Williams v. Liberty Mut. Ins. Co.

• Decision Date: 28 January 2014
• Docket Number: No. 11–60818.,11–60818.
• Citation: 741 F.3d 617
• Parties: Clinton WILLIAMS, Plaintiff–Appellant, v. LIBERTY MUTUAL INSURANCE CO., Defendant–Appellee.
• Court: U.S. Court of Appeals — Fifth Circuit

741 F.3d 617

Clinton WILLIAMS, Plaintiff–Appellant,

v.LIBERTY MUTUAL INSURANCE CO., Defendant–Appellee.

No. 11–60818.

United States Court of Appeals,Fifth Circuit.

Jan. 28, 2014.

Samuel Robert Hammond, Jr. (argued), Esq., S. Robert Hammond, Jr., P.L.L.C., Hattiesburg, MS, for Plaintiff–Appellant.

Clifford K. Bailey, III, Esq., Trey Christian Dellinger (argued), Wells, Marble & Hurst, P.L.L.C., Ridgeland, MS, for Defendant–Appellee.

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

Before DAVIS, DENNIS, and HAYNES, Circuit Judges.

JAMES L. DENNIS, Circuit Judge:

The conflict of laws issue in this diversity case, removed from a Mississippi state court, is which state's law, that of Mississippi or Alabama, applies to decide whether the plaintiff, a Mississippi resident injured in Mississippi while working for an Alabama resident contractor, has an action in tort for damages against the employer's worker's compensation insurer because of the insurer's intentional bad-faith refusal to pay him worker's compensation when due. Under Mississippi law, upon the same alleged facts, except that the worker was employed by a Mississippi resident employer when she was injured, the worker could recover damages in tort from the employer's worker's compensation insurer. See Southern Farm Bureau Cas. Ins. Co. v. Holland, 469 So.2d 55 (Miss.1984). The Mississippi Supreme Court held that the action is not barred by the exclusive remedy provision of the Mississippi Worker's Compensation Act because the action arises from an independent tort committed by the insurer outside of the scope of the worker's employment. Id. at 56. On the other hand, the Alabama Supreme Court has held that the Alabama Worker's Compensation Act's exclusive remedy provision bars such an action, although it does not bar an action for the tort of “outrage” against an insurer involving extreme and outrageous conduct over and beyond a mere intentional bad-faith refusal to pay compensation. Stewart v. Matthews Indus., Inc., 644 So.2d 915, 918 (Ala.1994).¹ Williams has sufficiently alleged an intentional bad-faith refusal to pay worker's compensation claim against Liberty Mutual under Mississippi law, a claim that would be barred by the exclusivity provision of the Alabama Worker's Compensation Act. See id. Hence, the choice of which state's law applies is crucial to Williams' ability to state a claim upon which relief can be granted. The district court concluded that Alabama's substantive law applied, and accordingly dismissed Williams' suit. We reverse and remand the case to the district court for further proceedings consistent with this opinion.

I.

Clinton Williams, the Mississippi resident plaintiff, was injured in the course and scope of his employment in Mississippi while he was working for Steven Tanner, an Alabama resident contractor. The employer's insurer, Liberty Mutual Insurance Company, did not timely begin paying Williams worker's compensation. In fact, it delayed payments for eight months, during which time Williams brought proceedings for compensation against Liberty Mutual both in the Mississippi Worker's Compensation Commission (MWCC) and in an Alabama state court. Additionally, Williams asserted a claim for damages for “outrageous conduct” against Liberty Mutual in his Alabama suit. Ultimately, Liberty Mutual conceded its liability to Williams for worker's compensation under both Mississippi and Alabama law and reached settlement agreements with Williams in which Williams reserved his rights to sue the insurer for intentional bad-faith refusal to pay compensation in Mississippi and for outrageous conduct in Alabama.² The parties, however, later agreed to dismiss his Alabama suit for “outrageous conduct” damages without prejudice. Williams sued Liberty Mutual in Mississippi state court for damages resulting from the insurer's intentional bad-faith refusal to pay him compensation timely. Liberty Mutual removed Williams' Mississippi state-court suit to the U.S. District Court for the Southern District of Mississippi and successfully moved to dismiss Williams' suit. Williams v. Liberty Mut. Ins. Co., No. 2:10–CV–205–KS, 2011 WL 5183572 (S.D.Miss. Oct. 31, 2011) (unpublished). Williams timely appealed.

II.

This Court reviews questions of law, including conflicts of law questions, de novo and district court factual determinations for clear error. Abraham v. State Farm Mut. Auto. Ins. Co., 465 F.3d 609, 611 (5th Cir.2006). The facts here are undisputed, so our review is de novo. See Coats v. Penrod Drilling Corp., 5 F.3d 877, 882 (5th Cir.1993), opinion reinstated in part on reh'g en banc,61 F.3d 1113 (5th Cir.1995).

A federal court sitting in diversity must apply the choice-of-law rules of the state in which it sits. Day & Zimmermann, Inc. v. Challoner, 423 U.S. 3, 4–5, 96 S.Ct. 167, 46 L.Ed.2d 3 (1975) (per curiam); Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941); Ellis v. Trustmark Builders, Inc., 625 F.3d 222, 225 (5th Cir.2010); see also Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). This diversity action was removed from Mississippi state court to the U.S. District Court for the Southern District of Mississippi. It is undisputed that Mississippi's choice-of-law rules therefore govern.

A.

In Mississippi, choice-of-law analysis arises only when there is a true conflict between the laws of two states, each having an interest in the litigation. Zurich Am. Ins. Co. v. Goodwin, 920 So.2d 427, 432 (Miss.2006). As we noted at the outset, there is a crucial and true conflict between Alabama and Mississippi law on the issue presented in this case. ³ Once a true conflict is established, Mississippi's choice of law test consists of three steps: “(1) [D]etermine whether the laws at issue are substantive or procedural[.]” Ellis, 625 F.3d at 225 (quotation marks omitted); accord Zurich, 920 So.2d at 433. If they are procedural, the inquiry ends and Mississippi law applies. See Zurich, 920 So.2d at 433. “(2) [I]f substantive, classify the laws as either tort, property, or contract; and (3) look to the relevant section of the Restatement (Second) of Conflict of Laws.” Ellis, 625 F.3d at 225–26. With regard to the last step, Mississippi resolves conflict-of-laws questions using the “significant relationship” test found in the Restatement (Second) of Conflict of Laws (1971). Id. at 226;accord, e.g., Liberty Mut. Ins. Co. v. Shoemake, 112 So.3d 1, ¶ 12 at 4 (Miss.Ct.App.2012) (en banc) (citing Ellis, 625 F.3d at 226),rev'd on other grounds,111 So.3d 1207, 1210 (Miss.2013) ( “We find no fault with the Court of Appeals' choice-of-law analysis as it applies to the Mississippi action.”). This is also known as the “center of gravity” test in Mississippi. See, e.g., Mitchell v. Craft, 211 So.2d 509, 514 (Miss.1968) (quotation marks omitted). “A court that applies the ‘center of gravity’ approach must determine ‘which state has the most substantial contacts with the parties and the subject matter of the action.’ ” Ingalls Shipbuilding v. Fed. Ins. Co., 410 F.3d 214, 230–31 (5th Cir.) (quoting Boardman v. United Servs. Auto. Ass'n, 470 So.2d 1024, 1031 (Miss.1985)), reh'g in part on other ground granted,423 F.3d 522 (5th Cir.2005).

Regarding the first step of the choice-of-law analysis, “the law of the forum determines whether an issue in the action is substantive or procedural in nature.” Hartford Underwriters Ins. Co. v. Found. Health Servs. Inc., 524 F.3d 588, 593 (5th Cir.2008) (internal quotation marks and alteration omitted). “In Mississippi, ‘few laws are classified as procedural’ and for choice of law purposes the Mississippi Supreme Court has labeled as procedural only rules of evidence and procedure, statutes of limitations, and awards of attorney's fees and interest.” Id. (quoting Zurich, 920 So.2d at 433). When “resolution of [an] issue determines whether [the plaintiff] has ‘has a viable cause of action,’ ... the issue is substantive.” Id. (quoting Hancock v. Watson, 962 So.2d 627, 629 (Miss.Ct.App.2007)). The parties do not dispute that the issue here is substantive. We agree that the issue in this case is a substantive rather than procedural matter because it determines whether Williams has a viable cause of action. See id. We therefore proceed to the next step in the choice-of-law inquiry.

The parties' central dispute pertains to the second choice-of-law factor, whether Williams' claim for damages based on Liberty Mutual's alleged intentional bad-faith refusal to pay him worker's compensation is properly characterized as a tort or a contract action. Mississippi law determines whether a matter is properly characterized as a tort or a contract because that inquiry is part of Mississippi's choice-of-law rules. See, e.g., Klaxon, 313 U.S. at 496, 61 S.Ct. 1020;Ellis, 625 F.3d at 225.

The Mississippi Supreme Court, in the seminal case of Southern Farm Bureau Casualty Insurance Co. v. Holland, held that an employee entitled to worker's compensation benefits from her employer has a separate and independent right to recover damages from the employer's worker's compensation insurer because of the insurer's intentional bad-faith refusal to pay compensation when due, which constitutes an independent intentional tort committed by the insurer outside the scope of the worker's employment. 469 So.2d at 56–59. The action “derives from the independent and allegedly intentional, tortious conduct of [the insurer] in refusing to pay benefits owing under the [Mississippi Workers' Compensation] Act without an arguable basis therefor.” Id. at 59. Moreover, in Holland, the Mississippi Supreme Court concluded “that the exclusivity provision of the Workers' Compensation Act does not bar an action by the employee against the insurance carrier for the commission of an intentional tort. The independent tort is not compensable under our Workers' Compensation Act...