked," ¹ medical payment coverages and for uninsured motorist benefits. The Szumigalas sued on two Nationwide auto policies: one policy covering three vehicles and the other policy covering a single, fourth vehicle. Because we interpret the "limits of liability" clause contained in the multi-vehicle policy to preclude stacking of medical payment coverages thereunder, we reverse the judgment of the district court permitting such stacking and remand with instructions to deduct the amount improperly aggregated--$2,000--from the final award. On cross-appeal, we affirm in part and reverse in part and remand the district court's partial summary judgment holding that Nationwide's refusal to pay benefits had been arguably legitimate under the facts of this case and that no claim for punitive damages should have been submitted to the jury.

I. Background

On July 22, 1985, the Szumigalas' decedent, Michael Szumigala, was killed when an uninsured motorcyclist broadsided the bicycle he was riding. The accident occurred near Starkville, Mississippi, at the intersection of Blackjack and Morrill Roads. The motorcyclist, John Cambre, approached the intersection from the east along Blackjack Road, traveling near, yet within, the speed limit of 45 miles per hour. Michael Szumigala approached from the north along Morrill Road. Disregarding the stop sign giving Cambre the right-of-way, Michael attempted a left turn onto Blackjack Road directly into the path of the oncoming motorcycle. According to the county deputy sheriff who arrived at the scene some twenty minutes after the accident, there was no time for Cambre to take any evasive action.

When found in a ditch on the south side of Blackjack Road, Michael Szumigala was already dead and Cambre was in a coma; upon recovery, Cambre would remember nothing about events immediately preceding the impact. Three other persons were in close proximity to the accident, but none actually witnessed it. When it occurred, Harold and Rosemary Thompson were traveling in their car on Morrill Road about 300 to 400 feet behind the bicycle rider. Mr. Thompson observed the motorcycle approach to within 150 feet of the intersection and then saw Michael Szumigala begin executing his fateful left turn onto Blackjack Road. As the riders passed from view behind a copse of trees lining Blackjack Road, Mr. Thompson remarked to his wife that a collision was imminent. Mrs. Thompson heard the remark and looked up in time to catch a glimpse of a blue vehicle; however, she did not see the motorcycle, the bicycle, or the collision. Likewise, a nearby resident, Mrs. Elizabeth Gray, saw only the post-impact scene of an airborne body and what she later described as "the top of a car" parallel to the body.

The deputy sheriff who investigated the accident issued a report that would later figure prominently in Nationwide's own investigation and its decision to deny uninsured motorist benefits. Based on the physical evidence at the scene and statements taken from the above-named witnesses, the deputy concluded that the bicyclist's failure to yield the right-of-way caused the accident and that there was no evidence of improper driving by the motorcyclist.

At the time of the accident, Michael Szumigala's father, appellee David Szumigala, was the named insured under two Century Auto Policies issued by Nationwide. One of the policies (the "multi-vehicle policy") provided coverage for three vehicles owned by the Szumigalas; the other policy (the "single-vehicle policy") provided coverage for only a fourth vehicle. In addition to the standard collision and liability coverages, which are not relevant to this appeal, both policies contained endorsements providing medical payment and uninsured motorist coverages.

Under the endorsement for uninsured motorist coverage, Nationwide agreed to pay the insured all sums which the insured or members of his household would be legally entitled to recover as personal injury damages arising out of the tortious act or omission of an uninsured motorist. Implied in this term is the notion that recovery cannot be had where the injury was caused by a non-negligent uninsured motorist. Under the policies purchased by the Szumigalas, Nationwide's liability for uninsured motorist coverage was limited to $10,000 per vehicle listed in the policy declarations, and separate premiums were paid for such coverage on each of the four vehicles insured.

Under a separate endorsement for medical payment coverage, Nationwide agreed to pay the insured all reasonable expenses for, inter alia, funeral services for residents of the insured's household. Events triggering medical payments under the policy included bodily injury or death (1) "while in or upon, entering or alighting from" an insured vehicle; and (2) as a result of "being struck" by a motor vehicle as a pedestrian or while riding on any device other than a land motor vehicle.

It is undisputed that under the policy's second triggering provision, Nationwide became obligated to pay medical payment benefits. The issue raised here is the extent of that obligation. Under both policies purchased by the Szumigalas, medical payment coverage was provided in the amount of $1,000 for each automobile listed in the policy declarations. A "limits of liability" provision set out in the medical payment endorsement read as follows:

The amount payable under this endorsement to or for the benefit of any one person and arising out of any one accident shall not exceed the limit of liability set forth in the Century Policy Declarations. The affording of insurance to more than one person or to more than one automobile or land motor vehicle hereunder shall not operate to increase the limits of the Company's liability. [Emphasis added.]

Upon notification of the accident, Nationwide initiated an investigation through Crawford & Company ("Crawford"), an independent insurance adjuster retained because of its familiarity with the Starkville area, where Nationwide had no field claims office. Within two weeks after the accident, Nationwide advised the Szumigalas that an investigation was in progress and that uninsured motorist coverage might be applicable.

On August 15, 1985, Crawford submitted a preliminary evaluation, including photographs and the deputy's report, and indicated to Nationwide that "[b]ased on the information we have at this time, it would appear that liability would be probable on the part of the insured driver. It would appear that the insured driver simply pulled out in front of the adverse party vehicle." Crawford then conducted further investigation, interviewing two of the three witnesses, as well as Cambre. ² A supplementary report was issued on September 16, 1985, stating that the witnesses' recollections had been "very hazy" and that Cambre, though remembering nothing about the accident, was indeed an uninsured motorist. Crawford concluded by reaffirming its earlier evaluation that attributed fault entirely to the decedent.

On October 23, 1985, the Szumigalas' attorney demanded that Nationwide pay uninsured motorist benefits on the ground that Cambre had been negligent in causing the accident. Nationwide's response on November 5 was that the initial investigation had indicated the decedent to be solely at fault, but that any information the Szumugalas' possessed that might bear on Cambre's negligence would be considered, since the claim was still being evaluated. At that time, Nationwide also tendered $1,000 of medical payment benefits under the multi-vehicle policy, an amount equal to the limits of coverage on only one of the three vehicles insured thereunder. No medical payments under the single-vehicle policy were tendered at that time.

Nationwide formally denied uninsured motorist coverage some two weeks after this action was filed, on November 15, 1985. In their complaint, the Szumugalas sought compensatory damages under both the uninsured motorist and the medical payment endorsements of both policies. The Szumigalas further alleged that Nationwide's denial to pay uninsured motorist benefits without first having conducted a reasonable investigation gave rise to a tortious breach of the insurance contract and a breach of fiduciary duty, meriting punitive damages. The Szumigalas also sought punitive damages based upon Nationwide's refusal to stack medical payment coverages contrary to their reading of policy terms and Mississippi precedent.

In June 1987, nineteen months after this suit was filed, Nationwide paid the Szumigalas an additional $1,000, representing the limits of the medical payments coverage under the single-vehicle policy. This decision followed an in-house determination by Nationwide officials, contrary to prior advice of counsel, that the relevant policy language did not preclude stacking of medical payments provided under separate policies. Days later, on June 15, 1987, Nationwide moved for partial summary judgment on the issues of the validity of the punitive damage claim for bad faith breach and...