IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
April 7, 2008
No. 07-60443 Charles R. Fulbruge III
Clerk
NORMAN J BROUSSARD; GENEVIEVE BROUSSARD
Plaintiffs-Appellees
v.
STATE FARM FIRE AND CASUALTY COMPANY
Defendant-Appellant
Appeal from the United States District Court
for the Southern District of Mississippi
USDC No. 1:06-CV-6
Before JONES, Chief Judge, and WIENER and CLEMENT, Circuit Judges.
EDITH BROWN CLEMENT, Circuit Judge:
Norman and Genevieve Broussard (“the Broussards”) lost their home
during Hurricane Katrina. State Farm Fire and Casualty Co. (“State Farm”)
rejected their homeowner’s insurance claim, and the Broussards sued to collect
benefits under their policy. The case went to trial and, at the close of all the
evidence, the district court granted Judgment as a Matter of Law (“JMOL”) in
favor of the Broussards. The jury awarded the Broussards $2.5 million in
punitive damages, which the district court remitted to $1 million. State Farm
appeals. We reverse the grant of JMOL, vacate the award of punitive damages,
and remand for a new trial.
I. FACTS AND PROCEEDINGS
No. 07-60443
The Broussards’ Biloxi home was completely destroyed during Hurricane
Katrina, leaving only the foundation slab. The Broussards, who did not have
flood insurance, brought a claim under their State Farm homeowners policy.
The State Farm claims adjuster who inspected the site concluded that the
“[e]vidence suggests [the] home was more damaged by flood than wind,” and
State Farm denied the Broussards’ claim in its entirety.
The Broussards’ homeowners policy contained two types of coverage. They
had $90,524 in “named peril” coverage for their personal property, which covered
losses caused by a list of perils, including windstorms. They had $120,698 in
“open peril” coverage for their dwelling, which covered any “accidental direct
loss” to their home. Both the personal property and the dwelling coverage
excluded losses caused by water damage. Both coverages were also subject to an
“Anti-Concurrent Cause” (“ACC”) clause, which stated:
We do not insure under any coverage for any loss which would not
have occured in the absence of one or more of the following excluded
events. We do not insure for such loss regardless of: (a) the cause of
the excluded event; or (b) other causes of the loss; or (c) whether
other causes acted concurrently or in any sequence with the
excluded event to produce the loss . . . .
It is undisputed that the Broussards’ personal property and dwelling were a
total loss and that the value of their personal property and dwelling met or
exceeded the policy limits.
After State Farm denied their claim, the Broussards filed suit against
State Farm in Mississippi state court. The Broussards claimed breach of
contract and bad faith on the part of State Farm and sought the policy limits of
their coverage, extra-contractual damages, and punitive damages. State Farm
removed the case to the Southern District of Mississippi. The case was tried
before a jury in two phases, causation and damage. Following the close of the
evidence in the causation phase of the trial, both sides made oral motions for
JMOL. The district court granted JMOL in favor of the Broussards on both the
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No. 07-60443
personal property and dwelling claims. With regard to the personal property
claim, the district court found that the parties had stipulated that the
Broussards’ property was destroyed during Hurricane Katrina, that Hurricane
Katrina was a “windstorm,” and that State Farm was liable under the “named
peril” personal property coverage because “windstorm” was a named peril. With
regard to the dwelling claim, the district court held that State Farm bore the
burden of proving that the Broussards’ loss was caused by the excluded peril of
flooding. The district court noted that State Farm’s expert admitted that he
could not distinguish between the wind and water damage to the Broussards’
home with any reasonable degree of probability. In light of this admission, the
district court found that “there was no sound evidence upon which the finder of
fact could rationally determine that [State Farm] had met its burden of proof”
and entered JMOL for the Broussards.
During the damage phase of the trial, the district court gave the jury a
punitive damage instruction. The jury awarded the Broussards $2.5 million in
punitive damages, which the district court remitted to $1 million.
State Farm appeals the entry of JMOL on both the personal property and
dwelling claims and seeks reversal or remittitur of the jury’s punitive damages
award. State Farm also appeals the district court’s denial of its motion to strike
the testimony of the Broussards’ expert, James Slider, a structural engineer who
testified that “wind or a tornado” destroyed the Broussards’ home before the
Katrina storm surge arrived. Finally, State Farm appeals the district court’s
denial of its motion for change of venue.
II. DISCUSSION
The Broussards argue that their home was destroyed by “tornadic” winds
before the Katrina storm surge arrived, and that they are entitled to recover
under their homeowners policy for any losses which State Farm cannot show
were caused by water, which is an excluded peril under both the personal
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No. 07-60443
property and dwelling coverages. This Court has issued several Katrina-related
insurance decisions since this case was tried in early 2007, including Tuepker v.
State Farm Fire & Casualty Co., a Mississippi slab case interpreting a State
Farm homeowners insurance policy whose provisions were identical to the
Broussards’ policy in all significant respects.1 507 F.3d 346, 350–53 (5th Cir.
2007); see also Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419, 423 (5th Cir.
2007) (holding that Nationwide Mutual homeowners insurance policy, which
included an ACC clause, was valid and enforceable under Mississippi law).
These and other recent Katrina-related cases inform this decision. Because we
hold that the district court erred as a matter of law in entering JMOL for the
Broussards, we reverse the district court, vacate the award of punitive damages,
and remand for a new trial.
A. Judgment as a Matter of Law
The standard of review for rulings on motions for JMOL is de novo. Evans
v. Ford Motor Co., 484 F.3d 329, 334 (5th Cir. 2007). This Court has held that
motions for JMOL should be granted
only if “the facts and inferences point so strongly and
overwhelmingly in favor of one party that the Court believes that
reasonable men could not arrive at a contrary verdict. . . . On the
other hand, if there is substantial evidence opposed to the motions,
that is, evidence of such quality and weight that reasonable and
fair-minded men in the exercise of impartial judgment might reach
different conclusions, the motions should be denied. . . .”
Brown v. Bryan County, 219 F.3d 450, 456 (5th Cir. 2000) (internal quotations
omitted). When evaluating the district court’s grant of JMOL, we “consider all
of the evidence, drawing all reasonable inferences and resolving all credibility
1
The claims in Broussard are different from the claims in Tuepker. The Tuepker
plaintiffs challenged the enforceability of the ACC clause and the applicability of the water
damage exclusion to a hurricane-created storm surge. 507 F.3d at 348. The main thrust of
the Broussards’ claim is that their home was destroyed by tornadic winds prior to the arrival
of the storm surge.
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No. 07-60443
determinations in the light most favorable to the non-moving party,” State
Farm. Id.
(1) Personal Property “Named Peril” Coverage
We reverse the district court’s grant of JMOL with regard to the
Broussards’ “named peril” personal property coverage. The district court erred
when it found that the destruction of the Broussards’ personal property by
Hurricane Katrina was sufficient to establish the separate assertion that the
property was destroyed by “windstorm,” a “named peril” under the Broussards’
personal property coverage.
Lunday v. Lititz Mutual Insurance Co. considered damage sustained by a
Mississippi home during Hurricane Camille and held that, under “named peril”
coverage, “the burden of proof was on the [insured] to prove that the damages
sustained were covered by the peril insured against, that is, by direct action of
the wind.” 276 So. 2d 696, 699 (Miss. 1973). Although there was no question
that the insured property was destroyed during Hurricane Camille, the Lunday
court did not find that this automatically established that it was damaged by
wind. Id. Likewise, a stipulation that the Broussards’ personal property was
destroyed by Hurricane Katrina is insufficient to establish that it was destroyed
by a windstorm, since Hurricane Katrina unleashed both wind and water forces.
Accordingly, we reverse the grant of JMOL with regard to the Broussards’
personal property claim and remand to permit the Broussards to carry their
burden of proving that the personal property was destroyed by a peril covered
under their policy.
(2) Dwelling “Open Peril” Coverage
We also reverse the district court’s grant of JMOL to the Broussards on
their dwelling “open peril” coverage. The district court granted JMOL because
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No. 07-60443
it found that “there was no sound evidence upon which the finder of fact could
rationally determine that [State Farm] had met its burden of proof” to show that
the Broussards’ home was destroyed by an excluded peril. “This Court reviews
. . . the determinations that the parties met their burdens [of proof] under the
clearly erroneous standard.” Stevens Shipping & Terminal Co. v. JAPAN
RAINBOW II MV, 334 F.3d 439, 443 (5th Cir. 2003).
The district court’s conclusion that State Farm failed to meet its burden
of proof under the dwelling coverage was clear error. State Farm’s experts
introduced sufficient evidence to permit a reasonable jury to find in its favor.
Two of State Farm’s experts, Kurt Gurley and Robert Dean, testified that the
damage to the actual structure of the Broussards’ home came from the storm
surge. Gurley stated that it was “75% likely” that wind caused a relatively small
amount of damage to the Broussards’ roof before the storm surge arrived, but
that Hurricane Katrina’s winds were not strong enough to cause structural
damage to the home. Gurley also opined that, given the data available regarding
the Broussards’ home, no other wind engineer could state more definitively
whether there was wind damage or specify the extent of the damage more
precisely.
State Farm’s evidence was more than sufficient to withstand a motion for
JMOL. A rational jury could conclude, based on the testimony of State Farm’s
experts, that the Broussards’ home and personal property were destroyed by
water. Wall v. Swilley, 562 So. 2d 1252, 1256 (Miss. 1990) (“Unless the evidence
is so lacking that no reasonable jury could find for plaintiffs, the motion must be
denied.”). We reverse the district court’s entry of JMOL for the Broussards on
the dwelling coverage and remand for a new trial.
B. Burdens of Proof
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No. 07-60443
State Farm also argues that the district court erred in allocating the
burdens of proof. “This Court reviews the allocation of the burden of proof de
novo . . . .” Stevens Shipping, 334 F.3d at 443.
“Under Mississippi law a plaintiff has the burden of proving a right to
recover under the insurance policy sued on,” and this basic burden never shifts
from the plaintiff. Britt v. Travelers Ins. Co., 566 F.2d 1020, 1022 (5th Cir.
1978); see also Home Ins. Co. v. Greene, 229 So. 2d 576, 579 (Miss. 1969) (“An
insured seeking recovery on a policy insuring against fire has the burden of
proving the loss and its extent.”). In this case, the parties agreed that the home
and its contents were a total loss, and the disputed issue is which peril caused
the loss.
The parties bear different burdens of proof under the personal property
and dwelling coverages.
For [personal property] “named peril” coverage . . . the plaintiff has
the burden of proving that any losses were caused by a peril covered
by the policy. Under [dwelling] “open peril” coverage . . . the
plaintiff still has the basic burden of proving his right to recover.
However, under “open peril” coverage the insurer bears the burden
of proving that a particular peril falls within a policy exclusion, and
must plead and prove the applicability of an exclusion as an
affirmative defense.
Tuepker, 507 F.3d at 356–57 (internal quotations and citations omitted). The
Broussards’ personal property and dwelling coverages are both subject to a water
damage exclusion identical to the exclusion in Tuepker. Id. at 350–51.2 The
2
The Broussards’ policy also contained an ACC clause identical to the one considered
in Tuepker. 507 F.3d at 350–51. The clause applied to both the personal property and
dwelling coverage in the State Farm policy. The ACC clause, like the water damage exclusion,
is an affirmative defense, and State Farm bears the burden of pleading and proving that the
ACC clause applies. Id. at 356–57. State Farm’s position on appeal is that it did not rely on
the ACC clause in denying the Broussards’ claim, and that the claim was denied because
“absent physical evidence of wind damage there was no way to pay the claim other than to
speculate.” Thus, State Farm has waived any defense based on the ACC clause.
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No. 07-60443
parties do not dispute that this exclusion applies to any damage caused by the
Hurricane Katrina storm surge.
State Farm argues that under the dwelling coverage, once it advances
evidence to establish its affirmative policy exclusion defenses, the burden shifts
back to the Broussards to prove that there is an exclusion to the defenses or to
segregate covered from non-covered damages. In support of its theory, State
Farm points to Texas cases such as Britt v. Cambridge Mutual Fire Insurance
Co., which hold that “[o]nce an insurer has pled an exception to the insurance
policy, the burden is on the insured to prove that the occurrence in question did
not come within the exclusion of the policy.” 717 S.W.2d 476, 482 (Tex. App.
1986). Mississippi courts have not explicitly addressed shifting burdens of proof
under “open peril” policies, so we “must make an educated ‘Erie guess’ as to how
the Mississippi Supreme Court would resolve the issue.” Leonard, 499 F.3d at
431.
The Mississippi Supreme Court rejected a rule similar to State Farm’s
“shifting back” theory in a Hurricane Camille slab case construing a “named
peril” policy. Lititz Mut. Ins. Co. v. Boatner, 254 So. 2d 765, 766 (Miss. 1971).
The factual similarities between Boatner and the case at hand are striking. In
Boatner, nothing was left of the insureds’ home and its contents but a concrete
slab. Id. at 765. The insureds argued that their home was destroyed by wind
prior to the arrival of the hurricane-produced tidal wave. Id. at 767. The
insurer admitted that some wind damage was probable, but withheld full
payment under the policy because it argued that the home was actually
destroyed by the tidal wave, an excluded peril. Id. at 766. The jury found in
favor of the insureds and the Mississippi Supreme Court affirmed. Id. The
court held that the insureds were required to introduce some evidence regarding
causation to recover under a “named peril” policy, but rejected the rule “that the
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No. 07-60443
burden of proof was upon the homeowners . . . [to] also show that [their home]
was in no respect damaged by tidal wave . . . .” Id.
In Grace v. Lititz Mutual Insurance Co., another Hurricane Camille case,
the Mississippi Supreme Court sustained a jury verdict for the insureds under
a windstorm policy which excluded water damage. 257 So. 2d 217, 219, 224–25
(Miss. 1972). The Grace court stated that “[t]he rule is well established in this
state that where the question presented to the jury was whether the loss was
due to windstorm or to water, the entire question of proximate cause is treated
as one of fact independent of the explicit application of any rule of law.” Id.
(citing Commercial Union Ins. Co. v. Byrne, 248 So. 2d 777, 781 (Miss. 1971)).
The Grace court also reversed the trial court’s remittitur of $2500 and awarded
damages in the amount of the policy limits because the insurer never contested
the fact that the insureds’ property was a total loss and did not “offer any
evidence at any time during the trial of what value or of what part of the
[insureds’] property was destroyed by water prior to its destruction by wind.” Id.
at 225.
Boatner and Grace involved “named peril” policies under which the insured
was required to prove that his loss was caused by a specified peril as part of his
prima facie case. The Mississippi Supreme Court has not explicitly addressed
the “shifting back” theory when considering an “open peril” policy. We think it
unlikely, however, that the court would reject rules similar to State Farm’s
“shifting back” theory when considering “named peril” policies and embrace
them when considering an “open peril” policy under which the insurer must
prove causation by an excluded peril as an affirmative defense.
In support of this view, we note that the rule that causation is a fact
question for the jury applies equally to “open peril” and “named peril” policies.
In Byrne, a Hurricane Camille case involving an “open peril” policy, the
Mississippi Supreme Court held that a directed verdict was not proper where the
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No. 07-60443
plaintiff introduced some evidence that his house and personal property were
damaged by wind prior to the arrival of flood waters from a nearby bayou. 248
So. 2d at 781. In language later quoted in Grace, the Byrne court held that
causation was a question of fact “independent of the explicit application of any
rule of law” which would take the issue away from the jury. Id.; see Grace, 257
So. 2d at 224. State Farm’s “shifting back” theory seems to be the sort of “rule
of law” which would operate in many cases to take the issue of causation away
from the jury.
In light of Boatner, Grace, and Byrne, we hold that State Farm’s “shifting
back” theory is not the rule in Mississippi. Grace, 257 So. 2d at 224; Boatner,
254 So. 2d at 766; Byrne, 248 So. 2d at 781. On remand, the parties must meet
their burdens of proof as outlined in Tuepker, 507 F.3d at 356–57, and the
ultimate allocation of wind and water damages under the Broussards’ dwelling
coverage is a question of fact for the jury. Grace, 257 So. 2d at 224.
C. Punitive and Consequential Damages
We also reverse the district court’s decision to submit the punitive
damages question to the jury. “In insurance contract cases, the trial court is
responsible for reviewing all evidence before it in order to ascertain whether the
jury should be permitted to decide the issues of punitive damages.” Lewis v.
Equity Nat’l Life Ins. Co., 637 So. 2d 183, 185 (Miss. 1994) (internal quotations
omitted). If, upon reviewing all the evidence, the district court concludes that
the insurer acted in bad faith, or that reasonable minds could differ regarding
whether the insurer acted in bad faith, then the district court should send the
issue of punitive damages to the jury. Id. at 185–86. The district court denied
State Farm’s motion for JMOL on punitive and extra-contractual damages and
sent the issue to the jury. We review the district court’s ruling on State Farm’s
motion for JMOL de novo. Sobley v. S. Natural Gas Co., 302 F.3d 325, 335–36
(5th Cir. 2002).
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No. 07-60443
Under Mississippi law, insurers have a duty “to perform a prompt and
adequate investigation and make a reasonable, good faith decision based on that
investigation” and may be liable for punitive damages for denying a claim in bad
faith. Liberty Mut. Ins. Co. v. McKneely, 862 So. 2d 530, 535 (Miss. 2003); U.S.
Fid. & Guar. Co. v. Wigginton, 964 F.2d 487, 492 (5th Cir. 1992). The
Broussards bear the burden of proving that State Farm acted in bad faith when
it denied their insurance claim. Wigginton, 964 F.2d at 492.
Section 11-1-65(1)(a) of the Mississippi Code Annotated states that
“[p]unitive damages may not be awarded if the claimant does not prove by clear
and convincing evidence that the defendant against whom punitive damages are
sought acted with actual malice, gross negligence which evidences a willful,
wanton or reckless disregard for the safety of others, or committed actual fraud.”
Mississippi law does not permit parties to recover punitive damages unless they
first prove that they are entitled to compensatory damages. MISS. CODE ANN. §
11-1-65(1)(b)-(c); Sobley, 302 F.3d at 330.
To recover punitive damages for bad faith denial of their insurance claim,
the Broussards “must show that the insurer denied the claim (1) without an
arguable or legitimate basis, either in fact or law, and (2) with malice or gross
negligence in disregard of the insured’s rights.” Wigginton, 964 F.2d at 492.
State Farm, on the other hand, “need only show that it had reasonable
justifications, either in fact or in law, to deny payment.” Id. The question of
whether State Farm had an arguable basis for denying the Broussards’ claim “is
an issue of law for the court.” Id. Insurers who are not liable for punitive
damages may nonetheless be liable for “consequential or extra-contractual
damages (e.g., reasonable attorney fees, court costs, and other economic losses)”
where their decision to deny the insured’s claim is without “a reasonably
arguable basis” but does not otherwise rise to the level of an independent tort.
Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172, 1186 n.13 (Miss.
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No. 07-60443
1990); see also Sw. Miss. Reg’l Med. Ctr. v. Lawrence, 684 So. 2d 1257, 1267–69
(Miss. 1996) (reversing an award of punitive damages but affirming an award
of consequential damages including, inter alia, compensation for the plaintiff’s
reasonably foreseeable emotional distress following the denial of her claim).
We hold that State Farm had an arguable basis for denying the
Broussards’ claim in October 2005 and that a punitive damages instruction is
not warranted on this ground. The State Farm claims adjuster who
recommended denying the Broussards’ claim examined the position of the home
seaward of the debris line and the condition of trees on and around the
Broussards’ property. The adjuster concluded that the damage to the trees was
more consistent with flooding than with tornadic winds and stated that “[o]ur
investigation shows that the insured location and surrounding neighborhood was
damaged by a tidal surge and flood” and denied coverage on this ground.
Although the Broussards have pointed to some facts which suggest that wind
destroyed their home prior to the arrival of the tidal surge, State Farm had an
arguable basis for denying their claim based on the observations of its adjuster
regarding the position of the debris line and the condition of trees on and
surrounding the property. Dunn v. State Farm Fire & Cas. Co., 711 F. Supp.
1362, 1364–65 (N.D. Miss. 1988) (denying defendant insurer’s motion for
summary judgment because there were genuine issues of material fact, but
rejecting plaintiff’s claim for punitive damages because the facts, although
contested, provided the insurer with an arguable basis for denying the plaintiff’s
claim).3
3
The district court also found a basis for punitive damages in State Farm’s legal
position regarding burdens of proof. Under Mississippi law, however, an insurance company
is not subject to punitive damages for referring a disputed legal question to the courts, even
if the question is not resolved in its favor. Dunn v. State Farm Fire & Cas. Co., 927 F.2d 869,
874 (5th Cir. 1991). Although we reject State Farm’s legal position regarding the “shifting
back” burdens of proof, it is not liable for punitive damages for advancing this legal argument.
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No. 07-60443
Although it is a much closer question, we also hold that State Farm is not
liable for punitive damages for continuing to withhold payment under the policy
after its expert opined that some covered wind damage likely occurred prior to
the arrival of the storm surge. State Farm had a duty to re-evaluate the
Broussards’ claim which continued even after the claim was refused and the
Broussards filed suit. See Gregory v. Cont’l Ins. Co., 575 So. 2d 534, 541 (Miss.
1990). State Farm’s expert Gurley stated that there was a 75% likelihood that
between none and 35% of the shingles on the Broussards’ roof were damaged by
wind prior to the arrival of the storm surge. State Farm was liable to the
Broussards for this damage, however minor. See Dixie Ins. Co. v. Mooneyhan,
684 So. 2d 574, 584 (Miss. 1996).
Under the somewhat unusual circumstances of this case, however,
punitive damages are not appropriate on this ground. The State Farm claim file
reflects that the Broussards received a $2000 advance within ten days of
Hurricane Katrina.4 Counsel for State Farm stated at oral argument that it was
State Farm’s position that this amount, combined with the Broussards’ two-
percent deductible of about $2400, was adequate to cover the kind of minor roof
damage discussed by Gurley. Without deciding whether this payment was in
fact adequate, we hold that State Farm did not act with sufficient “malice or
gross negligence” to merit punitive damages. Wigginton, 964 F.2d at 492.
However, as State Farm lacked an arguable basis for denying this portion of the
Broussards’ claim, on remand the district court should consider whether
additional actual or consequential damages are appropriate. Williams, 566 So.
2d at 1186 n.13.
Our inquiry does not end there. Mississippi courts have held that under
4
State Farm’s claim file indicates that this money was advanced immediately after the
storm by the Broussards’ insurance agent, who mistakenly thought that they had flood
insurance.
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No. 07-60443
certain limited circumstances, insureds may recover punitive damages even
though the insurer had an arguable basis for denying their claim. Lewis v.
Equity Nat’l Life Ins. Co., 637 So. 2d 183, 185 (Miss. 1994). Mississippi courts
have sent the issue of punitive damages to the jury when the insurer’s behavior
in writing the insurance policy or handling the insurance claim breaches “an
implied covenant of good faith and fair dealing” and rises to the level of an
independent tort. Stewart v. Gulf Guar. Life Ins. Co., 846 So. 2d 192, 202–05
(Miss. 2002); Lewis, 637 So. 2d at 185. Mississippi courts have found
independent torts based on the insurer’s behavior in writing the policy,
Stewart, 846 So. 2d at 202, and on the basis of grossly negligent claim
investigation, id. at 204. The district court found that State Farm engaged in
both kinds of behavior.5
(1) Policy Terms
The district court found that punitive damages were warranted in part
because State Farm “continued to urge an interpretation of its anti-concurrent
cause clause that would entitle it to collect premiums from policyholders for
what amounts to no coverage if even a small part of a loss was due to water.”
State Farm argues on appeal that it did not rely on the ACC clause to deny
coverage to the Broussards. Even if the district court is correct and the ACC
clause played a role in State Farm’s treatment of the Broussards’ claim, this is
not a basis for a punitive damages instruction. In Leonard v. Nationwide
Mutual Insurance Co., this Court held that an ACC clause similar to that relied
5
The district court also faulted State Farm for placing the Broussards “in a most
difficult position during a time of extreme economic hardship.” Mississippi cases have
recognized that insurance companies that use an insured’s financial hardship to force an unjust
settlement may deserve punitive damages. See Andrew Jackson Life Ins. Co. v. Williams, 566
So. 2d 1172, 1186–87 (Miss. 1990); Travelers Indem. Co. v. Wetherbee, 368 So. 2d 829, 835
(Miss. 1979). However, these cases have considered forced settlement in conjunction with
other bad-faith behavior not at issue here, such as fraudulent sales practices. Williams, 566
So. 2d at 1175.
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No. 07-60443
upon by State Farm is valid and enforceable under Mississippi law. 499 F.3d
419, 430, 435 (5th Cir. 2007); accord Tuepker, 507 F.3d at 354 (“Leonard governs
this case, and compels the conclusion that the ACC Clause in State Farm’s policy
is not ambiguous, and should be enforced under Mississippi law.”). State Farm
cannot be liable for punitive damages solely for relying on a legally valid and
enforceable clause in its insurance contract.
(2) Negligent Claim Investigation
The district court found that State Farm “did not conduct a reasonably
prompt investigation of all relevant facts before denying the [Broussards’] claim
and, after conducting such an investigation, did not make a realistic evaluation
of the claim.” To qualify for punitive damages for negligent claim investigation,
“the level of negligence in conducting the investigation must be such that a
proper investigation by the insurer would easily adduce evidence showing its
defenses to be without merit.” Sobley, 302 F.3d at 342 (internal quotations
omitted) (discussing a homeowners insurance policy). In other words, the
Broussards must show “that further investigation would undercover evidence
that would have undermined at least the arguable merit” of State Farm’s
defenses. Id. (internal quotations omitted).
This is not a case in which further investigation has “easily adduce[d]
evidence” showing that State Farm’s position lacks arguable merit. Even after
extensive investigations by both parties, the question of whether the Broussards’
property was first destroyed by wind or water remains an extremely close one.
See supra, Part II(A). We hold that State Farm’s fall 2005 claim investigation
did not breach the implied covenant of good faith and fair dealing, and that
punitive damages are not appropriate on this ground. We reverse the district
court’s decision to submit the question of punitive damages to the jury and
vacate the jury’s award of punitive damages.
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No. 07-60443
D. Motion to Exclude the Broussards’ Expert Witness James Slider
State Farm appeals the admission of testimony by James Slider, a civil
engineer who testified as an expert on behalf of the Broussards. This Court
“review[s] the district court’s determination of admissibility of expert evidence
under Daubert for abuse of discretion.” Knight v. Kirby Inland Marine Inc., 482
F.3d 347, 351 (5th Cir. 2007). The Daubert factors for evaluating expert
testimony include “whether the theory or technique the expert employs is
generally accepted; whether the theory has been subjected to peer review and
publication; whether the theory can and has been tested; whether the known or
potential rate of error is acceptable; and whether there are standards controlling
the technique’s operation.” Id. (citing Daubert v. Merrell Dow Pharms., Inc., 509
U.S. 579, 593 (1993)).
Slider, whose specialty is in structural engineering, opined that wind
destroyed the Broussards’ home prior to the arrival of the storm surge. He
considered and ruled out other causes for the initial damage to the Broussards’
home by evaluating data from the Stennis Space Center and eyewitness
testimony. He also based his conclusions on physical evidence left on the
Broussards’ property. State Farm objected to his testimony in part because his
work had not been peer reviewed and he did not know of others who had used
his methods. The district court evaluated Slider’s testimony in a written order
and found that the data he relied on was sufficiently reliable to support his
opinions. After reviewing the record, we affirm and hold that the district court
did not abuse its discretion when it admitted Slider’s testimony.
E. Motion for Change of Venue
The district court denied State Farm’s change of venue motion. This panel
reviews the district court’s venue rulings for abuse of discretion. In re
Volkswagen AG, 371 F.3d 201, 203 (5th Cir. 2004). This Court asks three
questions: “Did the district court correctly construe and apply the relevant
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No. 07-60443
statutes; . . . Did the district court consider the relevant factors incident to ruling
upon a motion to transfer; and . . . Did the district court abuse its discretion in
deciding the motion to transfer.” Id. Relevant factors under 28 U.S.C. § 1404(a)
include whether the proposed transfer venue is a forum in which the suit could
originally have been brought, the convenience of the parties and witnesses, and
the interests of justice. Id.
We hold that the district court did not abuse its discretion when it denied
State Farm’s motion for change of venue, notwithstanding the intensive pretrial
publicity concerning Hurricane Katrina-related insurance claims. See id. As
this Court noted in Mayola v. Alabama, even the “broad and intensive public
awareness” stemming from notorious events like “the battlefield execution of
Vietnamese civilians by Lt. William Calley, Jr., and other soldiers, and the high
level conspiracy to cover up the Watergate break-in,” was held not to have
created a presumption of juror prejudice in either Calley v. Callaway, 519 F.2d
184, 203–13 (5th Cir. 1975) (Lt. Calley) or United States v. Haldeman, 559 F.2d
31, 60–69 (D.C. Cir. 1976) (Watergate). See 623 F.2d 992, 998–99 (5th Cir.
1980). The transcript reveals that the district court was very aware of its
responsibility to protect the interests of justice by selecting a jury free from
prejudice. Media-related matters took up seventeen pages in the voir dire
transcript, and the record shows that at least ten prospective jurors were
removed for cause in part because of opinions formed by pretrial publicity. In
its written order denying State Farm’s motion, the district court noted the
extensive voir dire and “the additional expenses and the great inconvenience
that individual plaintiffs would incur if the trial of this action and similar
actions were moved to another division of this district.” The district court’s
decision not to grant a change of venue was consistent with the change-of-venue
statute, and it adequately weighed the factors set out in 28 U.S.C. § 1404. We
affirm the denial of State Farm’s motion for change of venue.
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III. CONCLUSION
We REVERSE the judgment of the district court entering JMOL in favor
of the Broussards. We REVERSE and VACATE the jury’s award of punitive
damages. We AFFIRM the district court’s admission of testimony from the
Broussards’ expert witness. We AFFIRM the district court’s denial of State
Farm’s motion to change venue. We REMAND the case for a new trial.
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