Rebecca Mowbray and the Times Picayune chip in with Dickerson coverage

The importance of the recent Dickerson decision at the Fifth Circuit Court of Appeals can not be understated. Though the case was litgated under Louisiana law IMO some of the logic, including the portion on extra contractual damages that can result from bad faith dovetail well with Mississippi’s Broussard v State Farm and another case I’ll circle back to at the end of this post. First up is Ms Mowbray’s story which includes some analysis from noted insurance defense lawyer Randy Maniloff:

In a rare win for policyholders in an appellate court, the 5th U.S. Circuit Court of Appeals said this week that insurers can be held responsible for mental anguish damages when they show bad faith in paying claims.

The decision upheld a ruling from federal court in New Orleans in the case of Marrero homeowner Dale Dickerson, who was forced to live in his bathtub-refinishing shop and take showers under a cold garden hose while standing on a wooden pallet in an unheated room for a year and a half while fighting Lexington Insurance Co., a unit of AIG , for proper payment of his Hurricane Katrina claim.

A three-judge panel upheld U.S. District Court Judge Carl Barbier’s finding that Lexington acted in bad faith for dragging out payment of Dickerson’s claim without reason and should be held responsible for inflicting unnecessary stress on Dickerson. Bad faith means that an insurer was abitrary and capricious in its claims-handling, and failed to pay without probable cause.

In its ruling, the court accepted testimony from Dickerson’s daughter that her father had become withdrawn and short-tempered as proof of his deteriorating psyche without testimony of a mental health professional.

Randy Maniloff, an insurance coverage defense attorney in Philadelphia who is writing a reference book on insurance law, predicted that the ruling on mental anguish damages would make it easier for homeowners with small claims to find attorneys to take their cases, because the prospect of a mental anguish award could make it worth their while. At the same time, the idea that mental anguish can be proved without going to the doctor lowers the factual burden to prove stress that’s worthy of penalties.

Maniloff posited that perhaps this case went in favor of policyholders because the 5th Circuit had the benefit of having all of the case’s facts ascertained at the July 2007 trial in light of Louisiana law rather than being asked to review insurance contract interpretations made in the course of litigation.

Our readers may remember my hastily put together post on Dickerson (including a link the actual ruling) the day the decision was handed down. Like Ms. Mowbray and the Times Picayune I sought reaction from regular Slabbed insurance industry commenters Proximo and Claimsguy and like Ms Mowbray I found these normally loquacious people had absolutely nothing to say about Dickerson. Luckily for us Mr Maniloff was happy to chip in on the industry’s behalf stating the obvious as the story continues:

“The 5th Circuit has been no friend to policyholders,” Maniloff said. “It’s hard to overturn factual findings.”

Lexington Insurance did not return a phone call and e-mail seeking comment.

Maniloff predicted that the 5th Circuit’s ruling would be the end of the case on mental anguish, for Lexington would be wasting its time to appeal to the U.S. Supreme Court. “I think they’re out of options,” he said.

Soren Gisleson, the New Orleans attorney who represented Dickerson and who is head of the Louisiana Association for Justice’s insurance section, was overjoyed at having a homeowner’s win stand up on appeal. “It’s a huge, decisive resolution of important hurricane issues,” he said.

Plaintiffs attorneys around the city immediately started incorporating the Dickerson ruling into their briefs in pressing for mental distress damages against other insurance companies.

Maniloffsaid the case should be a reminder to insurers to pay the portion of a claim that is settled while they work with homeowners on portions of the claim that are still in dispute.

“The case demonstrated the lesson that insurers need to treat their disputed and undisputed claims separately, and pay the undisputed portion, and then have a legitimate argument over the disputed portion,” Maniloff said. “Insurance companies get themselves in trouble when they don’t pay.”

How does Dickerson, a Louisiana case relate to Brousaard, a Mississippi case that went largely State Farm’s way at the Fifth Circuit? I think the key is to understand the key differences between Louisiana and Mississippi’s law and contrasting case facts. Unlike Mississippi, Louisiana does not provide for punitive damages in these insurance cases. In fact if I remember right Louisiana as a rule does not allow for punitive damages. Insurance law in both States allow extra contractual damages for mental anguish, for instance. In Broussard the Fifth Circuit tossed the punitive damages award against State Farm (using very curious legal logic IMHO) while allowing the possibility of extra contractual damages at the re-trial (which never happened as the case settled).

Nowdy fed me this nugget which may tie in the thinking at the Fifth Circuit. While I am personally unfamiliar with Bradley Arant I found their blog entry on Essinger v. Liberty Mutual Fire Ins. Co. to be a valuable add to our knowledge base here at Slabbed. In Essinger we find a case where ignorance of the law can be a good excuse under the right circumstances but more important we find a case where the team did not cover their extra contractual damages base and lost big in the end. I think the bottom line is it will be a rare insurance case where punitive damages will make it past the current bunch at the Fifth Circuit. Extra contractual damages are a different story however:

On May 20, 2008, the Fifth Circuit Court of Appeals issued a notable opinion relating to an insurer’s liability for bad faith when it delays payment of total available policy benefits because of its ignorance of Mississippi law. In Essinger v. Liberty Mutual Fire Ins. Co., No. 07-60376 (May 20, 2008), the Fifth Circuit affirmed summary judgment for the insurer despite the undisputed fact that the insurer delayed payment of all available benefits under its uninsured motorist coverage because it misunderstood Mississippi’s stacking law. Liberty Mutual eventually paid the $90,000 due under its policy, but only after pressure from the insured’s coverage counsel and explanation of applicable Mississippi law by its own retained counsel. On appeal, the insured argued that the trial court erred in granting summary judgment on its punitive damages claims.

The Fifth Circuit affirmed on the ground that denial of a claim is the first element in a bad faith case for punitive damages under Mississippi law. The necessary denial may be a constructive denial that arises from bad faith negotiation. In other words, an express denial is not absolutely necessary. However, neither an express nor a constructive denial existed in this case. Reaching that decision, the Fifth Circuit held that an insurer is not required to be pro-active relative to further coverage analysis beyond the insured’s inquiry. Additionally, the Court held that an offer of an amount less than the policy benefits due does not constitute a sufficient denial. In sum, the Court found that Liberty Mutual was always negotiating or leaving the door open to further negotiation until it realized its mistake and corrected that mistake by payment of the total policy benefits due.

The Essingerdecision is also notable in that the FifthCircuit found that the insureds had abandoned their claim for extra-contractual damages even though they had sufficiently raised that issue in their complaint below. The Fifth Circuit held that extra-contractual damages were not at issue on appeal as the insureds:

  1. Failed to respond to that portion of Liberty Mutual’s motion for summary judgment;
  2. Following the trial court’s grant of summary judgment never objected or sought clarification relative to the dismissal to the extra-contractual damages claim; and
  3. On appeal, only argued related to the dismissal of the bad faith claim.

That abandonment may have been significant: at the end of its opinion, the Fifth Circuit suggested that, because of the insurer’s negligence and the insured’s resulting damages (i.e., attorneys fees), this might have been a perfect case for extra-contractual damages under the Veasley decision….

4 thoughts on “Rebecca Mowbray and the Times Picayune chip in with Dickerson coverage”

  1. Sop:

    Good stuff, especially from someone blessed to be a non-lawyer.

    Lexington is a wholly-owned subsidiary of AIG. I know Lexington/AIG lost some other Katrina cases, which must be making their way through appeals right now.

    The Dickerson case had facts that would have triggered punitives in any state where they are allowed. What kind of solace do you think it is to insurers in Louisiana to know that NO MATTER what they do in adjusting claims, they can never be subject to punis?

    Dickerson was a truly amazing decision from the 5th Cir. This panel clarified all of the legal issues that used to be pretty clear before Katrina. But then in the wake of Katrina, certain judges started twisting the law to achieve “result oriented” outcomes. Unfortunately, many homeowners’ Katrina claims were gutted, right before trial, which forced settlements on cases that otherwise would have been tried. Shame, shame shame.

  2. At least it’s good to know a meth manufacturer in Kentucky is responsible enough to carry insurance. Also, I wonder if the insurer offered to reimburse the customer for the premiums it collected.

  3. Maybe a meth manufacturer with homeowner’s insurance is what former Georgia Governor Lester Maddox had in mind when he said “We’ll get a better grade of prisons when we get a better grade of prisoners”.

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