United States Court of Appeals
Fifth Circuit
F I L E D
UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT April 18, 2005
Charles R. Fulbruge III
No. 04-60577 Clerk
CHARLES BLAKELY; CASSANDRA BURKS; ESSIE DONNELLY; TERRY LOCKHART;
RITA MARSHALL; JOETTA SHEARS,
Plaintiffs-Appellants,
versus
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,
Defendants,
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Defendant-Appellee,
JIMMY BLAKELY; LEE HOUSE; ARLENE JONES; THOMAS MCCOY; SCHERRIE
PAYNE; JAMES PITTMAN; SAM SHORT; MIKE UZZLE; BOBBIE VAUGHN,
Plaintiffs-Appellants,
versus
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,
Defendants,
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Defendant-Appellee,
KEVIN BUFFINGTON; VERONICA HUDSON CARR; SHEILA HICKS; DELCINA
MCGLOTHIN; SLOVAKIA MCGRUDER; R L MINOR; PRICILLA MINOR; DAPHANIE
UNDERWOOD; SANDRA WARD,
Plaintiffs-Appellants,
versus
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY; ET AL,
Defendants,
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Defendant-Appellee.
Appeal from the United States District Court
For the Southern District of Mississippi
Before DAVIS, SMITH, and DeMOSS, Circuit Judges.
PER CURIAM:
Plaintiffs-Appellants Charles Blakely, et al.
(“Appellants”), appeal the district court’s granting of summary
judgment in favor of Defendant-Appellee State Farm Automobile
Insurance Co. (“State Farm”) on Appellants’ various claims and
the court’s denial of Appellants’ motion to alter or amend the
judgment. For the following reasons, we AFFIRM the court’s
orders.
BACKGROUND
Each of the Appellants was an insured policyholder of State
Farm and suffered a partial loss to his or her vehicle as a
result of an automobile accident. Under each Appellant’s
automobile insurance policy with State Farm (the “policy”),
“loss” was defined in part as:
[E]ach direct and accidental loss of or damage to:
1. your car;
2 its equipment which is common to the use
of your car as a vehicle . . . .
2
The policy provided under “Limit of Liability – Comprehensive and
Collision Coverages,” in relevant part:
The limit of [State Farm’s] liability for loss to
property or any part of it is the lower of:
1. the actual cash value; or
2. the cost of repair or replacement.
Under the same Limits of Liability, the policy also expressly
defined the “cost of repair or replacement”:
The cost of repair or replacement is based upon one of
the following:
1. the cost of repair or replacement agreed
upon by you and [State Farm];
2. a competitive bid approved by [State
Farm]; or
3. an estimate written based upon the
prevailing competitive price. The prevailing
competitive price means prices charged by a
majority of the repair market in the area
where the car is to be repaired as determined
by a survey made by [State Farm]. If you
ask, [State Farm] will identify some
facilities that will perform the repairs at
the prevailing competitive price. [State
Farm] will include in the estimate parts
sufficient to restore the vehicle to its pre-
loss condition. You agree with [State Farm]
that such parts may include either parts
furnished by the vehicle’s manufacturer or
parts from other sources including non-
original equipment manufacturers.
Any deductible amount is then subtracted.
In addition, the policy contained a subsection titled “Settlement
of Loss – Comprehensive and Collision Coverages.” The
“settlement of loss” provision read, in relevant part:
[State Farm] ha[s] the right to settle a loss with you
3
or the owner of the property in one of the following
ways:
1. pay the agreed upon actual cash value of
the property at the time of the loss in
exchange for the damaged property. If the
owner and [State Farm] cannot agree on the
actual cash value, either party may demand an
appraisal as described below. If the owner
keeps the damaged property, [State Farm] will
deduct its value after the loss from [State
Farm’s] payment. The damaged property cannot
be abandoned to [State Farm];
2. pay to:
a. repair the damaged property or
part, or
b. replace the damaged property
or part.
If the repair or replacement results in
betterment, you must pay for the amount of
betterment; or
3. return the stolen property and pay for
any damage due to the theft.
Appellants all submitted claims to State Farm for repairs
and reimbursements for losses suffered. State Farm adjusted and
paid for such repairs and losses. However, Appellants believed
the policy additionally entitled them to payment from State Farm
for the diminished value of their automobiles – the difference in
the fair market value of their vehicles just prior to the
accident and the fair market value of their vehicles post-repair.
Appellants filed suit in Mississippi state court on or about July
1, 2002, against State Farm and two of its agents. Appellants’
claims included breach of contract, breach of the covenant of
good faith and fair dealing, conspiracy, bad faith, breach of
4
fiduciary duty, fraud, and punitive damages.
On July 17, 2002, State Farm and the two agent defendants
filed their notice of removal. On July 24, 2003, the parties
signed an agreed order dismissing the two agents. Appellants
filed an amended complaint on December 17, 2003. State Farm
moved to dismiss on December 24, 2003. The district court
granted this motion on April 26, 2004. The district court first
determined it need only address Appellants’ claims for breach of
contract, bad faith, and fraud.1 The court found the policy
language was unambiguous and did not provide for any recovery by
Appellants for the diminished value in their vehicles; there thus
could be no breach of contract or bad faith claim. The court
also found Appellants raised no issue of material fact on the
fraud claim. Finally, the court found Appellants’ argument that
the policy was unconscionable and thus unenforceable lacked
merit. Appellants then filed a motion to alter or amend the
judgment, which the court denied on June 18, 2004. Appellants
timely appealed.
DISCUSSION
This Court reviews the grant of summary judgment de novo,
1
Appellants had conceded that their other claims could not be
supported. Moreover, as to those claims the court affirmatively
addressed and dismissed, Appellants do not brief any argument other
than those outlined below.
5
applying the same standards employed by the district court.2
Am. Int’l Specialty Lines Ins. Co. v. Canal Indem. Co., 352 F.3d
254, 259-60 (5th Cir. 2003). We review the legal question of the
district court’s interpretation of an insurance contract de novo,
id. at 260, as well as its determination of state law, id. Under
Federal Rule of Civil Procedure 56(c), summary judgment is proper
when, viewing the evidence in the light most favorable to the
nonmoving party, the “pleadings, depositions, answers to
interrogatories, and admissions on file, together with the
affidavits, if any, show that there is no genuine issues as to
any material fact and that the moving party is entitled to
judgment as a matter of law.” FED. R. CIV. P. 56(c); see Celotrex
Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 251-52 (1986).
In this diversity case, we are bound by the substantive
2
The district court treated the motion to dismiss filed by
State Farm as a motion for summary judgment; we do likewise. See
Stewart v. Murphy, 174 F.3d 530, 532-533 (5th Cir. 1999) (citing
FED. R. CIV. P. 12(b) (“If, [on a 12(b)(6) motion to dismiss],
matters outside the pleading are presented to and not excluded by
the court, the motion shall be treated as one for summary judgment
and disposed of as provided in Rule 56.) (emphasis added)”); Baker
v. Putnal, 75 F.3d 190, 197 (5th Cir. 1996) (“[W]here a district
court grants a motion styled as a motion to dismiss but bases its
ruling on facts developed outside the pleadings, we review the
order as an order granting summary judgment”). Neither party
claims error in the Rule 12(b)(6) motion’s being treated as one for
summary judgment.
6
insurance law from the forum state, Mississippi. See Erie R. Co.
v. Tompkins, 304 U.S. 64, 78-79 (1938); Am. Nat’l Gen. Ins. Co.
v. Ryan, 274 F.3d 319, 328 (5th Cir. 2001). Mississippi
insurance policies are subject to the same rules of construction
as other contracts. Krebs v. Strange, 419 So. 2d 178, 181 (Miss.
1982). When courts construe a contract, they read the contract
as a whole, to give effect to all of its clauses. Royer Homes of
Miss., Inc. v. Chandeleur Homes, Inc., 857 So. 2d 748, 752 (Miss.
2003) (citing Brown v. Hartford Ins. Co., 606 So. 2d 122, 126
(Miss. 1992)). “Our concern is not nearly so much with what the
parties may have intended, but with what they said, since the
words employed are by far the best resource for ascertaining the
intent and assigning meaning with fairness and accuracy.” Id.
(citation omitted). Policy language that is clear and
unambiguous is construed and must be enforced as written; that
policy is binding and cannot be modified to create an ambiguity
where none exists. Farmland Mut. Ins. Co. v. Scruggs, 886 So. 2d
714, 717 (Miss. 2004); State Farm Mut. Auto. Ins. Co. v.
Universal Underwriters Ins. Co., 797 So. 2d 981, 985-86 (Miss.
2001). Policy terms should be understood “in their plain,
ordinary, and popular sense rather than in a philosophical or
scientific sense.” Blackledge v. Omega Ins. Co., 740 So. 2d 295,
298 (Miss. 1999) (citation omitted).
I. Whether the district court erred in finding the policy
7
language unambiguous as not providing for payment to Appellants
for diminished value.
Appellants primarily argue that Mississippi law requires
that the term “cost of repair or replacement” necessarily
includes the concept of diminished value, so that the district
court was erroneous in holding the terms of the policy excluded
diminished value recovery. Appellants rely on a series of
Mississippi cases – Potomac Ins. Co. v. Wilkinson, 57 So. 2d 158
(Miss. 1952); Motors Ins. Co. v. Smith, 67 So. 2d 294 (Miss.
1953); Calvert Fire Ins. Co. v. Newman, 124 So. 2d 686 (Miss.
1960); and Scott v. Transport Indem. Co., 513 So. 2d 889 (Miss.
1987) – for this proposition.
Appellants stress that in Wilkinson, the Mississippi Supreme
Court defined “measure of loss to an automobile damaged, but not
destroyed, by a collision” as: “the difference between its
reasonable market value immediately prior to the collision and
its reasonable market value after all reasonable and feasible
repairs have been made.” 57 So. 2d at 160. “If, despite such
repairs, there yet remains a loss in actual market value,
estimated as of the collision date, such deficiency is to be
added to the cost of the repairs.” Id. Appellants note the
court in Smith recognized the Wilkinson court’s concept of
diminished value. 67 So. 2d at 296. Next, Appellants note the
court in Newman identically stated Wilkinson’s definition of the
8
“measure of loss to an automobile damaged, but not destroyed, by
a collision.” 124 So. 2d at 688. Finally, in Scott, Appellants
again emphasize the court cited both Wilkinson and Newman in
defining “cost of repairs” as including diminished value. 513
So. 2d at 894.
State Farm responds that the district court properly
dismissed Appellants’ complaint. State Farm insists that here
the plain and unambiguous language of the policy each Appellant
purchased from State Farm limited the insurer’s liability to the
cost of repair or replacement. State Farm argues the policy
plainly and unambiguously defined cost of repair or replacement,
which definition did not allow for any additional recovery for
alleged diminished value above the cost of repair or replacement.
State Farm maintains that because Appellants’ vehicles were not
alleged to be or deemed total losses, the limit of liability
under the policy was the cost to repair or replace the damaged
components of the vehicle.
State Farm also contends a majority of the state supreme
courts to address the claim that “cost of repair or replacement”
necessarily includes diminished value have rejected that argument
because the most natural reading of the plain and unambiguous
policy language limited the insurers’ liability to the cost of
physical repair or replacement, not including any additional loss
in value. See Given v. Commerce Ins. Co., 796 N.E.2d 1275,
9
1278-79 (Mass. 2003); Schulmeyer v. State Farm Fire & Cas. Co.,
579 S.E.2d 132, 133-34 (S.C. 2003); American Mfrs. Mut. Ins. Co.
v. Schaefer, 124 S.W.3d 154, 158 (Tex. 2003); Siegle v.
Progressive Consumers Ins. Co., 819 So. 2d 732, 735-37 (Fla.
2002); Hall v. Acadia Ins. Co., 801 A.2d 993, 995-96 (Me. 2002);
O’Brien v. Progressive N. Ins. Co., 785 A.2d 281, 290-91 (Del.
2001). But see State Farm Mut. Auto. Ins. Co. v. Mabry, 556
S.E.2d 114, 122 (Ga. 2001). According to State Farm, where there
is no dispositive decision from the Mississippi Supreme Court on
an issue, this Court should presume that Mississippi would follow
the majority rule. See Reliance Nat’l Ins. Co. v. Estate of
Tomlinson, 171 F.3d 1033, 1036-37 (5th Cir. 1999); Byrd v. The
Mississippi Bar, 826 So. 2d 1249, 1252 (Miss. 2002).
The district court sided with State Farm. While the court
recognized Appellants’ contention that particularly in Scott and
Wilkinson the Mississippi Supreme Court recognized that
diminution in value may be recoverable in certain circumstances,
the court explicitly distinguished those cases because the
policies at issue there did not expressly define the term “cost
of repair or replacement.” Thus, the district court found that
the instant policy’s language regarding the limitations on “cost
of repair or replacement” was unambiguous and did not provide for
any recovery for diminished value.
We agree with the district court’s finding. While it is
10
true the Mississippi Supreme Court initially recognized the
concept of diminished value in Wilkinson, there the policy only
provided that the insurer “may pay for the loss in money or may
repair or replace the automobile or such part thereof . . . or
may take all or any part of the automobile at the agreed or
appraised value, but there may be no abandonment to the company.”
57 So. 2d at 159. The Wilkinson policy is thus distinguishable
because it did not expressly limit the definition of “repair” or
“cost of repair” as the instant State Farm policy did. There is
also nothing in either Smith or Newman that indicates the
policies at issue in those cases contained an explicit limiting
definition of “repair, “replace,” or “cost of repair or
replacement.” In Scott, the policy merely provided that “in the
event of a covered loss, [the insurer] at its sole election may
pay the lesser of the stated value of the property at the time of
loss or the cost of repairing or replacing the property with
other property of like kind or quality.” 513 So. 2d at 893-94.
Again, the Scott policy did not expressly limit the “cost of
repair or replacement.” Thus, these cases concerned the
application of diminished value in situations where the policies
only included a label similar to “repair, “replace,” or “cost of
repair or replacement,” without expressly limiting such term, and
so do not control the instant case. As the Mississippi Supreme
Court has stated: “We are concerned not nearly so much with
11
labels as with language.” Id. at 893.
Although we agree with State Farm that several state supreme
courts have taken the opposite view than that argued by
Appellants, most of those cases are of limited, if any, relevance
to the instant situation because they also involved policies that
did not expressly limit the term “repair,” “replace,” or “cost of
repair or replacement.” Only the policy in Schulmeyer expressly
defined “cost of repair or replacement” as:
1. the cost of repair or replacement agreed upon by you
and us;
2. a competitive bid approved by us; or
3. an estimate written based upon the prevailing
competitive price ... [which] means prices charged by a
majority of the repair market in the area where the car
is to be repaired . . . .
579 S.E.2d at 133. There, the court specifically noted that
distinct unambiguous limitation on the “cost of repair or
replacement”:
The State Farm policy sub judice does not recognize
value as inherent in the concept “repair or
replacement.” The policy recognizes the cost of repair
or replacement may be determined by a rate agreed
between insurer and insured; a competitive bid approved
by the insurer; or an estimate based upon the
prevailing competitive market price. The policy, read
as a whole, defines repair or replacement as restoring
the vehicle to pre-accident mechanical function and
condition and not as restoring value.
To read value into the repair clause would arbitrarily
read out of the policy the insurer's right to determine
whether to repair the vehicle or to pay for its loss.
The language provision in the present case expressly
limits coverage to the lesser of the actual value or
the cost of repair. These are alternatives, which do
not include an additional obligation to pay for
12
diminished value when the cost of repair is chosen.
Id. at 135-36 (internal citation omitted). The above analysis
informs our determination here.
This particular policy did not merely define loss, explain
the limit of liability as the lower of cash value or cost of
repair or replacement, and describe the three ways that a loss
can be settled between the insured and State Farm, but it also
explicitly outlined the three bases for such “cost of repair or
replacement.” That is, the “cost of repair or replacement” could
be based upon either the cost of repair or replacement agreed
upon by the insured and State Farm, a competitive bid approved by
State Farm, or a written estimate based upon the prevailing
price. There is no mention of additional recovery for any loss
in, or diminished, value; nor can any policy text be understood
in its “plain, ordinary, and popular sense,” see Blackledge, 740
So. 2d at 298, to mean such diminished value is recoverable.
Thus, based on our plain reading of the distinct, unambiguous
policy language here that expressly defined the limited
alternatives of the “cost of repair or replacement,” and adhering
to the traditional contract principle that the policy is to be
read as a whole such that each clause is given effect, see Royer
Homes, 857 So.2d at 752, we conclude this policy did not provide
for additional recovery by Appellants of any diminished value on
their vehicles.
13
II. Whether the district court erred in finding that the policy
did not violate public policy and was not unconscionable so as to
be unenforceable.
Appellants argue that even if we read the policy as not
providing for recovery of diminished value, the policy should be
invalidated as against Mississippi public policy because it does
not permit recovery for diminished value. Appellants contend
that Wilkinson and its progeny establish a strong public policy
in favor of recovery for diminished value. Appellants
alternatively argue that the policy is both procedurally and
substantively unconscionable: procedurally, because while the
insured cannot receive diminished value, State Farm can be
reimbursed should any increase in the vehicle’s value result; and
substantively, because the policy is an oppressive contract of
adhesion.
State Farm responds that Appellants cannot meet their burden
to overcome an insurance policy’s plain meaning: “[I]n
Mississippi, an insurance policy’s plain meaning controls unless
an affirmative expression of an overriding public policy by the
legislature or judiciary allows us to reach a different result.”
Centennial Ins. Co. v. Ryder Truck Rental, Inc., 149 F.3d 378,
382 n.11 (5th Cir. 1998). State Farm argues Appellants have not
pointed to any legislative or judicial pronouncement that
insurers must provide for payment of diminished value in all
issued automobile policies. In fact, State Farm suggests the
14
only public policy at issue is the one favoring certainty in
contracts. See Smith v. Simon, 224 So. 2d 565, 566 (Miss. 1969)
(describing right to contract and have contracts enforced as a
basic and constitutionally guaranteed right). State Farm insists
the “cost of repair or replacement” term is not an unconscionable
bargain, such that “no man in his senses and not under a delusion
would make on the one hand, and [that] no honest and fair man
would accept on the other.” Entergy Miss., Inc v. Burdette Gin
Co., 726 So. 2d 1202, 1207 (Miss. 1998) (internal quotation marks
and citation omitted). Finally, State Farm argues that the
policies cannot be unconscionable simply because they are
standardized and cover certain risks but not others. State Farm
also notes each policy must be submitted to the Mississippi
Department of Insurance before public issuance. MISS. CODE ANN. §
83-2-7 (1999).
We find no pronouncement by Mississippi, either legislative
or judicial, requiring that diminished value be a part of all
automobile insurance policies. We thus agree with the district
court that Appellants’ arguments regarding the policy’s being
void as against public policy or due to unconscionability lack
merit.
CONCLUSION
Having carefully considered the record, and the parties’
respective briefing and arguments, for the reasons set forth
15
above, we AFFIRM the district court’s orders.
AFFIRMED.
16