Punitive Damages, Katrina and the Insurance Contract: Lessons Revisited and a Tale Told in Pieces or in Parts.
An Insurance Company has been assessed $2,500,000.00 in Punitive Damages by a Jury in Federal Court in Mississippi. Here is the Punitive Damages Verdict that was filed on Thursday, January 11, 2007: Download Broussard_v. State Farm Fire & Casualty Co. Verdict January 11, 2007 (S.D. Miss. Case No. 1.06.cv6).pdf.
The Federal case involves Claims for Damages following Hurricane Katrina. News outlets began broadcasting the report on the evening of the day this Punitive Damages Verdict was filed, and news outlets continued to report on this Verdict the next day, as expected. An insightful article is published online at Bloomberg.com. Here is a link to it: Lawrence Viele Davidson & Erik Holm, "State Farm Must Pay Couple $2.7 Million for Katrina (Update4)" (www.bloomberg.com/apps/news, dateline Jan. 11, 2007 (Bloomberg)). The Punitive Damages Verdict was also blogged. See for example Insurance Claims and Issues Blog. This post will suggest some missing information that may be needed in order to understand how this Verdict was rendered and to explain something of what it means.
As was noted at the beginning, the Broussard case is one of many Hurricane Katrina-related lawsuits. It involves Insurance Coverage Claims for Damages to a Home. It clearly also involves a claim for Punitive Damages under Mississippi law since that Punitive Damages Claim went to a jury. Although the Complaint does not appear to be accessible in the Federal Court's online docket as the case was removed to Federal Court from Mississippi State Court, piecing together various reports about this particular case with established Mississippi case law yields the following possible scenario.
"At its core, Plaintiffs' cause of action is based on an alleged breach of contract. The Complaint does not even contain separate counts." Download Broussard_v. State Farm Fire & Casualty Co., Order on Motion for Partial Summary Judgment entered November 6, 2006 (S.D. Miss. Case No. 1.06cv6).pdf. The Federal Court's November 6, 2006 Order also provides the information that the Court itself did not have a lot of allegations and exhibits to go on. Although the Complaint attached a specimen Homeowner's Policy, it was not the policy issued to Mr. and Mrs. Broussard. "This attachment does not disclose the policy limits. The Plaintiffs' residence apparently was reduced to a slab by the storm, although it takes a lot of reading to reach that conclusion. The tension in the record is between the damages sustained by Plaintiffs and the manner in which their claim was handled by Defendant." Id.
In a later Order, the Federal Court repeated that "Plaintiffs' cause of action at its core is based on an alleged breach of contract." The Federal Judge also acknowledged a very important Claim: "Plaintiffs also assert that they are entitled to punitive damages and/or extra-contractual damages due to the Defendant's alleged bad faith conduct in handling and denying their claim." Download Broussard_v. State Farm Fire & Casualty Order on Motions In Limine entered on December 28, 2006 (S.D. Miss. Case No. 1.06cv6).pdf.
The Policyholders' Insurance Company never made an offer for any part of the Claim. A spokesperson for the Insurance Company is reported as stating that it was sued by the Policyholders after it had refused to pay anything on their Claim. See the news report by Joseph B. Treaster, "State Farm Told to Pay Gulf Claim" (New York Times, Friday, January 12, 2007).
However, according to the Federal Judge's Law Clerk and reported in the same article in The New York Times, Experts for the Insurance Company stated in unspecified documents filed in the Court File, that some damage to Mr. and Mrs. Broussard's home was caused by Wind, a Covered Peril.
Further, before Trial of the Broussard case, the same Federal Judge ruled in other cases pending before him, that (1) presumably similar Flood or Water Exclusions will exclude Coverage for all damage caused by Flood or Water, in part here pertinent, but that (2) the Policy does not exclude all Coverage if part of the Damages are caused by Flood. These rulings were certainly generally known, as previously noticed by a Federal Judge in the Eastern District of Louisiana, for example, and in a post on December 5, 2006 here and in Insurance Claims and Issues Blog.
Thereafter, the Insurance Company could defend against Punitive Damages only by (1) paying or perhaps at least making an offer to pay the clearly covered part of the Claim or (2) successfully arguing the total applicability of the Flood or Water Exclusion to exclude all damages.
Mississippi standards for assessing Punitive Damages in First-Party Bad Faith cases have been pretty clear for a very long time. Mississippi requires more than proof of First-Party Bad Faith and certainly requires more than proof of carelessness, for example. "Carelessness, however, does not rise to the level of bad faith required for plaintiff to prevail on her [Punitive Damages] claim." Mixon v. Provident Life & Accident Insurance Co., 616 F. Supp. 139, 142 (S.D. Miss. 1985), aff'd mem., 783 F.2d 1061 (5th Cir. 1985). Mississippi Punitive Damages law requires more than a finding that a credit life insurer, for example, in another First-Party Bad Faith case "lacked an arguable reasonable basis for denying the claim.... A further finding is required showing malice or gross negligence or disregard of the insured's rights." Barber v. Balboa Life Insurance Co., 747 So. 2d 863, 868 (Miss. Ct. App. 1999). These and similar rulings are further addressed at much greater length in, for example, Dennis J. Wall, Litigation and Prevention of Insurer Bad Faith (2nd Ed. 1994), published by West Publishing Company online and in print.
Further, as early as 1979 the Mississippi Supreme Court held that a Punitive Damages instruction is properly given to a Jury, and a First-Party Insurance Company is properly assessed Punitive Damages, where the First-Party Insurance Company declines to pay all of its Policy Coverage where some of its Coverage applies. See Travelers Indemnity Co. v. Wetherbee, 368 So. 2d 829, 833-35 (Miss. 1979) and the cases discussed by the Supreme Court of Mississippi in that decision. These Mississippi rules of law were visited by the same Federal Judge assigned to the Broussard lawsuit, in an earlier case in which he also cited to Travelers Indemnity Co. v. Wetherbee (Miss. 1979), for example.
The same Federal Judge who submitted a Punitive Damages Claim to a Jury in Broussard similarly submitted a Punitive Damages Claim to a Jury several months earlier in another First-Party Bad Faith case -- which also involved a similar Claim that "Hurricane Katrina completely destroyed Plaintiffs' home" and unresolved "issues related to claim handling", particularly handling the Claim after "a report in November, 2005, indicated that damage was due in part to something other than water." In that earlier decision, the Homeowner's Insurance Company did tender payment "in August 2006" -- and the Policyholders' Punitive Damages Claim still went to a Jury: Download Odom_v. Armed Forces Insurance Co. (S.D. Miss. Case No. 1.05cv669, Order entered on August 31, 2006 on Defendant's Motion for Partial Summary Judgment).pdf.
The Policyholders' lawyers in the Odom case are also the Policyholders' lawyers in the Broussard case.
Back to the Broussard case and January 11, 2007. At Trial, there was reportedly evidence that, at the least, the Flood or Water Exclusion did not exclude all damages.
The Federal Trial Judge directed a verdict on Compensatory Damages, awarding Mr. and Mrs. Broussard $233,292 under their Insurance Policy, it is reported in both of the news articles linked above. The Federal Judge also thereby directed a verdict on entitlement to Punitive Damages. The Jury in that case then unanimously returned its Punitive Damages Verdict less than three hours later.
Mississippi is not, of course, the only State that requires payment of clearly covered Claims in Good Faith under First-Party Insurance Policies. Almost all do, and recent examples always seem to be at hand, such as in Florida. See the post entitled, "CatClaims, Coverage, Part Disclaimer With Part Payment .... And Florida Statutory Bad Faith" on November 17, 2006, for example, in Insurance Claims and Issues Blog. The same lessons apply in one State as in another, and in one reported case as in another with the same result. The law applied by the Mississippi Federal Court in the Broussard case is not new law, and neither is the result, it appears.
REMINDER: THE CONTENTS OF THIS BLOG DO NOT MAKE AN ATTORNEY-CLIENT RELATIONSHIP. ALWAYS CONSULT THE CASES AND LAWS OF EACH PARTICULAR JURISDICTION AND AN ATTORNEY FAMILIAR WITH THE PARTICULAR INSURANCE ISSUE IN THAT JURISDICTION, WHENEVER YOU TRY TO ADDRESS OR RESOLVE ANY LEGAL QUESTION.