Danny Kelly v. State Farm Fire & Casualty Co. , 582 F. App'x 290 ( 2014 )

Case: 12-31064 Document: 00512763441 Page: 1 Date Filed: 09/10/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT
No. 12-31064 United States Court of Appeals
Fifth Circuit
FILED
DANNY KELLY, September 10, 2014
Lyle W. Cayce
Plaintiff-Appellant Clerk
v.
STATE FARM FIRE & CASUALTY COMPANY,
Defendant-Appellee
Appeal from the United States District Court
for the Middle District of Louisiana
USDC No. 3:09-CV-619
Before HIGGINBOTHAM, CLEMENT, and PRADO, Circuit Judges.
PER CURIAM:*
The panel issued an opinion in this case on March 12, 2014. Kelly v.
State Farm Fire & Cas. Co., 559 F. App’x 316 (5th Cir. 2014) (unpublished).
Plaintiff-Appellant Danny Kelly (“Kelly”) and Defendant-Appellee State Farm
Fire & Casualty Company (“State Farm”) both filed petitions for rehearing.
The petitions for rehearing are GRANTED. We withdraw our previous opinion
and substitute the following.
Kelly was injured during a car accident caused by one of State Farm’s
customers, Henry Thomas (“Thomas”). Kelly sued Thomas and obtained an
* 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 R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH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.
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adverse judgment against him that was in excess of policy limits. In return for
Kelly’s promise not to pursue Thomas individually, Thomas assigned Kelly his
right to sue State Farm for acting in bad faith towards Thomas. Kelly used
these assigned rights to assert two bad-faith claims against State Farm, one
based on State Farm’s failure to notify Thomas of a settlement offer and
another based on State Farm’s failure to settle Kelly’s claims against Thomas.
On both counts, the district court granted summary judgment in State Farm’s
favor. For the reasons that follow, we certify two determinative questions to
the Louisiana Supreme Court.
FACTUAL AND PROCEDURAL BACKGROUND
In their petitions for reconsideration, Kelly and State Farm do not
challenge this court’s original statement of the factual and procedural
background. Accordingly, the following factual and procedural background is
taken from the original opinion. See 559 F. App’x at 317-18.
On November 21, 2005, a car accident occurred involving Thomas and
Kelly. Thomas and Kelly were driving opposite directions when Thomas
initiated a left turn. Thomas hit Kelly while making the left turn. Kelly and a
witness at the scene told police that Thomas failed to yield to oncoming traffic.
Thomas maintained that he was not negligent. Kelly was taken to a hospital
by ambulance and was treated for a fractured femur. His hospital stay lasted
approximately six days and cost $26,803.17.
On January 6, 2006, Kelly's attorney mailed a letter to Thomas's insurer,
State Farm, regarding Kelly's claim. The letter included copies of Kelly's
hospital records and stated:
Please find enclosed a copy of Danny Kelly's Medical
Summary with attached medical records/reports and bills
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concerning his hospital treatment for the above referenced
incident involving your insured. I will recommend release of State
Farm Insurance Company and your insured, Henry Thomas, Jr.,
for payment of your policy limits.
Please give me a call in the next ten (10) days to discuss this
matter.
The parties dispute, however, when this letter was received. According to
Kelly's certified-mail receipt, the letter was accepted by “G. Johnson” on
January 9, 2006. State Farm maintains that the letter was not received until
February 14, 2006. A State Farm activity log indicates that State Farm
received a demand for “policy limits $25,000.00” on February 11, 2006. 1 It does
not appear that State Farm ever responded to the letter.
Kelly's attorney spoke with State Farm representatives on March 8 and
March 22. During the March 22, 2006, conversation, the representative offered
to settle the case for $25,000, the policy limit. The offer was memorialized in
a letter dated March 23, 2006. Kelly's attorney rejected the offer and proceeded
to file suit. On the day that Kelly rejected State Farm's settlement offer, State
Farm mailed a letter to Thomas informing him of the possibility of personal
liability and suggesting that he consider retaining independent counsel. State
Farm's letter to Thomas did not discuss the letter from Kelly's attorney, State
Farm's offer to Kelly, or the extent of Kelly's medical bills.
At trial, Thomas was found liable for the accident and judgment was
rendered against him for $176,464.07, plus interest. State Farm promptly paid
Kelly the policy limit. Under the terms of his policy, Thomas was liable for the
remainder of the judgment. However, Thomas entered into a compromise
agreement with Kelly. Thomas assigned Kelly his right to pursue a bad faith
1 The activity log technically shows “DEMAND REC'D: 2/11/05.” However, since the
accident did not occur until November 2005, this is likely a typo.
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action against State Farm in exchange for Kelly's promise not to enforce the
judgment against Thomas’s personal assets.
Kelly filed suit against State Farm soon thereafter, alleging two counts
of bad faith under Louisiana law. Kelly alleged that State Farm acted in bad
faith when it (1) failed to notify Thomas of Kelly's January 2006 letter; and (2)
failed to accept Kelly's January 2006 settlement offer. State Farm removed
the case to federal court and filed a motion for summary judgment. On
November 8, 2011, the district court partially granted State Farm's motion.
The district court granted summary judgment in State Farm's favor on Kelly's
first argument, holding that the January 2006 letter did not constitute a
settlement offer and that State Farm did not have a duty to notify Thomas
when the letter was received. The district court denied summary judgment on
the second point, however, stating that Kelly might be able to prove that State
Farm's failure to settle the claim constituted bad faith.
State Farm moved for reconsideration on November 23, 2011, arguing
that State Farm could be liable for bad faith failure to settle only if it failed to
accept an actual offer and acted in bad faith. According to State Farm's
contention, the district court's finding that the January 2006 letter did not
constitute an offer necessarily precluded liability on Kelly's second claim. The
district court agreed and revised its opinion to grant full summary judgment
in State Farm's favor. Judgment was entered accordingly, and Kelly appealed.
LEGAL STANDARD
When evaluating issues of state law, federal courts “look to the final
decisions of that state’s highest court.” Chaney v. Dreyfus Serv. Corp., 595 F.3d
219, 229 (5th Cir. 2010). “In the absence of such a decision, we must make an
Erie guess and determine, in our best judgment, how that court would resolve
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the issue if presented with the same case.” Six Flags, Inc. v. Westchester
Surplus Lines Ins. Co., 565 F.3d 948, 954 (5th Cir. 2009) (internal quotation
marks omitted). “In making an Erie guess, we must employ Louisiana's
civilian methodology, whereby we first examine primary sources of law: the
constitution, codes, and statutes.” Id. “Jurisprudence, even when it rises to
the level of jurisprudence constante, is a secondary law source in Louisiana.”
Id. But, once a panel of this court decides an issue of state law by making an
Erie guess, this court is bound by this decision, unless a subsequent state
statute or state court decision has rendered the panel’s interpretation “clearly
wrong.” Bustos v. Martini Club, Inc., 599 F.3d 458, 462-63 (5th Cir. 2010).
This court, on its own motion, can certify questions to the Supreme Court
of Louisiana if there are “questions or propositions of law of [Louisiana] which
are determinative of said cause independently of any other questions involved
in said case and [ ] there are no clear controlling precedents in the decisions of
the supreme court of this state.” Sup. Ct. of La. Rule XII, §§ 1-2.
“[C]ertification is not a proper avenue to change our binding precedent” on
issues of state law, even when the parties challenge a previous panel’s Erie
guess. Hughes v. Tobacco Inst., Inc., 278 F.3d 417, 425-26 (5th Cir. 2001)
(internal quotation marks omitted). But “certification may be advisable where
important state interests are at stake and the state courts have not provided
clear guidance on how to proceed.” In re Katrina Canal Breaches Litig., 613
F.3d 504, 509 (5th Cir. 2010) (internal quotation marks omitted).
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DISCUSSION
In his petition for rehearing, Kelly explicitly disclaims any reliance on
Louisiana Revised Statutes §§ 22:1892 and 22:1973(B)(5). 2 He also emphasizes
that he is only pursuing Thomas’s claims against State Farm. Thus, we only
consider Thomas’s claims under Section 22:1973(A) and (B)(1).
This court has identified two determinative questions of Louisiana law
on which there are no controlling precedents from the Supreme Court of
Louisiana. Neither party has asked this court to certify these questions to the
Supreme Court of Louisiana. But this court can certify questions to the
Supreme Court of Louisiana sua sponte. Sup. Ct. of La. Rule XII, § 2; see also
Katrina Canal, 613 F.3d at 509 (certifying question to Supreme Court of
Louisiana, even though no party requested it). For the reasons given below,
we find it prudent to certify two questions.
A. Section 22:1973(A) Claim
Section 22:1973(A) provides, in relevant part, “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.” Despite the broad
wording of Section 22:1973(A), it does not give a third-party claimant the right
to sue an insurer for a generalized breach of its duty of good faith and fair
dealing. Theriot v. Midland Risk Ins. Co., 694 So. 2d 184, 188-93 (La. 1997).
Instead, a third-party claimant can only recover against an insurer that has
taken one or more of the prohibited actions specified in Section 22:1973(B). Id.;
see also § 22:1973(B) (“Any one of the following acts, if knowingly committed
2 All subsequent references to statutory sections refer to the Louisiana Revised Statutes.
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or performed by an insurer, constitutes a breach of the insurer’s duties imposed
in Subsection A of this Section: . . . .”).
In Stanley v. Trinchard, this court held that, in contrast to a third-party
claimant, an insured can maintain a cause of action against an insurer for a
generalized breach of the duty of good faith and fair dealing, even if the
insurer’s conduct did not violate Section 22:1973(B). 500 F.3d 411, 427-28 (5th
Cir. 2007). Two Louisiana intermediate appellate court cases have found the
opposite, holding that an insured can only bring claims against an insurer that
violated Section 22:1973(B). Arvie v. Safeway Ins. Co. of La., 951 So. 2d 1284,
1285 (La. App. 3 Cir. 2007); McGee v. Omni Ins. Co., 840 So. 2d 1248, 1253-56
(La. App. 3 Cir. 2003). But both of these Louisiana intermediate appellate
court cases antedated Stanley, and there have been no other new state law
developments since Stanley. Thus, because this court’s precedent on this
matter is clear, we must assume that an insured can pursue a cause of action
against an insurer for a generalized breach of the duty of good faith and fair
dealing. 3
Before Section 22:1973(A) was enacted, this court held that an insurer
could be found liable for a bad-faith failure-to-settle claim only if the insurer
had received a firm settlement offer from a claimant. Commercial Union Ins.
Co. v. Mission Ins. Co., 835 F.2d 587, 588 & n.2 (5th Cir. 1988). No Louisiana
court has ever cited this case or stated this proposition. Moreover, Commercial
Union’s holding has been seriously undermined by the subsequent enactment
of Section 22:1973(A), which provides that “[t]he insurer has an affirmative
duty . . . to make a reasonable effort to settle claims with the insured or the
3 Of course, the Supreme Court of Louisiana may correct this or any other assumption
that it finds to be erroneous.
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claimant, or both” (emphasis added). 4 Section 22:1973(A)’s imposition of an
affirmative duty to make a reasonable effort to settle claims suggests that
insurers must do more than simply rest on their laurels and wait for claimants
to submit firm settlement offers. Particularly given Louisiana’s civilian
methodology, which treats jurisprudence as secondary to statutes, Six Flags,
565 F.3d at 954, this statutory enactment casts serious doubt on our prior
jurisprudence on this issue.
Again, the Supreme Court of Louisiana and the Louisiana intermediate
appellate courts have never held that a firm settlement offer is required for a
bad-faith failure-to-settle claim. But Kelly has not directed us to any
Louisiana cases that find an insurer liable for bad-faith failure-to-settle in the
absence of a firm settlement offer. The resolution of this issue is thus unclear
under both Louisiana law and our own precedent. Moreover, this issue is
determinative. Kelly’s petition for rehearing does not claim that he made a
binding settlement offer, and therefore Kelly will lose if he must show that he
made such an offer. Thus, we will certify this question to the Supreme Court
of Louisiana.
B. Section 22:1973(B)(1) Claim
Section 22:1973(B)(1) provides that an insurer breaches its duties if it
“[m]isrepresent[s] pertinent facts or insurance policy provisions relating to any
coverages at issue.” Some Louisiana intermediate court decisions have held
4State Farm’s citation to Brown ex rel Tracy v. Liberty Mutual Fire Insurance Co., 168
F. App’x 558 (5th Cir. 2006) (unpublished), to establish the continued viability of Commercial
Union is unpersuasive. Brown cited Commercial Union only with respect to a claim under
the predecessor to Section 22:1892, which, unlike Section 22:1973(A), does not impose on
insurers an affirmative duty to settle. Thus, Brown did not deal with the issue of whether
Commercial Union is abrogated by statute in the Section 22:1973(A) context.
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that an insurer can only be found liable under Section 22:1973(B)(1) if the
insurer misrepresents the coverage provided by the insurance policy. Talton
v. USAA Cas. Ins. Co., 981 So. 2d 696, 709-10 (La. App. 4 Cir. 2008) (finding
no (B)(1) misrepresentation where insurer “was in regular and continuous
contact with the appellants and did not misrepresent any fact related to
coverage”); Strong v. Farm Bureau Ins. Co., 743 So. 2d 949, 953 (La. App. 2 Cir.
1999) (finding no (B)(1) misrepresentation where the only fact misrepresented
to third-party claimant was that insured had a green left-turn arrow rather
than a green light, which was a liability-related rather than a coverage-related
fact). But two Louisiana intermediate appellate cases have held that an
insurer can be found liable for non-coverage-related misrepresentations or
nondisclosures. Arvie, 951 So. 2d at 1286 (finding a (B)(1) misrepresentation
based on insurer’s failure to communicate the extent of the claimant’s injuries
or the status of potential settlement); McGee, 840 So. 2d at 1256 (finding a
(B)(1) misrepresentation based in part on insurer’s failure to communicate
status of claims). Thus, the Louisiana intermediate appellate courts conflict
on this question.
This court has never made a direct holding on this issue. In Versai, we
suggested in dicta that Section 22:1973(B)(1) only applies to
misrepresentations about coverage-related facts. Versai Mgmt. Corp. v.
Clarendon Am. Ins. Co., 597 F.3d 729, 739-40 (5th Cir. 2010). 5 This suggestion
was unnecessary to the resolution of Versai. The alleged misrepresentation
there clearly involved a coverage-related fact: the availability of code upgrade
5The court went on to explain that such a claim would have to involve
misrepresentations about “facts about the policy itself, such as the amount of coverage, lapse
or expiration of the policy, or exclusions from coverage.” Versai, 597 F.3d at 739-40 (quoting
Imperial Trading Co. v. Travelers Prop. Cas. Co. of Am., Civ. No. 06-4262, 2009 WL 2356290,
at *3 (E.D. La. July 27, 2009) (quoting Strong, 743 So.2d at 953)).
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coverage. Id. Further, Versai’s dicta did not analyze the split among the
Louisiana intermediate appellate courts. Id. Instead, the court relied on a
district court case, Imperial Trading Co., which analyzed the plain text of
Section 22:1973(B)(1) and quoted Strong, 743 So. 2d 949, but failed to mention
that other Louisiana intermediate appellate courts have interpreted this text
differently. 2009 WL 2356290, at *2. Moreover, directly before we stated this
dicta in Versai, we cited McGee. Versai, 597 F.3d at 740. McGee held that the
insurer breached its duty under Section 22:1973(B)(1) by failing to
communicate the status of a claim, 840 So.2d at 1256, which was clearly not a
coverage-related misrepresentation. Thus, if we apply McGee, Kelly should
almost certainly win. As in McGee, Kelly’s primary complaint under Section
22:1973(B)(1) is that State Farm failed to communicate the status of Kelly’s
claim and settlement negotiations to Thomas. Versai therefore cuts in two
opposing directions in this case; Versai’s reliance on McGee indicates that Kelly
should win, but Versai’s dicta suggests that Kelly should lose. Given this
confusion in Louisiana case law, as well as in Versai itself, we find it prudent
to certify this question, as well.
C. Decision to Certify Questions
As discussed in detail above, the Supreme Court of Louisiana has not yet
passed on either of the above questions, and their answers are by no means
clear. The resolution of these issues will determine the outcome of this case.
Thus, Louisiana’s requirements for certification are met. Sup. Ct. of La. Rule
XII, §§ 1-2. Our precedent does not directly answer either of the questions, and
the State of Louisiana has a strong interest in ensuring the proper application
of its insurer liability statute. Section 22:1973 clearly strikes a balance
between Louisiana’s need to hold insurers accountable for certain misconduct
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and Louisiana’s competing need to attract insurance companies to the state.
The Supreme Court of Louisiana is uniquely well-suited to strike this balance
appropriately. Thus, we certify the two questions to that court. See Katrina
Canal, 613 F.3d at 509 (holding that it is proper to certify uncertain issues that
are important to state law).
QUESTIONS CERTIFIED
We certify the following questions to the Supreme Court of Louisiana:
(1) Can an insurer be found liable for a bad-faith failure-to-settle claim
under Section 22:1973(A) when the insurer never received a firm
settlement offer?
(2) Can an insurer be found liable under Section 22:1973(B)(1) for
misrepresenting or failing to disclose facts that are not related to the
insurance policy’s coverage?
CONCLUSION
We disclaim any intent that the Supreme Court of Louisiana confine its
reply to the precise form or scope of the legal question we certify. We transfer
to the Supreme Court of Louisiana the record and appellate briefs with our
certification. This panel retains cognizance of this appeal pending response
from the Supreme Court of Louisiana.
We CERTIFY the questions stated to the Louisiana Supreme Court.
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