What a ballgame! Mississippi Supremes 9-0 for policyholder in first Katrina decision!

Congratulations to attorneys John Scialdone and Ryan Hahn of Balch Bingham’s Gulfport offices for taking  Fonte-Flammer v Audubon all the way!

The trial court erred in granting summary judgment where a genuine issue of material fact exists as to whether Audubon was an agent for a disclosed principal, MWUA. The trial court further erred in granting summary judgment by finding that Audubon exhibited no conduct which would allow the jury to determine that Audubon had committed gross negligence. Likewise, this case is not a “pocketbook dispute” but a liability dispute. Thus, for the reasons stated, the Harrison County Circuit Court’s final judgment is reversed, and this case is remanded to the Circuit Court for the First Judicial District of Harrison County for further proceedings consistent with this opinion.

The background on this case tells an all too familiar story – edited below in the interest of time and space.

On August 29,2005, the newly constructed home of Raul Fonte and Helen Flammer (the Fontes) was reduced to a slab as a result of Hurricane Katrina. This house was located on East Beach Boulevard in Pass Christian. The Fontes maintained three separate insurance policies on their home at the time Katrina struck: (I) a wind-and-hail policy through the Mississippi Windstorm Underwriting Association (MWUA); I (2) a federal flood policy; and (3) a homeowner’s policy written by State Farm Insurance Company. At the time the Fontes’ home was destroyed, Audubon Insurance Company (Audubon) was handling claims for MWUA…

Audubon contracted with independent adjusting firms, in this case FARA Catastrophe Services (FARA), to assist in the adjusting process…
FARA adjusters…investigated and adjusted the Fontes’ claim under their wind-and-hail policy. On February 4, 2006…[the]… final report,… concluded that only the second-story portion of the Fontes’ home was damaged by wind; and that the first floor of the property was destroyed by storm surge and thus was not covered under the Fontes’ wind-and-hail policy with MWUA. Shortly thereafter, AIG Claims Service, acting on Audubon’s behalf, sent a letter to the Fontes stating “payment is being made in the amount of$201,402.21, which is the damage determined to be caused by the peril ofwindstorm ([t]he only peril covered by your policy).”

On or about February 16,2006, payment was sentto the Fontes in the amount of$171 ,402.21 for windstorm damage to their home and carport and $30,000 for windstorm damage to the contents. The Fontes’ wind-and-hail policy had a coverage limit for the dwelling of $400,000
and $30,000 for personal property. The Fontes reteived the policy 1imitof$140,000 under their federal flood policy. The Fontes filed suit against State Farm Fire and Casualty Company,MWUA, Audubon, and Steve Saucier, who was the Fontes’ State Farm Insurance agent, alleging, ii1ter alia, that Saucier did not increase their policy limits as requested when their home went from a construction project to a completed dwelling. The Fontes further alleged that State Farm’s denial of coverage under the Fontes’ homeowners’ policy was arbitrary. After the Fontes filed suit, MWUA tendered the remaining limits of the Fontes’ policy, and the Fontes dismissed all claims against MWUA and Audubon for the recovery of policy limits.

However, the Fontes maintained their claim against Audubon for negligent  and arbitrary adjusting tactics, thus reserving their claims for litigation costs, attorney fees, and punitive damages…Audubon filed a motion for summary judgment denying any liability for its handling of the Fontes’ wind claim…The Fontes maintained that Jaywas given a mandate not to pay one hundred percent of any claims along U.S. Highway 90 in the Gulfport, Pascagoula, and Bay St. Lonis area. The corporate representative of Audubon stated during deposition testimony that if such a mandate was given, then it may have been arbitrary.

Following a hearing, the trial court entered an order granting summary judgment in favor of Audubon. From this order, the Fontes appeal to us.

Given the timely discussion of summary judgment, we’ll look there first.

In reviewing a trial court’s grant or denial ofsummary judgment, the well-established standard of review is de novo. One South, Inc. v. Hollowell, 963 So. 2d 1156, 1160 (Miss.2007) (citing Hubbard v. Wansley, 954 So. 2d 951, 956 (Miss. 2007)). Summary judgment is appropriate where “the pleadings, depositions, answers to interrogatories and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Miss. R. Civ. P. 56(c). “A summary judgment motion is only properly granted when no genuine issue of material fact exists.” Jackson Clinic for Women, P.A. v. Henley, 965 So. 2d 643,649 (Miss. 007) (citing PPG A,chitectural Finishes, Inc. v. Lowuy, 909 So. 2d 47, 49 (Miss. 2005); Miller v. Meeks, 752 So. 2d 302,304 (Miss. 2000)).

“[T]he evidence must be viewed in the light most favorable to the party against whom the motion has been made.” One South, 963 So: 2d at 1160; Green v. AliendalePlanting Co., 954 So. 2d 1032, 1037 (Miss. 2007) (quoting Price v. Purdue Pharma Co., 920 So. 2d 479, 483 (Miss. 2006)). “The moving party has the burden of demonstrating that no genuine issue of material fact(s) exists, and the non-moving party must be given the benefit of the doubt concerning the existence of a material fact.” Id. (quoting Howard v. City of Biloxi, 943 So. 2d 751, 754 (Miss. Ct. App. 2006)).

Although the contract between MWUA and Audubon gives MWUA ownership of “all files, records, and data obtained or created” by
Audubon, it does not giveMWUA thc explicit authority to supervise Audubon’s work under the contract. Thus, Audubon is given a great deal of autonomy in performing its duties. As such, a genuine issue of material fact exists as to whether MWUA had the necessary control over Audubon required for a principal-agent relationship to exist.

Homeowners have raised the issue of an agent’s neligence in a number of Katrina cases and it will be interesting to see if any of those cases now come up on appeal.

Under Mississippi law, an agent for a disclosed principal cannot be liable for simple negligence. “[A]n insurance adjuster, agent or other similar entities may not be held liable for simple negligence in connection with adjusting a claim. Rather, an adjuster ‘can only incur independent liability when his conduct constitutes gross negligence…In Gallagher, this Court revisited its holding in Bass and plainly stated that an insurance adju’ster, agent; or other similar entity may be held independently liable for its work on a claim only “if its acts amount to anyone of the following familiar types of conduct: gross negligence, malice, or reckless disregard for the rights of the insured.” Id. Thus, if a jury determines that Audubon was a co-principal with MWUA rather than an agent of MWUA, Audubon can be liable for both negligence and gross negligence.

From those points the Court moved to the issue of “Whether the trial court erred in finding Audubon exhibited no conduct which would allow the jury to determin that Audobon commited arbitrary acts or gross negligence amounting to an independent tort, and further whether the trial court erred in taking this issue from the jury when there was direct  testimony from Audubon’s corporate representative to the contrary.

The Fontes argue that the conduct exhibited by Audubon rises to the level of an independent tort and that there was enough evidence to send their claim of gross negligence to a jury. “An adjuster has it duty to investigate all relevant information and must make a realistic evaluation ofa claim.” Bass, 581 So. 2d at 1090. If an agent does not adhere to this duty, the agent will incur individual liability where the agent’s conduct rises to the level of gross negligence. Conyers v. Life Ins. Co. ofGeorgia, 269 F. Supp. 2d 735, 738 (N.D. Miss.2003).

In today’s case, the record reveals that Audubon, through FARA, assigned adjuster John Jay to the Fontes’ claim. Jay stated that he was given the mandate “not to pay one hundred percent of any ofthe claims along U.S. 90 in the Gulfport/Biloxi/Pass Christian area because of the fact that it was assumed and believed that storm surge, or flood, created a significant part of the total damage.” Audubon’s own corporate representative agreed that doing a loss adjustment under the presumption that in no event could the loss be a hundredpercent of the policy’s limits “may be arbitrary.” Further, Jay had no training mmeteorology, structural engineering, civil engineering, or other expertise for differentiating between wind and water damage. Audubon also failed to provide Jay with standard meteorological data, a consulting meteorologist, or any other consulting expert in adjusting the Fontes’ claim.

In State Farm Mutual Automobile Insurance Company v. Grimes, 722 So. 2d 637 (Miss. 1998), this Court addressed the issue ofpunitive damages for denial of an insurance claim, determining that: [t]he issue of punitive damages should not be submitted to the jury unless the trial court determines that there are jury issues with regard to whether:

1. The insurer lacked an arguable or legitimate basis for denying the claim, and
2. The insurer committed a wilful or malicious wrong, or acted with gross and reckless disregard for the insured’s rights.

The Fontes’ adjuster…made an arbitrary determination that he was “going to adjusfthis claim based on the top half of the home being damaged by wind,” and he thinks it would be correct to say “that this estimate did not take into account possible damage to the lower portions of the home that would have been caused by the loss of the roof or breaking of the windows on the upper portion of the home from the ingress of rainwater or winddrivenwater.” Jay’s determination was made with limited expertise, without meteorologicaldata, without a consulting expert, and based on the instruction not to pay one hundred percent of the Fontes’ policy limits. Whether an arguable or legitimate basis for denying the Fontes’claim existed for Audubon’s decision not to pay the policy limits must be examined by a jury to determine if there existed a gross and reckless disregard for the Fontes’ rights.

The trial court erred in finding that Audubon exhibited no conduct which would allow the fact finder to determine that Audubon had committed acts of gross negligence amounting to an independent tort. Thus, summary judgment was improperly granted on this issue. Finding that this issue has merit, we must remand this case to the trial court for determination bya jury.

Every attorney on the Coast must be pouring over this decision applying and affirming existing State law – and doing so en banc and in total agreement!

Hey, Sop, I think the Beetles had a song for that!

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