Brown Ex Rel. Tracy v. Liberty Mutual Fire Insurance ( 2006 )

United States Court of Appeals
Fifth Circuit
F I L E D
IN THE UNITED STATES COURT OF APPEALS
February 9, 2006
FOR THE FIFTH CIRCUIT
Charles R. Fulbruge III
_____________________ Clerk
No. 05-30225
_____________________
RANDALL BROWN, ON BEHALF OF MICHAEL A. TRACY,
Plaintiff - Appellant,
v.
LIBERTY MUTUAL FIRE INSURANCE COMPANY; ET AL,
Defendants,
LIBERTY MUTUAL FIRE INSURANCE COMPANY,
Defendant - Appellee.
_________________________________________________________________
Appeal from the United States District Court
for the Middle District of Louisiana
No. 3:04-CV-00002-SCR
_________________________________________________________________
Before JOLLY, GARZA, and PRADO, Circuit Judges.
EDWARD C. PRADO, Circuit Judge:*
Plaintiff Randall Brown appeals from the district court’s
grant of summary judgment in favor of Defendant Liberty Mutual
Fire Insurance Company (“Liberty Mutual”). Brown filed suit
against Liberty Mutual based on an assignment of rights from
Liberty Mutual’s insured, Michael Tracy. Brown claims that
Liberty Mutual failed to meet its contractual duty to act in good
*
Pursuant to 5TH CIR. R. 47.5, the court has determined that
this opinion should not be published and is not precedent except
under the limited circumstances set forth in 5TH CIR. R. 47.5.4.
No. 05-30225
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faith in handling his claim, which arose from an automobile
accident that was Tracy’s fault. Brown alleges that Liberty
Mutual failed to settle the claim within Tracy’s policy limits
and breached its duty to keep Tracy informed and defend the claim
against him. Therefore, Brown claims that Liberty Mutual is
liable for the amount of the excess judgment against Tracy, which
includes damages, penalties, and attorney’s fees under the
penalty provision of Louisiana Revised Statutes §§ 22:658 and
22:1220. On appeal from the district court’s grant of summary
judgment in favor of Liberty Mutual, we AFFIRM.
I. FACTUAL AND PROCEDURAL BACKGROUND
The relevant facts are largely undisputed. On February 26,
2001, Michael Tracy reported to his insurer, Defendant Liberty
Mutual, that he was involved in a three-car accident three days
earlier. Tracy’s vehicle rear-ended a woman’s vehicle that in
turn hit Plaintiff Randall Brown’s vehicle. Liberty Mutual
assigned an investigator/adjustor to the claim. Brown hired an
attorney to pursue his property damage and bodily injury claims.
On March 5, Brown’s attorney advised Liberty Mutual that he
was injured in the accident, without providing specific
information about the injuries. On March 15, the attorney’s firm
sent a letter, signed by a case manager, to Liberty Mutual,
requesting the amount of Tracy’s policy limits and asking Liberty
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Mutual to “tender your policy.” In addition, the firm attached
an MRI report to the letter that stated that Brown had a
herniation and disc bulge, but did not state the likely cause of
either.1 Brown’s attorney did not provide Liberty Mutual any
other information about Brown’s medical condition and denied
Liberty Mutual’s requests for authorization to obtain Brown’s
medical records. Brown had back surgery on May 25, 2001.
On June 8, 2001, Brown filed suit against Tracy and Liberty
Mutual alleging that Brown suffered serious personal injuries as
a result of the vehicle accident on February 23. Liberty Mutual
assigned an attorney to the case who sent Tracy a letter advising
him of a potential excess judgment arising in the lawsuit. The
attorney later advised Tracy to notify any excess insurer of the
potential exposure and counseled him to consult an attorney who
specializes in asset protection. Although Liberty Mutual
authorized the attorney to settle Brown’s claims for the $25,000
policy limits, Brown refused. At a later date, Brown sent
Liberty Mutual a settlement letter, offering to settle the claim
1
The March 15 letter states in relevant part:
We have received a copy of a MRI [sic] of the clients [sic]
lumbar of which we have enclosed a copy for your review and
record. The results are positive for a herniation and a
disc bulge . . . . We are requesting at this time due to
the severity of the injuries sustained by the client in the
accident that you tender your policy.
We are also requesting a confirmation of the amount of your
insureds [sic] policy. Please provide this information.
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for $150,000. Liberty Mutual refused.
After holding a bench trial on March 6, 2003, the magistrate
judge rendered judgment in favor of Brown against Tracy and
Liberty Mutual in an amount in excess of $300,000, plus interest
and court costs. Liberty Mutual paid its policy limits, plus
interest and court costs. Thereafter, Tracy assigned all his
rights against Liberty Mutual to Brown. Brown then filed suit as
Tracy’s assignee against Liberty Mutual seeking recovery of the
amount of the excess judgment, plus penalties and attorney’s
fees.
Liberty Mutual moved for summary judgment after completion
of discovery, arguing that the undisputed facts do not establish
a claim under Louisiana’s bad faith statutes or any applicable
law. The magistrate judge granted the motion. Brown appeals,
claiming that there are genuine issues of material fact
supporting his claim that Liberty Mutual failed to meet its
contractual duty to act in good faith in handling the insurance
claim. Brown alleges that Liberty Mutual failed to settle the
claim within Tracy’s policy limit and breached its duty to keep
Tracy informed and defend the claim against him. Brown therefore
claims that Liberty Mutual is liable for the amount of the excess
judgment against Tracy, which includes damages, penalties, and
attorney’s fees under the penalty provisions of Louisiana Revised
Statutes §§ 22:658 and 22:1220. LA. REV. STAT. §§ 22:658 and
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22:1220.
II. SUMMARY JUDGMENT STANDARD
This court reviews an appeal from summary judgment de novo,
employing the same standards as the district court. See Urbano
v. Continental Airlines, Inc., 138 F.3d 204, 205 (5th Cir. 1998).
Summary judgment is appropriate when, viewing the evidence in the
light most favorable to the nonmoving party, the record reflects
that no genuine issue of material fact exists, and the moving
party is entitled to judgment as a matter of law. FED. R. CIV.
P. 56(c); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 255
(1986); Price v. Federal Exp. Corp., 283 F.3d 715, 719 (5th Cir.
2002). Summary judgment is granted where a party fails to
establish the existence of an element essential to the case and
on which the party has the burden of proof. Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986). If the moving party carries
its burden under Rule 56(c), the burden shifts so that the
opposing party must direct the court’s attention to specific
evidence in the record that demonstrates that it can satisfy a
reasonable jury that it is entitled to verdict in its favor.
Anderson, 477 U.S. at 252. Mere scintilla of evidence will not
satisfy the opposing party’s burden. Little v. Liquid Air Corp.,
37 F.3d 1069, 1075 (5th Cir. 1994).
No. 05-30225
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III. DISCUSSION
This court has jurisdiction to hear this case as there is
complete diversity between the parties and the amount in
controversy exceeds $75,000. 28 U.S.C. § 1332.
Brown asserts that the March 15 letter requesting Tracy’s
insurance company to “tender your policy” amounts to an offer to
settle, thereby obligating the insurance company to have kept
Tracy informed of the negotiations to prevent liability for
excess judgment. Brown’s claim rests upon the violation of two
relevant statutes: Louisiana Revised Statutes §§ 22:658 and
22:1220. LA. REV. STAT. §§ 22:658 and 22:1220. These statutes
set forth the liability insurer’s duty to act in good faith and
to deal fairly in handling claims. However, the facts do not
support Brown’s claims under either of these statutes.
Section 22:120 provides in pertinent part:
A. An insurer, . . . owes to his insured a duty of good
faith and fair dealing. The insurer has an affirmative duty
to adjust claims fairly and promptly and to make a
reasonable effort to settle claims with the insured or the
claimant, or both. Any insurer who breaches these duties
shall be liable for any damages sustained as result of the
breach.
B. Any one of the following acts, if knowingly committed or
performed by an insurer, constitutes a breach of the
insurer’s duties imposed in Subsection A:
(1) Misrepresenting pertinent facts or insurance policy
provisions relating to any coverages at issue.
(2) Failing to pay a settlement within thirty days after an
agreement is reduced to writing.
(3) Denying coverage or attempting to settle a claim on the
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basis of an application which the insurer knows was altered
without notice to, or knowledge or consent of, the insured.
(4) Misleading a claimant as to the applicable prescriptive
period.
(5) Failing to pay the amount of any claim due to any person
insured by the contract within sixty days after receipt of
satisfactory proof of loss from the claimant when such
failure is arbitrary, capricious, or without probable cause.
The list of acts found in subsection B, each of which constitute
a breach of the insurer’s duty to an insured and claimants, is
exclusive. Theriot v. Midland Risk Ins. Co., 694 So.2d 184, 189
(La. 1997). Brown does not cite any facts demonstrating that
Liberty Mutual breached its duty in any of the enumerated
circumstances under which an insurer neglects its duties of good
faith and fair dealing to its insured under subsection B.
Section 22:658(A) penalizes the arbitrary or capricious
failure either to pay, inter alia, (1) a claim due the insured
“within thirty days after receipt of satisfactory proofs of loss”
from the insured, or (2) a third-party claim “within thirty days
after written agreement of settlement.” LA. REV. STAT. §
22:658(A)(1), (2). Brown does not allege any facts that support
his claim under subsection A against Liberty Mutual. However,
while citing to this statute, Louisiana courts have allowed an
award of attorney’s fees in cases where an insurer’s bad faith
refusal to settle led to an excess judgment. Louque v. Allstate
Ins. Co., 314 F.3d 776, 781 (5th Cir. 2003); see also Maryland
Cas. Co. v. Dixie Ins. Co., 622 So.2d 698, 703 (La. Ct. App.
1993).
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Louisiana law obligates an insurance company to keep its
insured informed of settlement negotiations to protect him from
exposure to excess liability but states that determinations as to
what constitutes bad faith or lack of good faith depends on the
facts and circumstances of each case. Roberie v. Southern Farm
Bureau Cas. Ins. Co., 194 So.2d 713, 716 (La. 1967); Lafauci v.
Jenkins, 844 So.2d 19, 28 (La. Ct. App. 2003). Failure to settle
a claim within the policy limits is not in itself proof of bad
faith. Smith v. Audobon Ins. Co., 679 So.2d 372, 376 (La.
1996)(“In the absence of bad faith, a liability insurer generally
is free to settle or to litigate at its own discretion, without
liability to its insured for a judgment in excess of the policy
limits.”); see also Commercial Union Ins. Co. v. Mission Ins.
Co., 835 F.2d 587, 588 (5th Cir. 1988)(“As interpreted by this
court, Louisiana law only imposes liability for an excess
judgment against a primary insurer if that insurer failed to
accept an actual offer to settle within its policy limits and
such failure was negligent, arbitrary, and/or in bad faith.”).
The insurer’s conduct should be judged at the time at which the
insurer could have and should have settled within the policy
limits. See Robin v. Allstate Ins. Co., 870 So.2d 402, 409 (La.
Ct. App. 2004)(“[A] determination of whether an insurer’s refusal
to pay a claim is arbitrary and capricious, or without probable
cause, hinges on the facts known by the insurer at the time a
No. 05-30225
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decision to refuse to pay the claim is made.”) The following six
factors should be considered in determining whether an insurer
acted arbitrarily or in bad faith in failing to compromise: (1)
the probability of the insured’s liability, (2) the adequacy of
the insurer’s investigation of the claim; (3) the extent of
damages recoverable in excess of policy coverage; (4) the
rejection of offers in settlement after trial; (5) the extent of
the insured’s exposure as compared to that of the insurer; and
(6)the nondisclosure of relevant factors by the insured or
insurer. Cousins v. State Farm Mut. Auto. Ins. Co., 294 So.2d
272, 275 (La. Ct. App. 1974). “Even if a liability insurer is
not in bad faith in its evaluation of a claim or in refusing to
settle a claim, it may still be found to be in bad faith for
failure to keep its insured informed of the status of settlement
negotiations and other developments affecting his excess
exposure.” Lafauci, 844 So.2d at 29.
Brown argues that the March 15 letter received by Liberty
Mutual requesting it to “tender your policy” amounts to a
settlement offer. In addition, Brown maintains that Liberty
Mutual had adequate information through the MRI report that
should have alerted it that Brown’s claim might exceed the policy
limits. Brown asserts that Liberty Mutual intentionally failed
to inform Tracy of an offer to settle for the policy limits. If
it is reasonable to infer from the phrase “tender your policy”
No. 05-30225
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that a settlement offer has been made, then Liberty Mutual would
have acted in bad faith in not apprising Tracy of the settlement
offer.
We agree with the district court that no reasonable
inference can be drawn from the March 15 letter that it was an
offer to settle Brown’s claims for the policy limits: the letter
is from a case manager, not an attorney; the letter does not
mention the words “settle” or “settlement”; the letter requested
information about the policy limits. All these make it difficult
to view the phrase “tender your policy” as a bona fide offer to
settle Brown’s claims. The shortcomings of the letter are
plainly evident when we compare the March 15 letter to the
content of Brown’s settlement letter offering to settle his
claims for $150,000: it was signed by an attorney, the word
“settle” appeared in the first sentence, and it clearly set forth
a settlement amount.
Brown’s argument that Liberty Mutual inferred that March 15
letter was a settlement offer is unavailing. Brown points out
that on March 29, 2001, Liberty Mutual’s adjustor checked a box
marked “yes” next to the question, “Has the claimant pressed for
quick settlement?” on the initial claim assessment form.
However, this is a scintilla of evidence that is not supported by
the content of the March 15 letter. The initial claim assessment
form does not provide any information to support the inference
No. 05-30225
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that this “yes” checkmark was based on the March 15 letter.
Finally, Brown’s argument that Liberty Mutual had adequate
information that Brown’s claims might exceed the policy limits
once it received the MRI report is unpersuasive. The MRI report
did not contain any information on the causation of Brown’s
injuries. Liberty Mutual attempted but was unable to obtain
information on causation. Liberty Mutual timely appointed an
attorney upon the filing of Brown’s lawsuit against Tracy, and
the attorney timely advised Tracy of the potential for excess
liability.
IV. CONCLUSION
Brown fails to demonstrate a genuine issue of material fact
to support a finding that Liberty Mutual acted in bad faith by
failing to settle for the policy limits, or to inform Tracy of
the potential for excess liability or of any settlement offers
that could have prevented his exposure to an excess judgment.
Accordingly, we AFFIRM the district court’s grant of summary
judgment in favor of Liberty Mutual.