Guideone Elite Insurance Co. v. Mount Carme , 676 F. App'x 269 ( 2017 )


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  •      Case: 15-60915      Document: 00513845205         Page: 1    Date Filed: 01/23/2017
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT      United States Court of Appeals
    Fifth Circuit
    FILED
    January 23, 2017
    No. 15-60915
    Lyle W. Cayce
    Clerk
    GUIDEONE ELITE INSURANCE COMPANY; GUIDEONE INSURANCE
    COMPANY,
    Plaintiffs - Appellees Cross-Appellants
    v.
    MOUNT CARMEL MINISTRIES; ALPHA CHRISTIAN SCHOOL; SEAWAY
    BANK AND TRUST COMPANY,
    Defendants - Appellants Cross-Appellees
    Appeals from the United States District Court
    for the Southern District of Mississippi
    USDC No. 2:13-CV-134
    Before KING, OWEN, and HAYNES, Circuit Judges.
    PER CURIAM: *
    After a tornado severely damaged properties in Hattiesburg, Mississippi,
    this insurance coverage dispute ensued.             The district court concluded on
    summary judgment that coverage was in place at the time of the tornado, and
    then awarded damages after a four-day bench trial. The insurer appeals the
    district court’s conclusions that its notice of cancellation of the insurance policy
    * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH
    CIR. R. 47.5.4.
    Case: 15-60915       Document: 00513845205          Page: 2     Date Filed: 01/23/2017
    No. 15-60915
    was ineffective, and therefore, there was coverage at the time of the loss. The
    insured and its mortgage holder appeal various aspects of the district court’s
    damages award, as well as several evidentiary rulings. Finding no reversible
    error by the district court, we AFFIRM.
    I. FACTS AND PROCEEDINGS
    Mount Carmel Ministries, which owns and operates the Alpha Christian
    School in Hattiesburg, Mississippi (collectively, Mount Carmel), purchased a
    commercial property insurance policy, effective July 7, 2012 to July 7, 2013
    (the policy), from GuideOne Elite Insurance Company (GuideOne). On October
    2, 2012, Seaway Bank and Trust Company (Seaway), Mount Carmel’s
    mortgagee, initiated foreclosure proceedings against Mount Carmel due to
    Mount Carmel’s default on its mortgage note. GuideOne, after learning of the
    impending foreclosure, sent Mount Carmel a notice canceling the policy. The
    notice was dated October 29, 2012, and stated an effective date of cancellation
    of November 20, 2012—22 days later.
    Mount Carmel and Seaway entered into a forbearance agreement on
    November 7, canceling the foreclosure sale. When Seaway discovered that
    GuideOne had canceled the policy, Seaway purchased force-placed coverage 1
    for Mount Carmel’s buildings, effective January 7, 2013 to February 7, 2013.
    On January 29, 2013, Mount Carmel asked GuideOne to reinstate the policy,
    but GuideOne did not immediately respond.                     Though Seaway allegedly
    informed Mount Carmel that it would continue purchasing force-placed
    1 “Force-placed insurance is the insurance that a lien holder places on a property to
    provide coverage in the event the borrower allows the coverage to lapse or when the
    borrower’s coverage actually lapses. . . . Costs of the insurance are typically paid up-front by
    the lien holder, but then added to the balance of the lien.” Baxter v. PNC Bank Nat. Ass’n,
    541 F. App’x 395, 396 n.1 (5th Cir. 2013) (per curiam).
    2
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    insurance, Seaway apparently mistakenly failed to renew the coverage after
    February 7.
    On February 10, 2013, after the force-placed coverage had expired, a
    tornado struck Hattiesburg, severely damaging several of Mount Carmel’s
    buildings.     The evidence shows that the next day, GuideOne employees
    communicated amongst themselves about the tornado and Mount Carmel’s
    pending request for reinstatement. On February 18, GuideOne denied the
    request for reinstatement, explaining that the policy “was canceled on
    November 20, 2012.” The pastor of Mount Carmel then signed an affidavit
    stating that Mount Carmel had no insurance other than force-placed
    insurance. However, on April 22 and 23, Seaway and Mount Carmel sent
    GuideOne letters asserting that the cancellation of the policy was ineffective.
    GuideOne then filed suit in the District Court for the Southern District
    of Mississippi seeking a declaration that the policy was cancelled and not in
    force on the date of the loss. Mount Carmel and Seaway each filed defenses
    and counterclaims. Each party then moved for summary judgment. Seaway
    and Mount Carmel argued that GuideOne’s cancellation of the policy was
    ineffective because it did not provide sufficient notice of cancellation under
    either Mississippi law or the terms of the policy. 2
    The district court granted Mount Carmel’s and Seaway’s motions for
    partial summary judgment on the issue of coverage and partially granted
    GuideOne’s motion for summary judgment on the issue of punitive damages.
    The district court first determined that GuideOne’s notice of cancellation was
    2Mississippi law provides that a cancellation of an insurance policy is “not effective”
    unless notice is mailed not less than 30 days prior to the effective date of cancellation. Miss.
    Code. Ann. § 83-5-28(1). And the policy contained a notice clause requiring GuideOne to give
    Mount Carmel 60 days’ notice prior to cancellation, and Seaway 30 days’ notice.
    3
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    ineffective under both the Mississippi statute and the policy, and therefore, the
    policy was in effect at the time of the tornado. The district court also found
    that GuideOne breached the policy by providing insufficient notice of
    cancellation and granted summary judgment to Seaway on its breach of
    contract counterclaim.     However, it determined that GuideOne had an
    arguable basis for denying coverage at the time, and thus, punitive damages
    were not proper under Mississippi law.         It accordingly partially granted
    GuideOne’s motion for summary judgment with respect to Mount Carmel’s
    counterclaims for punitive damages.
    Following the court’s ruling, the parties proceeded to a four-day bench
    trial to determine the amount of damages. In a written order following the
    trial, the district court awarded Mount Carmel and Seaway $1,693,035 in
    damages, representing what would have been the cost to repair or replace the
    property roughly six weeks after the tornado, less depreciation. Mount Carmel
    and Seaway had sought a much higher amount to compensate for the severe
    deterioration in the buildings that occurred after the initial damage estimate.
    Mount Carmel and Seaway appeal, challenging various aspects of the
    district court’s damages award.          Mount Carmel also appeals various
    evidentiary rulings. GuideOne cross-appeals the court’s determination that
    the notice of cancellation was ineffective and thus the policy coverage was in
    place at the time of the tornado.
    II. STANDARDS OF REVIEW
    We review the district court’s grant of summary judgment de novo,
    applying the same standard as the district court. Rogers v. Bromac Title
    Servs., L.L.C., 
    755 F.3d 347
    , 350 (5th Cir. 2014). Summary judgment is proper
    “if the movant shows that there is no genuine dispute as to any material fact
    and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P.
    4
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    56(a). We also review the district court’s interpretation of an insurance policy
    de novo. Leonard v. Nationwide Mut. Ins. Co., 
    499 F.3d 419
    , 428 (5th Cir.
    2007).      We review the district court’s damages award for clear error.
    Delahoussaye v. Performance Energy Servs., L.L.C., 
    734 F.3d 389
    , 394 (5th Cir.
    2013). “To reverse for clear error, this court must have ‘a definite and firm
    conviction that a mistake has been made.’” 
    Id. at 392
    (quoting Canal Barge
    Co. v. Torco Oil Co., 
    220 F.3d 370
    , 375 (5th Cir. 2000)). We review the district
    court’s evidentiary rulings and discovery orders for abuse of discretion. Gen.
    Elec. Co. v. Joiner, 
    522 U.S. 136
    , 141 (1997). “A trial court abuses its discretion
    when its ruling is based on an erroneous view of the law or a clearly erroneous
    assessment of the evidence.” Brown v. Ill. Cent. R. Co., 
    705 F.3d 531
    , 535 (5th
    Cir. 2013) (quoting Knight v. Kirby Inland Marine, Inc., 
    482 F.3d 347
    , 351 (5th
    Cir. 2007)).       Finally, we generally review the district court’s denial of
    prejudgment interest for abuse of discretion. Reyes–Mata v. IBP, Inc., 
    299 F.3d 504
    , 507 (5th Cir. 2002).
    III. NOTICE OF CANCELLATION
    GuideOne appeals the district court’s grant of summary judgment on the
    issue of coverage, arguing that there was no coverage in place because it had
    effectively canceled the policy before the tornado. Mississippi law provides
    that the cancellation of an insurance policy “is not effective . . . unless notice is
    mailed or delivered . . . not less than thirty (30) days prior to the effective date
    of such cancellation.” Miss. Code. Ann. § 83-5-28(1). 3 In addition to this
    3   Miss. Code Ann. § 83-5-28 provides in full:
    (1) A cancellation . . . in coverage . . . of liability insurance coverage, fire
    insurance coverage or single premium multiperil insurance coverage is not
    effective as to any coverage issued or renewed after June 30, 1989, unless
    notice is mailed or delivered to the insured and to any named creditor loss
    payee by the insurer not less than thirty (30) days prior to the effective date of
    5
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    statutory requirement, the policy contained a notice clause requiring
    GuideOne to give Mount Carmel 60 days’ notice prior to cancellation, and
    Seaway 30 days’ notice. While much of the parties’ briefing focuses on the
    district court’s interpretation of the Mississippi statute, we first analyze the
    effectiveness of GuideOne’s notice of cancellation under the policy’s more
    burdensome requirements.
    The policy provided that GuideOne could cancel the policy (for any
    reason other than nonpayment) via a “written notice of cancellation” to the
    insured mailed “at least . . . 60 days before the effective date of cancellation.”
    The policy further stated that the “[n]otice of cancellation will state the
    effective date of cancellation” and that the “[t]he policy period will end on that
    date.” (Emphases added.)          GuideOne mailed the notice of cancellation to
    Mount Carmel on October 29, 2012, and the notice stated an effective date of
    November 20, 2012—22 days later. Clearly, this 22 day notice of cancellation
    did not comply with the policy’s directives that notice of cancellation be mailed
    no less than 60 days prior to the effective date of the cancellation and that the
    notice state an effective date in accordance with this notice period.
    Accordingly, GuideOne’s notice of cancellation was not effective under the
    policy, and therefore, coverage was still in effect at the time of the tornado
    (February 10, 2013).
    such cancellation, reduction or nonrenewal. This section shall not apply to
    nonpayment of premium unless there is a named creditor loss payee, in which
    case at least ten (10) days’ notice is required.
    (2) The provisions of subsection (1) shall be incorporated into each
    liability, fire and multiperil policy issued or renewed after June 30, 1989; and
    if such provisions are not expressly stated in the policy, such provisions shall
    be deemed to be incorporated in the policy.
    6
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    GuideOne’s arguments to the contrary are unavailing. GuideOne notes
    that the “majority rule” amongst other jurisdictions is that a too-short notice
    of cancellation nevertheless becomes effective after the passing of the required
    notice period. It urges that here too its notice to Mount Carmel should be
    considered effective 60 days after it sent the notice, i.e., cancellation was
    nevertheless effective before the tornado struck. Yet, this argument flies in
    the face of the Mississippi Supreme Court’s directive to enforce the plain and
    unambiguous terms of an insurance policy as they are written. See, e.g.,
    Noxubee Cty. Sch. Dist. v. United Nat’l Ins. Co., 
    883 So. 2d 1159
    , 1165 (Miss.
    2004). The plain terms of the policy do not allow for such an exception for too-
    short notices, and we therefore decline to read such an exception into the
    policy.
    GuideOne also cites a Mississippi Supreme Court case in which a
    cancellation notice’s failure to provide the notice required under the policy did
    not render it ineffective, but merely delayed its effectiveness until after the 5-
    day notice period required by the policy had passed. See Phenix Ins. Co. of
    Brooklyn v. Hunter, 
    49 So. 740
    , 741 (Miss. 1909). However, Hunter is easily
    distinguishable. The policy at issue there merely provided that “[t]his policy
    shall be canceled . . . by the company giving five days’ notice of such
    cancellation.” 
    Id. at 740.
    The Mississippi Supreme Court reasoned that a
    notice of cancellation providing less than 5 days’ notice nevertheless became
    effective upon the 5 days passing. 
    Id. at 741.
    Yet, here, the policy required
    both a minimum days’ notice of cancellation, as the policy in Hunter did, and
    that the notice of cancellation specify the effective date of the cancellation.
    Thus, to be effective under the policy, a notice of cancellation must not only be
    sent at least 60 days in advance but also specify an effective date no sooner
    than 60 days from its mailing. Thus, we conclude that GuideOne’s notice of
    7
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    cancellation was ineffective under the policy and coverage did not expire upon
    the lapse of the required notice period.            The district court did not err in
    granting summary judgment against GuideOne on this issue. 4
    IV. DAMAGES
    Mount Carmel and Seaway appeal various aspects of the district court’s
    damages award. We address each argument in turn.
    A. Damages Owed Under the Policy
    Mount Carmel and Seaway challenge the district court’s interpretation
    of the policy and calculation of the damages GuideOne owed under the policy,
    primarily on the basis that the district court erred in failing to award damages
    for loss occurring subsequent to the tornado.
    The policy required GuideOne to “pay for direct physical loss of or
    damage to Covered Property . . . caused by or resulting from any Covered
    Cause of Loss.” 5 The policy provides how GuideOne will pay for loss:
    4. Loss Payment
    a. In the event of loss or damage covered by this Coverage
    Form, at our option, we will either:
    (1) Pay the value of lost or damaged property;
    (2) Pay the cost of repairing or replacing the lost or
    damaged property, subject to b. below;
    (3) Take all or any part of the property at an agreed or
    appraised value; or
    (4) Repair, rebuild or replace the property with other
    property of like kind and quality, subject to b. below.
    We will determine the value of lost or damaged property, or
    the cost of its repair or replacement, in accordance with the
    applicable terms of the Valuation Condition in this Coverage
    4 Because we conclude that the notice of cancellation was ineffective under the
    requirements of the policy, we do not analyze whether it was also ineffective under the lesser
    requirements of Mississippi law. See Miss. Code. Ann. § 83-5-28(1).
    5 The parties do not dispute that the tornado was a “Covered Cause of Loss” and
    caused “direct physical loss.”
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    Form or any applicable provision which amends or
    supersedes the Valuation Condition.
    The “Valuation Condition,” describes how GuideOne determines the value of
    damaged property.
    The policy included a declaration that adjusted this loss calculation, the
    “Actual Cash Value” endorsement. This endorsement replaced the standard
    valuation conditions, providing that loss or damage would be calculated as the
    lesser of:
    a. The amount it would cost to repair or replace covered property
    with material of like kind and quality, subject to a deduction for
    deterioration, depreciation or obsolescence, however caused; or
    b. The market value of covered property, based upon recent sales
    of comparable property, if available.
    (Emphases added.)
    The district court determined that GuideOne was obligated to pay as
    damages under the policy the “direct physical loss of or damage to” the
    property, as measured by the lesser of the “cost to repair or replace” (minus
    depreciation) or the “market value,” as stated in the Actual Cash Value
    definition. Having made this determination, the district court then turned to
    expert testimony on the cost to repair or replace the damaged buildings. Each
    party had a different expert assess the damage to the property. The parties
    generally credit the validity of each expert assessment and agree that the
    difference in assessments was “attributable solely to the timing of the
    assessments.” GuideOne’s expert assessed the damage about 6 weeks after the
    tornado and found $1,660,535.31 in damages; Mount Carmel’s expert assessed
    the damage twice, 11 months and 17 months after the tornado, and found
    $8,326,418.92 in damages; and Seaway’s expert assessed the damage 16–17
    months after the tornado and found $7,527,830.76 in damages.
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    The district court similarly credited all expert assessments but
    ultimately relied on GuideOne’s expert assessment, as it occurred the closest
    to the date of the tornado. The court did not use either Mount Carmel’s or
    Seaway’s expert assessments because they were done many months after the
    tornado and, as a result, included “damages caused by factors subsequent to
    the tornado, such as water intrusion, exposure to the elements, and humidity.”
    The court reasoned that to award damages for this subsequent loss would be
    contrary to the plain text of the policy, which obligated GuideOne to pay only
    for the “‘direct physical loss of or damage to’ [Mount Carmel’s buildings] caused
    by the tornado.” According to the district court, Mount Carmel’s and Seaway’s
    expert assessments did not provide the court any non-arbitrary means to
    delineate between damages directly caused by the tornado and those incurred
    subsequently because they were performed so long after the tornado occurred.
    In contrast, the court found that GuideOne’s expert assessment “provide[d] the
    most relevant evidence on [direct physical loss of or damages]” to Mount
    Carmel’s buildings from the tornado because it was done less than two months
    after the tornado. Using GuideOne’s expert assessment, 6 the district court
    found the cost to repair or replace Mount Carmel’s damaged buildings was
    $1,693,035.31. And using the undisputed testimony from Seaway’s expert on
    the market value of Mount Carmel’s buildings, the district court found their
    pre-loss market value was $2,450,000. Finally, following the loss calculation
    formula provided in the Actual Cash Value definition, the district court took
    6   The district court supplemented GuideOne’s expert assessment with structural
    engineering fees and the costs of asbestos and mold testing from the other expert
    assessments, because GuideOne’s expert admitted that these costs should be included in the
    final estimate but were not.
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    the smaller sum—the cost to repair or replace—as the Actual Cash Value and
    thus the appropriate damages award under the policy.
    Mount Carmel and Seaway offer no compelling argument for disturbing
    the district court’s well-reasoned interpretation of the policy and detailed
    calculation of damages owed under the policy. The district court properly
    found that the loss should be valued using the policy’s Actual Cash Value
    definition as the lesser of (1) the cost to repair or replace (minus depreciation)
    or (2) the market value of the property. We enforce the plain and unambiguous
    terms of actual cash value provisions like the one at issue in this case, see, e.g.,
    Real Asset Mgmt., Inc. v. Lloyd’s of London, 
    61 F.3d 1223
    , 1230–31 (5th Cir.
    1995), and accordingly do not find this determination to be in error.
    Mount Carmel nevertheless argues that loss under the policy should be
    calculated under another provision of the policy, the Agreed Value
    endorsement, rather than the Actual Cash Value endorsement. The Agreed
    Value endorsement is optional coverage that renders the policy’s coinsurance
    clause inapplicable. Coinsurance clauses in property insurance discourage
    insureds from underinsuring property. See 15 Couch on Insurance § 220:3. If
    Mount Carmel underinsured the property, i.e., insured for a value less than
    the actual value of the property, the coinsurance clause in the policy only
    requires GuideOne to pay the loss multiplied by the proportion of the Limit of
    Insurance value compared to the actual value. The Agreed Value endorsement
    gets around coinsurance by using an agreed upon value for each of Mount
    Carmel’s buildings, set at each building’s Limit of Insurance value. The policy
    set the agreed values for the two buildings in question at $2,555,000 and
    $4,286,000. Mount Carmel argues that the Agreed Value endorsement dictates
    the policy’s loss coverage, setting an “agreed actual cash value amount of
    $6,841,000.”    Mount Carmel further argues that GuideOne, through its
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    employees, admitted at trial that this was the proper amount of coverage under
    the policy.
    Mount Carmel’s argument is inconsistent with the plain language of the
    policy.   The policy included the Actual Cash Value endorsement, and the
    method for valuation is clearly spelled out in the Actual Cash Value definition.
    The Agreed Value endorsement did not set the amount of loss coverage; rather
    it simply waived the policy’s coinsurance clause. Though the Agreed Value
    Endorsement includes a Statement of Values that lists the “Actual Cash
    Value,” Mount Carmel offers no support for its argument that the actual cash
    value listed in the Agreed Value endorsement should supplant the clear
    method of valuation provided in the Actual Cash Value endorsement. The
    policy never states that GuideOne will pay the Agreed Value in the event of
    loss, but instead that it will pay the Actual Cash Value. And the district court
    did not err in holding that any statements by GuideOne employees to the
    contrary were irrelevant. Under Mississippi law, an insured may not rely on
    an insurer’s agent’s representations that are contrary to the terms of the policy.
    Leonard v. Nationwide Mut. Ins. Co., 
    499 F.3d 419
    , 438 (5th Cir. 2007). Mount
    Carmel seeks to distinguish this rule by calling the employees’ statements
    “admissions,” not merely representations. However, even were we to consider
    the employees’ testimony, the testimony Mount Carmel cites is ambiguous at
    best and does not confirm “that the values in the Agreed Value Endorsement
    [were] controlling,” as Mount Carmel claims.
    Mount Carmel also argues that the district court’s refusal to use its
    expert’s assessment in calculating the cost to repair or replace was clearly
    erroneous. The district court made the finding of fact that GuideOne’s expert
    estimate provided “the clearest picture of the damages directly caused by the
    tornado.” We find no clear error in this finding. The policy required GuideOne
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    to pay for only the “direct physical loss of or damage to” Mount Carmel’s
    buildings.     The district court thoroughly considered each parties’ expert
    estimate, ultimately selecting GuideOne’s because it was done nearest to the
    date of the tornado and thus best captured the resulting “direct physical loss.”
    And GuideOne’s expert assessment was well supported—there was testimony
    that it took over 183 hours of work to compile, with 5 people on site a total of
    228 hours; that it accounted for all known issues; and that it represented
    “numbers that [GuideOne’s builder, Taylor Ball] would have been willing to
    write a contract with the insured at that time.” The district court also carefully
    supplemented GuideOne’s expert’s assessment with structural engineering
    fees and the costs of asbestos and mold testing from the other expert
    assessments. The district court thoroughly weighed and considered the expert
    evidence and ultimately found that GuideOne’s assessment most accurately
    captured the direct physical loss caused by the tornado. We will not disturb
    this finding because we are not left with a definite and firm conviction that the
    district court made a mistake. 7
    B. Punitive Damages
    Mount Carmel and Seaway argue that the district court erred in
    granting GuideOne’s motion for summary judgment with regard to Mount
    Carmel’s and Seaway’s counterclaims for punitive damages.                      “To recover
    7 Because we find no error in the district court’s calculation of direct physical loss
    under the Actual Cash Value endorsement, we do not address Seaway’s and Mount Carmel’s
    arguments on their duty to mitigate losses, as the district court explicitly stated that its
    finding that Mount Carmel failed to take reasonable measures to mitigate its damages was
    “irrelevant to the Court’s decision insofar as the policy requires GuideOne to pay ‘the amount
    it would cost to repair or replace the ‘direct physical loss of or damage to’ Mount Carmel’s
    [buildings] caused by the tornado.” Nor do we address Seaway’s and Mount Carmel’s
    arguments regarding why the market value is not a cap on damages, because the cost to
    repair or replace, not the market value, was the measure of damages under the formula
    provided in the Actual Cash Value endorsement.
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    punitive damages for bad faith denial of [an] insurance claim, [insureds] ‘must
    show that the insurer denied the claim (1) without an arguable or legitimate
    basis, either in fact or law, and (2) with malice or gross negligence in disregard
    of the insured's rights.’” Broussard v. State Farm Fire & Cas. Co., 
    523 F.3d 618
    , 628 (5th Cir. 2008) (quoting U.S. Fid. & Guar. Co. v. Wigginton, 
    964 F.2d 487
    , 492 (5th Cir. 1992)).    Whether an insurer possessed an arguable or
    legitimate reason to deny coverage is a question of law, which we review de
    novo. James v. State Farm Mut. Auto. Ins. Co., 
    743 F.3d 65
    , 70 (5th Cir. 2014).
    The district court concluded that although it had ultimately rejected
    GuideOne’s argument that the cancellation was effective, GuideOne had an
    arguable basis for its decision to deny coverage. The district court accordingly
    terminated its punitive damages analysis at the first prong of the test and did
    not consider whether GuideOne acted with malice or gross negligence.
    Mount Carmel and Seaway challenge this conclusion on appeal. They
    argue that GuideOne’s defective notice of cancellation, which violated the
    express notice requirements of both Mississippi law and the policy, was
    sufficient as a matter of law to defeat summary judgment on the issue of
    punitive damages. They urge that because the district court found that the
    notice of cancellation was defective under both Mississippi law and the policy,
    GuideOne’s misinterpretation of these sources cannot serve as an arguable
    basis for the denial of coverage.
    Yet these arguments overlook the fact that GuideOne relied on the
    majority rule in interpreting both Mississippi law and the policy, which allows
    a defective notice of cancellation to become effective after the notice period has
    lapsed. And, as GuideOne notes, the Mississippi Supreme Court has not
    spoken on this precise issue. Although we do not believe the Mississippi
    Supreme Court would do so under the circumstances presented in this case,
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    courts in other jurisdictions have disregarded policy provisions similar to that
    at issue here (i.e., requiring a cancellation notice to specify the effective date of
    cancellation) and found the notices to be effective upon expiration of the period
    set forth in the policy. See, e.g., Wright v. Grain Dealers Nat. Mut. Fire Ins.
    Co., 
    186 F.2d 956
    , 958 (4th Cir. 1950) (addressing a policy that required notice
    to state “when not less than five days” after mailing cancellation would be
    effective). Thus GuideOne’s interpretation of Mississippi law and the policy,
    though ultimately wrong, had an arguable basis given that it is the majority
    rule in other jurisdictions.
    Mount Carmel and Seaway also claim that GuideOne did not rely on its
    alleged arguable basis for denying coverage—that the cancellation was
    effective after the notice period—until the start of litigation. Mississippi law
    requires that courts, in assessing whether there is an arguable basis, evaluate
    solely “the reasons for denial of coverage given to the insured by the insurance
    company.” Sobley v. S. Nat. Gas Co., 
    210 F.3d 561
    , 564 (5th Cir. 2000); see also
    Bankers Life & Cas. Co. v. Crenshaw, 
    483 So. 2d 254
    , 273 (Miss. 1985) (en banc)
    (“[T]he issue is not the defense which [the insurer] at trial finally settled upon
    to defend the suit, but the reason it gave [the insured] for denying the claim.”),
    aff'd on other grounds, 
    486 U.S. 71
    (1988). At the time GuideOne denied
    reinstating coverage, GuideOne took the position that the policy was canceled
    on the date stated in the notice of cancellation, November 20. Once litigation
    commenced, GuideOne described its decision not to reinstate coverage as being
    based on the fact that “cancellation became effective once the required 60 days
    elapsed.” Notwithstanding this change in explanation, GuideOne’s underlying
    basis for denying coverage remained the same throughout: the policy was not
    in effect at the time of the loss because it had been cancelled. We conclude that
    the arguable basis that GuideOne initially relied upon for denying coverage is
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    No. 15-60915
    fundamentally the same as it relies on now, and accordingly, the district court
    did not err in granting summary judgment in GuideOne’s favor on the issue of
    punitive damages.
    Finally, Mount Carmel appears to argue for the first time that, even if
    GuideOne did have an arguable basis for denying coverage, it should still be
    subject to punitive damages.      Generally, under Mississippi law, punitive
    damages may not be awarded in the presence of an arguable basis for the
    insurer’s denial of coverage. Andrew Jackson Life Ins. Co. v. Williams, 
    566 So. 2d
    1172, 1184 (Miss. 1990). However, there are “extreme factual situations,”
    such as an insurer unduly delaying payment and using the insured’s dire
    financial position as settlement leverage, in which punitive damages may be
    awarded notwithstanding the presence of an arguable basis for the insurer’s
    denial. 
    Id. at 1186
    (quoting Aetna Cas. & Surety Co. v. Day, 
    487 So. 2d 830
    ,
    834 (Miss. 1986)). This is because the insurer’s conduct “breaches ‘an implied
    covenant of good faith and fair dealing’ and rises to the level of an independent
    tort.” 
    Broussard, 523 F.3d at 629
    (citing Stewart v. Gulf Guar. Life Ins. Co.,
    
    846 So. 2d 192
    , 202 (Miss. 2002)). In support of this argument, Mount Carmel
    contends that GuideOne “knowingly place[d] [Mount Carmel] in financial
    hardship” because it knew Mount Carmel would have trouble finding a
    replacement policy. This argument was not raised in the district court and
    therefore we review it for at most plain error. McCann v. Tex. City Ref., Inc.,
    
    984 F.2d 667
    , 673 (5th Cir. 1993). We conclude that the district court did not
    plainly err in barring punitive damages. Taking the facts in the light most
    favorable to Mount Carmel, GuideOne’s alleged conduct did not rise to the
    necessary level of an independent tort that would warrant punitive damages.
    Mount Carmel merely alleges that GuideOne had “knowledge of the financial
    harm that would result” from its cancellation of the policy. But this type of
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    No. 15-60915
    knowledge is likely present for many cancellations and alone is not sufficient
    to rise to the level of an independent tort. Accordingly, it does not warrant
    punitive damages.
    C. Consequential Damages
    Mount Carmel argues that the district court erred in excluding
    consequential damages, namely subsequent loss from the deterioration of the
    property over time, from its damages award. Subsequent loss is important in
    this case because all parties agree that Mount Carmel’s buildings suffered
    extensive deterioration in the years following the tornado.       Consequential
    damages are “losses proximately resulting from [a contractual] breach . . .
    which the parties at the time of contracting had reason to foresee as a probable
    result of the breach.”    
    Day, 487 So. 2d at 835
    .      Under Mississippi law,
    “[i]nsurers who are not liable for punitive damages may nonetheless be liable
    for ‘consequential . . .damages . . .’ where their decision to deny the insured’s
    claim is without ‘a reasonably arguable basis’ but does not otherwise rise to
    the level of an independent tort.” 
    Broussard, 523 F.3d at 628
    (quoting Andrew
    Jackson Life Ins. Co., 
    566 So. 2d
    at 1186 n.13). The district court concluded
    that, although GuideOne had breached its contract with Mount Carmel, Mount
    Carmel was not entitled to consequential damages because “GuideOne had a
    reasonably arguable basis for denying coverage.”
    In arguing that the district court’s denial of consequential damages was
    in error, Mount Carmel cites to Aetna Casualty & Surety Co. v. Day, which held
    that insureds can recover from an insurer “any losses proximately resulting
    from the [insurer’s] breach” that were foreseeable, even when the insurance
    policy “expressly limits coverage to a specific 
    amount.” 487 So. 2d at 835
    . But
    in the years since Day, the Mississippi Supreme Court appears to have moved
    away from a contract-based theory of recovering consequential damages in
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    first-party insurance cases, instead permitting them only in cases where there
    was no arguable basis for the insurer’s denial of the insured’s claim—
    essentially, a negligence-based theory of recovery. See Windmon v. Marshall,
    
    926 So. 2d 867
    , 874 (Miss. 2006) (addressing argument that insured “may still
    be entitled to consequential or extra-contractual damages for lack of a
    reasonably arguable basis” for denial (footnote omitted)); State Farm Mut.
    Auto. Ins. Co. v. Grimes, 
    722 So. 2d 637
    , 643 (Miss. 1998) (en banc) (discussing
    “those cases in which the insurer has no reasonable basis to deny and is
    therefore liable for consequential damages”); Andrew Jackson Life Ins. Co., 
    566 So. 2d
    at 1186 n.13 (recognizing that “consequential . . . damages . . . may be
    awarded in cases involving a lack of a reasonably arguable basis—
    notwithstanding that the insurer is not liable for punitive damages”). And this
    court has similarly characterized Mississippi law as requiring that an insurer’s
    denial of coverage lack “a reasonably arguable basis” in order for the insurer
    to be liable for consequential damages.            See 
    Broussard, 523 F.3d at 628
    .
    Although we recognize that Day may suggest to the contrary, “we give great
    deference to the district court’s interpretation of the law of the state in which
    its sits when,” as here, that state’s law is unclear. See Coatings Mfrs., Inc. v.
    DPI, Inc., 
    926 F.2d 474
    , 476 (5th Cir. 1991). Accordingly, we defer to the
    district court’s conclusion that consequential damages are only available under
    Mississippi law when an insurer denies the insured’s claim without an
    arguable basis. 8
    8 To the extent that Seaway separately appeals the district court’s grant of partial
    summary judgment barring recovery of Veasley damages, we affirm the district court on
    essentially the same basis. Because we conclude that GuideOne had an arguable basis for
    denying coverage, Veasley damages are not available. See Essinger v. Liberty Mut. Fire Ins.
    Co., 
    534 F.3d 450
    , 451 (5th Cir. 2008) (explaining that Veasley damages are warranted “where
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    V. EVIDENTIARY AND DISCOVERY ORDERS
    Mount Carmel appeals three pretrial orders: the exclusion of expert
    testimony, the exclusion of a sealed document, and the denial of a motion to
    compel certain documents.
    Mount Carmel first appeals the district court’s exclusion of an expert
    witness Mount Carmel had designated to testify on whether GuideOne had an
    arguable basis for denial of coverage. However, this testimony was rendered
    irrelevant by the district court’s legal determination that GuideOne had an
    arguable basis for denial. Further, the question whether GuideOne had an
    arguable basis for denial was “an issue of law for the court” to decide,
    
    Broussard, 523 F.3d at 628
    (quoting 
    Wigginton, 964 F.2d at 492
    ), but experts
    may render opinions on only factual issues, not legal issues, see Goodman v.
    Harris Cty., 
    571 F.3d 388
    , 399 (5th Cir. 2009) (“[A]n expert may never render
    conclusions of law.”). Thus, it was not an abuse of discretion for the district
    court to exclude this testimony.
    Second, Mount Carmel appeals the district court’s exclusion of a
    document that the court found was privileged and inadvertently disclosed. The
    court granted GuideOne’s motion to strike this document on two alternative
    grounds. First the court found that Mount Carmel was procedurally barred
    from challenging the privileged status of the document because it failed to
    timely move for a determination of privilege. Alternatively, the court found
    that document was subject to GuideOne’s attorney-client privilege and that its
    inadvertent disclosure of this document did not constitute a waiver of this
    privilege.    On appeal Mount Carmel challenges only the district court’s
    the insurer lacks an arguable basis for delaying or denying a claim, but the conduct was not
    sufficiently egregious to justify the imposition of punitive damages”).
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    privilege determination; it does not challenge the court’s procedural ruling.
    Thus even were we to find error in the district court’s privilege determination,
    its alternative procedural basis for excluding the document would still stand.
    Accordingly, we decline to address this argument any further.
    Finally, Mount Carmel appeals the district court’s denial of its motion to
    compel certain documents. The district court affirmed the magistrate judge’s
    order denying this motion to compel because it was untimely under the court’s
    local rules. On appeal, Mount Carmel makes no argument that the court’s
    ruling was arbitrary or clearly unreasonable, as required for this court to
    overturn the order, Angus Chem. 
    Co., 782 F.3d at 179
    , nor does it offer an
    explanation for the untimeliness of the motion. Accordingly, the district court
    did not abuse its discretion in denying the motion to compel.
    VI. PREJUDGMENT INTEREST
    Mount Carmel argues that the district court should have awarded it
    prejudgment interest, at minimum, on GuideOne’s damages estimate. “State
    law governs the award of prejudgment interest in diversity cases.” Meaux
    Surface Prot., Inc. v. Fogleman, 
    607 F.3d 161
    , 172 (5th Cir. 2010) (quoting
    Harris v. Mickel, 
    15 F.3d 428
    , 429 (5th Cir. 1994)). Under Mississippi law, an
    award of prejudgment interest may be available “in cases where the amount
    due is liquidated when the claim is originally made or where the denial of a
    claim is frivolous or in bad faith.” Hans Const. 
    Co., 653 So. 2d at 264
    (quoting
    Warwick v. Matheney, 
    603 So. 2d 330
    , 342 (Miss. 1992)); see also Upchurch
    Plumbing, Inc. v. Greenwood Utils. Comm’n, 
    964 So. 2d 1100
    , 1116 (Miss. 2007)
    (“Prejudgment interest has been denied where there is a bona fide dispute as
    to the amount of damages as well as the responsibility for the liability
    therefor.” (quoting Microtek Med., Inc. v. 3M Co., 
    942 So. 2d 122
    , 132 (Miss.
    2006))). Here, the amount of damages was not fixed; rather it was highly
    20
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    disputed during a four-day bench trial involving several expert witnesses and
    a multitude of detailed exhibits. Further, the district court determined that
    GuideOne had an arguable basis for denying coverage, and thus its denial was
    not frivolous or in bad faith. We conclude the district court did not abuse its
    discretion in denying prejudgment interest.
    VII. CONCLUSION
    For the foregoing reasons, the judgment of the district court is
    AFFIRMED
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    No. 15-60915
    OWEN, Circuit Judge, concurring:
    I concur fully in all but Part III of the court's opinion, and I concur in the
    judgment. I would resolve whether the termination notice was effective based
    on the Mississippi statute rather than GuideOne's policy language.                 The
    statute provides:
    A cancellation . . . of liability insurance coverage, fire insurance
    coverage or single premium multiperil insurance coverage is not
    effective . . . unless notice is mailed or delivered to the insured and
    to any named creditor loss payee by the insurer not less than thirty
    (30) days prior to the effective date of such cancellation. 1
    GuideOne concedes throughout its briefing that if this statute is read
    literally, then the cancellation notice was ineffective. There is no indication
    that the Mississippi Supreme Court would apply the statute other than as it is
    written. Accordingly, I agree that the notice of cancellation was ineffective.
    1   MISS. CODE. ANN. § 83-5-28(1).
    22
    

Document Info

Docket Number: 15-60915

Citation Numbers: 676 F. App'x 269

Filed Date: 1/23/2017

Precedential Status: Non-Precedential

Modified Date: 1/13/2023

Authorities (26)

Wright v. Grain Dealers Nat. Mut. Fire Ins. Co , 186 F.2d 956 ( 1950 )

Meaux Surface Protection, Inc. v. Fogleman , 607 F.3d 161 ( 2010 )

Broussard v. State Farm Fire & Casualty Co. , 523 F.3d 618 ( 2008 )

Canal Barge Company, Inc. v. Torco Oil Company Gulfstream ... , 220 F.3d 370 ( 2000 )

Harris v. Mickel , 15 F.3d 428 ( 1994 )

Leonard v. Nationwide Mutual Insurance , 499 F.3d 419 ( 2007 )

Carlos H. Reyes-Mata, Plaintiff-Counter v. Ibp, Inc., ... , 299 F.3d 504 ( 2002 )

United States Fidelity & Guaranty Company, Plaintiff-... , 964 F.2d 487 ( 1992 )

Coatings Manufacturers, Inc., and Middle South Energy, Inc. ... , 926 F.2d 474 ( 1991 )

Goodman v. Harris County , 571 F.3d 388 ( 2009 )

Real Asset Management, Inc., Plaintiff-Appellee/cross-... , 61 F.3d 1223 ( 1995 )

Sobley v. Southern Natural Gas Co. , 210 F.3d 561 ( 2000 )

jo-ann-mccann-and-blanche-christine-hickman-blanche-christine-hickman , 984 F.2d 667 ( 1993 )

heath-knight-heath-knight-thomas-david-ingerman-v-kirby-inland-marine , 482 F.3d 347 ( 2007 )

Stewart v. Gulf Guar. Life Ins. Co. , 846 So. 2d 192 ( 2002 )

Andrew Jackson Life Ins. Co. v. Williams , 566 So. 2d 1172 ( 1990 )

Noxubee Co. Sch. Dist. v. United Nat. Ins. , 883 So. 2d 1159 ( 2004 )

Windmon v. Marshall , 926 So. 2d 867 ( 2006 )

Aetna Cas. & Sur. Co. v. Day , 487 So. 2d 830 ( 1986 )

Microtek Medical, Inc. v. 3M Co. , 942 So. 2d 122 ( 2006 )

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