Gary Netto v. Atlantic Specialty Insurance

Case: 18-60588 Document: 00515020160 Page: 1 Date Filed: 07/02/2019

IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
United States Court of Appeals
Fifth Circuit

No. 18-60588 FILED
July 2, 2019
Lyle W. Cayce
GARY W. NETTO; DEJUANA L. NETTO, Clerk

Plaintiffs - Appellees

v.

ATLANTIC SPECIALTY INSURANCE COMPANY,

Defendant - Appellant

Appeal from the United States District Court
for the Southern District of Mississippi

Before OWEN, SOUTHWICK and HIGGINSON, Circuit Judges.
LESLIE H. SOUTHWICK, Circuit Judge:
This case presents a question of first impression under Mississippi
insurance law: may an insurer rely on a consent-to-settle exclusion in an
insurance policy to deny coverage of a claim made by an unnamed additional
insured under that policy? We conclude that absent evidence that the
unnamed insured knew or should have known of the exclusion, the insurer may
not enforce its contractual right to deny coverage because it had not consented
to the settlement.
AFFIRMED.
 Case: 18-60588 Document: 00515020160 Page: 2 Date Filed: 07/02/2019

No. 18-60588
FACTUAL AND PROCEDURAL BACKGROUND
Gary Netto was involved in an automobile accident while acting in the
scope of his employment for Pearl River County, Mississippi. The automobile
in which Netto was a passenger was owned by Pearl River County and insured
by Atlantic Specialty Insurance. Netto was not a party to the policy between
the county and Atlantic, but was an unnamed additional insured under its
terms. The at-fault vehicle was allegedly uninsured.
Nearly two years after the accident, Netto’s attorney sent a letter to the
Pearl River County Board of Supervisors advising the Board that she had been
“retained to represent the interest of Gary Netto, involved in an automobile
accident in Pearl River County, Mississippi on August 14, 2013.” The letter
requested that the Board “forward this correspondence to the insurance carrier
in force at the time of [the] accident and request that they make contact with
our office immediately.” Atlantic received the forwarded letter on June 2, 2015
and assigned the case to claims adjuster Barbara McConnell that same day.
McConnell’s claim-file notes from June 3-4 confirm that Atlantic
considered Netto’s claim to be a possible uninsured motorist (“UM”) claim. The
notes indicate that Atlantic contacted a representative of Pearl River County
to discuss Netto’s potential claim. McConnell admitted in her deposition that
no one from Atlantic gave Netto any information regarding the applicable
policy.
While Netto’s counsel sought unsuccessfully to contact the county’s
insurer, she was negotiating a settlement with the at-fault driver and the
Mississippi Workers’ Compensation Trust. Netto reached a settlement with
both, and the Mississippi Workers’ Compensation Commission approved the
settlement.
Atlantic did not attempt to contact Netto until the day the Commission
approved the settlement, when McConnell left a message with Netto’s attorney
2
 Case: 18-60588 Document: 00515020160 Page: 3 Date Filed: 07/02/2019

No. 18-60588
requesting a return call. There is no evidence that Netto’s counsel returned
the call, or of any additional attempts by Atlantic to contact Netto.
Nearly two months later, Netto’s counsel, having learned that Atlantic
was Pearl River County’s insurer through an unrelated suit, sent a second
letter directly to Atlantic through its website. That letter informed Atlantic of
the settlement and raised a possible claim:
The policy limits have been collected from the at-fault driver,
and we intend to make a UM claim. Currently there are two (2)
possible UM policies at issue – the county’s and Mr. Netto’s GEICO
policy. I believe the first step is to determine whether Mr. Netto
is eligible to make a claim under the county UM policy, pending
the policy language, since he was a passenger in a county owned
truck and has a worker’s compensation claim.
Considering the foregoing, I ask that you assign an adjuster
to this claim and provide the relevant policy documents so that we
can determine which UM carrier is primary.

More than a year passed without a response from Atlantic before Netto
and his wife filed suit, seeking damages under the uninsured motorist policy
Atlantic issued to Pearl River County. Atlantic moved for summary judgment,
arguing that Netto was excluded from coverage due to his failure to obtain
Atlantic’s consent before settling. The district court denied the motion, holding
that Atlantic had “not provided summary judgment evidence demonstrating
Plaintiffs possessed actual knowledge of the provisions of the subject insurance
policy or the identity of Pearl River County’s insurer prior to the July 21, 2015
settlement.”
DISCUSSION
We review the denial of a motion for summary judgment de novo,
applying the same standard as the district court. First Am. Bank v. First Am.
Transp. Title Ins. Co., 585 F.3d 833, 836-37 (5th Cir. 2009). Summary
judgment is appropriate when “the pleadings, depositions, answers to

3
 Case: 18-60588 Document: 00515020160 Page: 4 Date Filed: 07/02/2019

No. 18-60588
interrogatories, and admissions on file, together with the affidavits, if any,
show that there is no genuine issue as to any material fact.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986) (quoting FED. R. CIV. P. 56(c)). Our review of
the evidence is in the light most favorable to the opponent of summary
judgment. Murray v. Earle, 405 F.3d 278, 284 (5th Cir. 2005).
We similarly give de novo review to a district court’s determinations of
state law, just as we do to its determinations of federal law. See American
Reliable Ins. Co. v. Navratil, 445 F.3d 402, 404 (5th Cir. 2006). In this diversity
action, we apply the substantive law of Mississippi. Erie R.R. v. Tompkins,
304 U.S. 64, 78 (1938). In determining Mississippi law, we look to the final
decisions of the Mississippi Supreme Court. See American Int’l Specialty Lines
Ins. Co. v. Canal Indem. Co., 352 F.3d 254, 260 (5th Cir. 2003). Where the
state’s highest court has not spoken to an issue, we defer to intermediate state
appellate court decisions unless convinced that the highest court would
disagree. See Coastal Agric. Supply, Inc. v. JP Morgan Chase Bank, N.A., 759
F.3d 498, 509-10 (5th Cir. 2014).
Mississippi has an uninsured motorist statute that protects insurers’
subrogation rights. See MISS. CODE ANN. § 83-11-101. Nevertheless, the
“Mississippi Supreme Court has applied a relatively thick coat of judicial gloss
to the [Uninsured Motorist] Act.” Boatner v. Atlanta Specialty Ins. Co., 115
F.3d 1248, 1253 (5th Cir. 1997). That court explained that it “must enforce
[the Uninsured Motorist] Coverage Act as a valid expression of [the]
legislature’s interest in protecting innocent victims at the hands of financially
irresponsible drivers. In recognizing this valid expression [it has] consistently
construed the Act to provide, not limit, protection.” Lawler v. Gov’t Emps. Ins.
Co., 569 So. 2d 1151, 1154 (Miss. 1990). For example, in holding that
uninsured motorist coverage in a policy could be “stacked,” the Mississippi
Supreme Court explained that “in order to limit this coverage it must be done
4
 Case: 18-60588 Document: 00515020160 Page: 5 Date Filed: 07/02/2019

No. 18-60588
in such clear and unambiguous language that it may be readily seen and
understood by the insured that the coverage is limited.” Hartford Accident &
Indem. Co. v. Bridges, 350 So. 2d 1379, 1381 (Miss. 1977).
The Mississippi Supreme Court has never considered the enforceability
of a consent-to-settle exclusion in an uninsured motorist policy against an
unnamed additional insured. We do know the exclusion here would bar
recovery if Netto were a named insured. See U.S. Fid. & Guar. Co. v. Hillman,
367 So. 2d 914, 919-22 (Miss. 1979). More recently, the Mississippi Supreme
Court stated that “where the uninsured motorist statutes grant an insurer the
right of subrogation and a provision in the policy precludes settlement with an
uninsured motorist without the consent of the insurer, the provision of the
policy is valid and will be upheld.” U.S. Fid. & Guar. Co. v. Knight, 882 So. 2d
85, 92-93 (Miss. 2004) (quoting Hillman, 367 So. 2d at 921); accord Smith v.
Safeco Ins. Co. of Am., 704 F. Supp. 111, 113 (S.D. Miss. 1988).
These decisions are not dispositive, though, because Netto was an
unnamed additional insured. That has some significance, first, because the
state’s high court has distinguished between named and unnamed insureds
with respect to a variety of policy exclusions, including notice-of-suit
exclusions, see Rampy v. State Farm Mut. Auto. Ins. Co., 278 So. 2d 428, 433
(Miss. 1973). The Mississippi Supreme Court justified these distinctions by
concluding that enforcing a notice provision against an unnamed insured
would place “an impossible burden on persons who were not contracting parties
and who did not have possession of the insurance policy, and could not notify
an insurance company of which they had no knowledge.” Id. The Mississippi
Supreme Court has also drawn distinctions between the rights of named and
unnamed insureds with respect to “stacking” of uninsured motorist coverage.
See Meyers v. American States Ins. Co., 914 So. 2d 669, 674-75 (Miss. 2005).

5
 Case: 18-60588 Document: 00515020160 Page: 6 Date Filed: 07/02/2019

No. 18-60588
Also significant is that Mississippi courts routinely place the burden
upon insurance companies to show that any exclusion to an uninsured motorist
policy applies. In holding that only a named insured is required to give the
insurer notice of an action against an uninsured motorist, the Mississippi
Supreme Court held that “[t]he burden of proof is upon the insurer to show not
only that the insured has failed to perform the terms and conditions invoked
upon him by the policy contract but in addition that it was substantially
prejudiced thereby.” Rampy, 278 So. 2d at 434 (citation omitted). When
determining whether a waiver of uninsured motorist coverage was valid, that
court also placed “the burden of proof on the insurer to show that such an
exclusion or any other quasi-rejection of uninsured motorist insurance was a
knowing and informed decision.” Atlanta Cas. Co. v. Payne, 603 So. 2d 343,
348 (Miss. 1992).
Consistent with these holdings, we conclude that another exception
would apply to our facts. An insurer must show that the unnamed additional
insured knew or should have known of the insurance policy at issue and of the
consent-to-settle provision. An insurer could make such a showing by
introducing evidence that it made reasonable efforts to inform the unnamed
additional insured of the policy terms, or that the unnamed additional insured
had access to a copy of the policy. There certainly may be other forms of
evidence.
Here, there is no evidence that Atlantic attempted to inform Netto of the
policy terms, and indeed there was testimony that policy was not released to
Pearl River County Employees as a matter of county policy.
AFFIRMED.

6