UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
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No. 91-7057
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JUEDELL T. LAWRENCE,
Plaintiff-Appellant,
VERSUS
VIRGINIA INSURANCE RECIPROCAL,
Defendant-Appellee.
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Appeal from the United States District Court
for the Southern District of Mississippi
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(December 9, 1992)
Before POLITZ, Chief Judge, SMITH, and BARKSDALE, Circuit Judges.
BARKSDALE, Circuit Judge:
For the most part, this appeal turns on whether an insurer,
which did not defend an underlying action against its insured, is
therefore estopped from asserting sovereign immunity in defending
against a garnishment by the plaintiff from the prior action.
Juedell T. Lawrence appeals from a summary judgment granted
Virginia Insurance Reciprocal (VIR) on her garnishment action to
collect punitive and mental anguish damages awarded her in a state
court action against VIR's insured, Southwest Mississippi Regional
Medical Center (Southwest). Because VIR is not estopped, we AFFIRM
in part and REVERSE and REMAND in part.
I.
Lawrence suffered a work-related injury while an employee of
Southwest.1 In April 1987, she sued Southwest in state court,
alleging breach of her employment contract and bad faith refusal to
pay benefits due under it. In that contract, Southwest had agreed
to pay Lawrence benefits equivalent to workers' compensation, even
though it was not legally obligated to participate in the
Mississippi workers' compensation program.
Southwest had an insurance contract with VIR, in which VIR
agreed, inter alia, to pay on behalf of Southwest all sums
Southwest became legally obligated to pay for damages sustained by
employees resulting from the negligent administration of
Southwest's "employee benefit programs". But, upon Southwest's
inquiry early in the case, VIR denied coverage and, therefore, did
not defend Southwest at trial.
By a jury verdict in October 1990, Lawrence was awarded, inter
alia, $216,000 against Southwest: $66,000 for compensatory damages
(benefits); $50,000 for mental anguish damages; and $100,000 for
punitive damages. But, the judgment provided that, "pursuant to
[Miss. Code Ann. §] 41-13-11(2)", in seeking to recover the mental
anguish and punitive damages, Lawrence would "have recourse only to
the proceeds or right to proceeds of any liability policy covering
[Southwest] for such damages, if any".
1
Lawrence developed thoracic outlet syndrome, a disorder
associated with repetitious upper extremity activity, presumably as
a result of her repeated overhead filing of x-ray jackets while
employed as a clerk-typist in the medical records division of the
hospital.
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Promptly after entry of judgment, Lawrence sought to garnish
VIR to collect the mental anguish and punitive damages. The action
was removed to district court, which granted VIR summary judgment.
In accordance with the law at the time, the district court treated
the mental anguish damages as "exemplary damages", as it did the
punitive damages. VIR was not estopped from relitigating coverage
for exemplary damages in district court, as a result of the court's
holding that VIR had no duty to defend Southwest because the
exemplary damages "were barred as a matter of law" by the
hospital's sovereign immunity "and thus not covered under the
insurance policy...."
II.
Lawrence contends that (1) the issue of sovereign immunity was
fully litigated in state court by Southwest and thus VIR should
have been collaterally estopped from relitigating it in federal
court, (2) Mississippi law allows recovery of punitive and mental
anguish damages against a community hospital to the extent that it
has insurance coverage, and (3) the VIR policy provides coverage
for the punitive and mental anguish damages awarded her.2
Needless to say, we apply Mississippi law in resolving these
issues. Erie R. Co. v. Tompkins, 304 U.S. 64 (1938); Allison v.
ITE Imperial Corp., 928 F.2d 137, 138 (5th Cir. 1991). And, we
review de novo the district court's interpretation of that law.
Salve Regina College v. Russell, ___ U.S. ___, 111 S. Ct. 1217,
2
In the alternative, Lawrence requests this court to certify
the issues to the Mississippi Supreme Court. We decline to do so.
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1221 (1991). In deciding an unsettled point of state law, Erie
requires that we determine how the Mississippi Supreme Court would
interpret its own law if presented with the question. American
Waste & Pollution Control Co. v. Browning-Ferris, Inc., 949 F.2d
1384, 1386 (5th Cir. 1991). When we are required to make an Erie
guess, it is not our role to create or modify state law, rather
only to predict it. Id.
A.
Lawrence maintains that, in state court, Southwest "hotly
contested" its sovereign immunity with respect to exemplary
damages, but lost when the court ruled that the issue could be
submitted to the jury. She asserts that VIR is estopped from
relitigating the issue in federal court, under the principle that
an insurer that breaches its duty to defend an action against its
insured is bound in subsequent litigation by all issues litigated
in the first suit. See Travelers Ins. Co. v. General Refrigeration
& Appliance Co., 218 So. 2d 724, 727 (Miss. 1969) ("The insurer
acts at its peril when it refuses to defend a suit against its
insured"); Southern Farm Bureau Casualty Ins. Co. v. Logan, 119 So.
2d 268, 270-72 (Miss. 1960).3 It makes no difference that Lawrence
is a judgment creditor seeking garnishment, rather than the
insured. E.g., Ridgway v. Gulf Life Ins. Co., 578 F.2d 1026 (1978)
(applying analogous rule under Texas law). And, for purposes of
this opinion, we assume that VIR had a duty to defend Southwest.
3
Initially, we note that collateral estoppel can apply to legal
issues as well as to factual issues previously litigated. See
State Ex Rel. Moore v. Molpus, 578 So. 2d 624, 640 (Miss. 1991).
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(As discussed, infra, this will be an issue on remand.) Therefore,
estoppel vel non comes into play. The Mississippi Supreme Court
has stated, however, that collateral estoppel can apply only if
there is "an identity of parties from one suit to the next, and of
their capacities as well". State Ex. Rel. Moore v. Molpus, 578 So.
2d 624, 640 (Miss. 1991). This identity requirement can be
expressed as a "succession in interest" between the two parties.
Id. Therefore, we look to the respective interests of Southwest
and VIR in litigating the sovereign immunity issue.
Southwest would not have been obligated to pay any exemplary
damages awarded against it, because Miss. Code Ann. § 41-13-11
allows recovery only against the hospital's insurer to the extent
the hospital obtains coverage in accordance with the statute.4 If
coverage does not exist, Southwest is protected by immunity. Miss.
Code Ann. § 41-13-11(1). Although Southwest did litigate its
sovereign immunity at trial, it had little interest, because of
this rule, in the outcome on the issue. This is illustrated by the
fact that Southwest appealed only the compensatory damages
(benefits) award, choosing not to appeal the punitive and mental
anguish damages, specifically because it was not obligated to pay
them. Cf. Guaranty Nat'l Ins. Co. v. Pittman, 501 So. 2d 377, 385
(Miss. 1987) (citing fact that insolvent insured failed to appeal
4
The statute authorizes the purchase of certain insurance
coverage and provides: "immunity from suit is only waived to the
extent of such liability insurance available to satisfy any
judgment rendered, and a judgment creditor shall have recourse only
to the proceeds or right to proceeds of such liability insurance".
Miss. Code Ann. § 41-13-11(2).
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judgment against him as illustration of his lack of vigor in trying
to avoid judgment and his inadequate representation of his
insurer's interest).
Needless to say, the insured ordinarily remains obligated on
a judgment in the absence of insurance coverage. Here, however,
the insured and insurer were not aligned in interest, because
Southwest was not obligated to pay the punitive and mental anguish
damages, even in the absence of coverage under the VIR policy. Cf.
American Casualty Co. v. United Southern Bank, 950 F.2d 250, 253-54
(5th Cir. 1992) (rejecting application of collateral estoppel where
specifics of coverage placed insurer's and insured's interests on
liability issue in opposition). We hold, therefore, that VIR was
not estopped from raising sovereign immunity as a defense to
Lawrence's garnishment action.
B.
Lawrence next contends that the Mississippi statutory scheme
permits recovery of punitive and mental anguish damages against
Southwest to the extent of its insurance.
Community hospitals such as Southwest enjoy immunity from suit
"at law or in equity on account of any wrongful or tortious act or
omission by any such [community hospital] or its employees relating
to or in connection with any activity or operation of any such
community hospital ...". Miss. Code Ann. § 41-13-11(1).5 The same
5
Recent developments in Mississippi's sovereign immunity law do
not apply to this case. In Presley v. Mississippi State Highway
Comm., No. 90-CC-0644, 1992 WL 211961 (Miss. Sept. 4, 1992) (en
banc), the Mississippi Supreme Court declared unconstitutional the
Mississippi Sovereign Immunity Act, Miss. Code Ann. § 11-46-1, et
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statute that creates this immunity provides that it may be waived
to a limited extent: "[i]f liability insurance is in effect, ...
suit may be maintained .... However, immunity from suit is only
waived to the extent of such liability insurance available to
satisfy any judgment rendered ...". Miss. Code Ann. § 41-13-11(2).
The statute also authorizes community hospitals to purchase
liability insurance "to cover damages or injury to persons or
property or both caused by the negligence of any [hospital
employee]". See Miss. Code Ann. § 41-13-11(2) (emphasis added).
Thus, to the extent that coverage is provided by insurance
purchased under this authority, a community hospital's sovereign
immunity is waived. We focus, therefore, on whether this statute
authorized Southwest to purchase insurance to cover the punitive
and mental anguish damages awarded Lawrence.6
seq. Subsequently, the legislature amended the Act. Because this
case falls under § 41-13-11, which specifically governs the
immunity of community hospitals, changes to § 11-46-1 have no
effect.
6
The VIR policy is a comprehensive liability policy containing
an endorsement specifically governing liability arising in
connection with the hospital's employee benefits program. In that
endorsement, VIR agreed to pay on behalf of Southwest "all sums
which [Southwest] shall become legally obligated to pay as a result
of damages sustained by an employee ... in the administration of
the Insured's Employee Benefit Programs ... caused by any negligent
act, error or omission of the Insured ...." As noted, Southwest
elected to provide its employees with medical and disability
benefits, equivalent to those provided by employers subject to the
workers' compensation laws, which VIR acknowledges were part of
Southwest's employee benefit program. Moreover, Southwest acted as
a self-insurer of these benefits; the VIR policy did not cover
Southwest's contractual liability for them, and Lawrence does not
contend that VIR is obligated to pay her compensatory damages
(benefits).
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1.
As the state jury was instructed, punitive damages can be
awarded only upon finding that the defendant acted with malice,
gross negligence, or reckless disregard for the rights of others.
E.g., Universal Life Ins. Co. v. Veasley, No. 07-CA-59316, 1992 WL
30112, at 3 (Miss. Feb. 19, 1992). And, as that jury was also
instructed, the purpose of punitive damages, of course, is to
punish a tort-feasor as an example to deter others, not to
compensate a party for an injury. E.g., State Farm Mutual
Automobile Ins. Co. v. Daughdrill, 474 So. 2d 1048, 1052 (Miss.
1985). Punitive damages, therefore, do not fall within the
category of "damages or injury to persons or property or both
caused by ... negligence", which are insurable under the statute.
Because they do not fall within this category, Southwest lacked the
statutory authority to purchase insurance to cover them.7 In other
words, the legislature did not expressly waive the hospital's
sovereign immunity in this respect. See Joseph v. Tennessee
Partners, Inc., 501 So. 2d 371, 375 (Miss. 1987) ("a governmental
entity has not waived immunity from suit simply because it has
obtained liability insurance without express statutory authority").
Because Southwest's sovereign immunity was retained as to punitive
damages, VIR cannot be obligated to pay them on behalf of
Southwest, even if the policy provides such coverage.
7
We assume, without deciding, that such damages are otherwise
covered under the policy.
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2.
Mental anguish damages, however, can be awarded upon a finding
of simple negligence in the breach of contract. Strickland v.
Rossini, 589 So. 2d 1268, 1275 (Miss. 1991). Although, in the
past, the rule in Mississippi has been to the contrary, two recent
Mississippi Supreme Court cases, handed down after the award of
summary judgment in this case, make clear that mental anguish
damages are no longer a form of exemplary damages, but rather, are
compensatory in nature and can be the proximate result of simple
negligence. See Veasley, No. 07-CA-59316, 1992 WL 30112, at 6-7
(Miss. Feb. 19, 1992); Strickland, 589 So. 2d at 1275. Because
they result from negligence and are compensatory in nature, mental
anguish damages fall within the statutory category of "damages or
injury to persons or property or both caused by ... negligence".
Southwest, therefore, was authorized to purchase insurance to cover
them; and its sovereign immunity was waived to the extent of such
coverage.8
At issue, therefore, is whether the VIR policy provided
coverage for Lawrence's mental anguish damages. Because the
district court has not had an opportunity to rule on this issue, or
8
The jury in this case was given conflicting instructions
regarding the standard of conduct necessary to sustain an award of
mental anguish damages. One instruction stated that they could be
awarded if they were proximately caused by the hospital's breach of
contract, if any; another lumped them with punitive damages,
requiring a finding of malicious conduct, gross negligence, or
reckless disregard for the rights of others. Because the jury's
award of punitive damages indicates that the higher of the two
standards was met, the ambiguity does not present a problem; we can
assume that there was at least simple negligence.
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the duty to defend issue as to such damages, by summary judgment or
otherwise, we remand it to that court for such further proceedings
as it deems appropriate.
III.
For the foregoing reasons, we AFFIRM the summary judgment with
respect to the punitive damages; but, with respect to the mental
anguish damages, we REVERSE and REMAND for further proceedings
consistent with this opinion.
AFFIRMED IN PART; REVERSED AND REMANDED IN PART.
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