Jackson v. Berkshire Hathaway ( 2021 )

Case: 20-30451 Document: 00515821431 Page: 1 Date Filed: 04/14/2021
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
April 14, 2021
No. 20-30451 Lyle W. Cayce
Clerk
Melvin Jackson, doing business as MLJ Trucking,L.L.C.; Janet
Jackson, doing business as MLJ Trucking,L.L.C.,
Plaintiffs—Appellees,
versus
Berkshire Hathaway Homestate Insurance Company,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 5:18-CV-1146
Before Jones, Clement, and Graves, Circuit Judges.
James E. Graves, Jr., Circuit Judge:*
Plaintiffs-Appellees Melvin and Janet Jackson sued Defendant-
Appellant Berkshire Hathaway Homestate Insurance Company for its failure
to pay their policy claim following an accident involving their truck. After a
bench trial, the district court awarded $19,876.42 in statutory penalties,
*
Pursuant to 5th Circuit Rule 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opinion should not be published and is not precedent except under the limited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 Circuit Rule 47.5.4.
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No. 20-30451
$6,625.47 in attorney’s fees, and $1,665.61 in costs, ruling that Berkshire
failed to timely pay the claim in violation of Louisiana law. Berkshire appeals
the judgment. We AFFIRM.
I. Background
Melvin and Janet Jackson own a small trucking company, MLJ
Trucking, LLC, which operated two Peterbilt trucks that it leased from
Brenton Turnipseed. MLJ sought to obtain insurance for the 2014 Peterbilt
truck through Pace Insurance Managers. Through Pace, MLJ obtained
insurance for the truck with Berkshire Hathaway Homestate Insurance
Company. Specifically, the truck was added to an existing Berkshire
insurance policy, bearing Policy No. 02TRM01928001, on January 13, 2017,
through the submission of a General Change Endorsement Form.
On July 31, 2017, the truck was involved in an accident. MLJ reported
the accident to Berkshire, which assigned the claim to CJ Hester Inc. On
August 7, 2017, CJ Hester inspected the truck and issued an appraisal report
estimating the damages to be $40,752.84 (less a $1,000 deductible).
During the initial evaluation of the claim, Berkshire discovered a
discrepancy between the VIN of the truck and the VIN on the policy. The
damaged truck contained VIN 1XPXDP0X9ED233253 (“253 truck”), but
the policy listed VIN 1XPXDP0X5ED233251 (“251 truck”). This
discrepancy led to a delay in Berkshire determining whether the damaged
truck was covered under the policy.
Berkshire claims notes show that on August 16, 2017, a Berkshire
employee had a long phone conversation with Pace employees and
Turnipseed, during which Turnipseed confirmed that there was an error in
the paperwork—he traded in the 251 truck to a dealership in Shreveport,
Louisiana, and leased the 253 truck to MLJ. Turnipseed said he had to go to
the DMV and sort everything out. Pace informed Berkshire that it was
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“sending an endorsement right now to correct the VIN.” On that same day,
Pace sent a Commercial Policy Change Request with the corrected VIN
ending in 253, as well as a revised Automobile Loss Notice listing the “loss
payee” as “GE TF Trust.”
On August 17, 2017, Tamara Colley from Pace notified Berkshire that
the VIN mix-up was corrected with the DMV. Attached to the email was a
vehicle invoice dated December 27, 2016, listing the vehicle as the 251 truck;
the seller as BMO Harris Bank NA; and the buyer as Peterbilt Truck Center
of Shreveport, LLC. The invoice showed that the 251 truck was purchased
by the Shreveport dealership in late December 2016.
Robbie Thielen from Berkshire, however, replied that according to
the Department of Transportation (DOT) records, a truck with a VIN ending
in 251 had been inspected twice on January 11th and March 14th. Berkshire
maintained that it would not be amending the VIN on the policy to match the
truck involved in the claim. Colley emailed back, stating that Turnipseed
explained to her that when the DOT inspected the truck, the officer only
checked the registration papers and did not compare the VIN on the
registration papers to the VIN on the truck door. She also noted that the 251
truck had a blown-up motor, so it was not in running condition in January
2017, and that it was later sold to Womack & Sons.
On September 1, 2017, Colley sent an email with shop records
confirming that the 251 truck was in the shop from November 2016 to
February 2017. On September 8, 2017, Berkshire prepared a Policy
Application Review (PAR), which could trigger additional investigation and
in-person discussions of the claim. On September 12, 2017, the claim was
referred for further review because the damaged vehicle “was not scheduled
on the policy.”
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On September 22, 2017, Colley emailed Thielen a letter from the
Peterbilt dealership, which averred that it took possession of the 251 truck
from AJ Turnipseed Trucking/BMO Harris Bank on December 27, 2016,
and had it until April 28, 2017, when it was sold to Womack & Sons. Colley
stated: “I absolutely do not know what else I can provide to you for proof that
the dealership had the vehicle #251 and the insured had vehicle #253.”
Berkshire claims notes show that on October 24, 2017, a Berkshire
employee advised MLJ that it “agreed to pay the claim on a disputed basis.”
On November 2, 2017, the title to the truck was requested, and Mrs. Jackson
subsequently provided a copy. Berkshire issued the full payment to MLJ on
November 28, 2017.
The Jacksons sued Berkshire for the delay in payment. The case was
tried before a magistrate judge. Following trial and post-trial briefing, the
district court issued a memorandum ruling and final judgment, concluding
that (1) the insurance policy must be deemed reformed to reflect that the
damaged truck is covered by the policy due to the mutual mistake between
MLJ and Pace, who acted as Berkshire’s agent; and (2) Berkshire violated
Louisiana law by failing to pay the claim within thirty days after receipt of
satisfactory proof of loss. Accordingly, Berkshire was ordered to pay MLJ
$19,876.42 in statutory penalties. The district court also granted MLJ’s
motion for attorney’s fees, awarding $6,625.47 in attorney’s fees and
$1,665.61 in costs. Berkshire timely appeals.
II. Legal Standard
After a bench trial, findings of fact are reviewed for clear error and
legal issues are reviewed de novo. Luwisch v. Am. Marine Corp., 956 F.3d 320,
326 (5th Cir. 2020).
III. Legal Analysis
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Berkshire disputes the district court’s conclusion that the policy
should be deemed reformed to reflect the correct VIN of the truck, as well as
the award of statutory penalties for the delayed payment. We address each
issue in turn.
A. Reformation
“Louisiana law clearly allows contract reformation,” which is “an
equitable remedy designed to correct an error in the contract.” Fruge v.
Amerisure Mut. Ins. Co., 663 F.3d 743, 748 (5th Cir. 2011). “An insurance
policy is a contract between the parties and should be construed by using the
general rules of interpretation of contracts set forth in the Louisiana Civil
Code.” Id. (quoting Cadwallader v. Allstate Ins. Co., 848 So.2d 577, 580 (La.
2003)). “As with other written agreements, insurance policies may be
reformed if, through mutual error or fraud, the policy as issued does not
express the agreement of the parties.” Id. (citing Samuels v. State Farm Mut.
Ins. Co., 939 So.2d 1235, 1240 (La. 2006)). “Parole [sic] evidence is
admissible to show mutual error even though the express terms of the policy
are not ambiguous.” Id. (quoting Samuels, 939 So.2d at 1240). The party
seeking reformation has the burden of proving mutual error by clear and
convincing evidence, but it need only satisfy a preponderance of the evidence
“to reform a policy in a manner which did not substantially affect the risk
assumed by the insurer.” Samuels, 939 So.2d at 1240.
We look to the Louisiana Supreme Court’s decision in Samuels for
guidance on post-accident contract reformation arising from a mutual
mistake involving a clerical error. Samuels arose out of an accident in which
the victim had purchased a State Farm general umbrella policy and an
Evanston excess policy that would not be activated until State Farm paid its
limits. 939 So.2d at 1237. However, the Evanston agent misidentified the
State Farm umbrella policy on the declarations page, calling it a
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“homeowner’s policy” and providing an incorrect policy number. Id. at
1238. Thus, a plain reading of the Evanston policy would require State Farm
and Evanston to pay the excess on a pro-rata basis, contrary to the intent of
the insured and Evanston. Id.The Louisiana Supreme Court reformed the clerical error in the
insurance contract, finding that Evanston met its burden of proving that the
parties clearly intended the Evanston policy to be subordinate to the State
Farm policy. Id. at 1240. As to the affected third party, the court reasoned
that State Farm was not prejudiced by reformation because it “in no way
relied on this clerical error,” nor did it issue its policy under the mistaken
presumption that Evanston would provide pro-rata coverage. Id. In other
words, the court refused to “ignore the clear intent of the parties to the
fortuitous benefit of a third party insurance company who did not even rely
on this error in issuing its own policy.” Id. at 1241.
We need not address the agency relationship between Berkshire and
Pace, or the parties’ other arguments, because we conclude that the
insurance policy should be deemed reformed to reflect the intent of the
parties; that is, MLJ and Berkshire. The trial evidence shows that Mrs.
Jackson sought to obtain insurance coverage for a 2014 Peterbilt truck, which
MLJ had leased from Turnipseed; that during the process of obtaining
insurance with Berkshire through Pace, she thought the truck in her
possession “had the VIN 251”; that she was actually in possession of the 253
truck and never had possession of the 251 truck; and that she learned of the
truck’s actual VIN only after the accident occurred. Further, Berkshire
accepted the General Change Endorsement form submitted by MLJ, which
added a 2014 Peterbilt truck to the existing policy effective January 13, 2017,
and the form appears to have been electronically processed by Berkshire on
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January 26, 2017.1 No evidence suggests that Berkshire “relied on this
clerical error” in issuing the policy or that the mistake affected the risk
Berkshire assumed in insuring the truck. Id. at 1240.
Thus, the record clearly establishes that, through the procurement of
the policy, the parties contemplated and agreed to insuring the 2014 Peterbilt
truck in MLJ’s possession, which bore the 253 VIN. It would not be equitable
to allow a mere scrivener’s error to defeat the actual agreement of the parties;
otherwise, Berkshire would receive an unintended windfall. Like the clerical
error in Samuels, the mix-up over the truck’s VIN was a mutual mistake that
warrants contract reformation.
B. Statutory Penalties
Next, we address whether the district court erred in awarding
statutory penalties, attorney’s fees, and costs under Louisiana Revised
Statute 22:1892. Section 1892 provides that insurers “shall pay the amount
of any claim due any insured within thirty days after receipt of satisfactory
proof of loss from the insured or any party in interest.” La. Stat. Ann. §
22:1892(A)(1). When insurers fail to do so and “such failure is found to be
arbitrary, capricious, or without probable cause,” insurers are subject “to a
penalty, in addition to the amount of the loss, of fifty percent damages on the
amount found to be due . . . as well as reasonable attorney fees and costs.” Id.§ 22:1892(B)(1). “The bad faith statute[] [is] penal in nature and should be
strictly construed.” Feingerts v. La. Citizens Prop. Ins. Corp., 265 So.3d 62, 66
(La. Ct. App. 2019). To prevail under section 1892, “a claimant must
establish (1) that the insurer received satisfactory proof of loss; (2) failed to
pay the claim within the applicable statutory period, or failed to make a
1
The form contains superimposed notes of “EBOOKED BY slkeith 1/26/2017”
and “Processed NCChristensen 1/26/2017” near the signature boxes.
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written offer to settle the claim, and (3) that the failure to timely tender a
reasonable amount was arbitrary, capricious, or without probable cause.”
Bourg v. Safeway Ins. Co. of La., 300 So.3d 881, 891 (La. Ct. App. 2020).
The district court characterized the timeline of events as follows:
Berkshire took 46 days, from the September 8 submission of
the [Policy Application Review] to the October 24 notation, to
consider the facts and decide that it would pay the claim. To
that point, it was not being arbitrary or acting without probable
cause. But after that point, there was no further excuse for
delay. Berkshire possessed an appraisal report—satisfactory
proof of loss—for more than two months before it decided to
pay. Yet, once it decided to pay, it delayed more than 30
additional days, until November 28, to issue a check. There is
no explanation for why Berkshire delayed beyond the 30-day
period once it (1) had facts that showed it no longer had a basis
for a good faith defense based on the VIN and (2) it decided to
pay the claim. The court finds that this delay was arbitrary,
capricious, or without probable cause.
The August 7, 2017 appraisal report provided a satisfactory proof of loss, and
the parties do not dispute that 35 days passed between October 24, 2017
(when Berkshire agreed to pay the claim) and November 28, 2017 (when
payment was issued). Thus, what remains in dispute is whether Berkshire
had a legitimate good faith defense, and was therefore not acting arbitrarily,
for delaying payment on the claim.
“The phrase ‘arbitrary, capricious, or without probable cause’ . . .
describe[s] an insurer whose willful refusal of a claim is not based on a good-
faith defense.” Levy Gardens Partners 2007, L.P. v. Commonwealth Land Title
Ins. Co., 706 F.3d 622, 635 (5th Cir. 2013) (quoting La. Bag Co. v. Audubon
Indem. Co., 999 So.2d 1104, 1114 (La. 2008)). “Under Louisiana law,
‘penalties should be imposed only when the facts negate probable cause for
nonpayment,’ not ‘when the insurer has a reasonable basis to defend the
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claim and acts in good-faith reliance on that defense.’” Id. (quoting La. Bag
Co., 999 So.2d at 1114). Thus, “an insurer need not pay a disputed amount
in a claim for which there are substantial, reasonable and legitimate questions
as to the extent of the insurer’s liability or of the insured’s loss.” First Am.
Bank v. First Am. Transp. Title Ins. Co., 759 F.3d 427, 436 (5th Cir. 2014)
(quoting La. Bag Co., 999 So.2d at 1114). “Whether an insured’s conduct is
arbitrary or capricious ‘depends on the facts known to the insurer at the time
of its action. . . . Because the question is essentially a factual issue, the trial
court’s finding should not be disturbed on appeal absent manifest error.’” Id.(citations omitted).
The district court’s finding that Berkshire’s conduct was “arbitrary,
capricious, or without probable cause” is not manifestly erroneous.
Rightfully so, Berkshire demanded additional proof and investigated MLJ’s
claim due to concerns that “MLJ may be operating both of these trucks, 251
and 253, but only paying a premium with respect to one of those trucks.” But
during the investigation, Berkshire received more than sufficient proof of
MLJ’s possession of the 253 truck and that the 251 truck was neither in
Turnipseed’s or MLJ’s possession since November 2016. Thomas
Mortland, a Vice President of Berkshire, also testified that the insurer agreed
to pay the claim after finding no presence of fraud:
I can tell you that there are situations I described funny
business, fraud, however you describe it, where there is an
apparent intent to have these other vehicles. And again, we
determined that’s not what happened here. We concluded [the
VIN mix-up] was inadvertent, but at the same time, we were
not, as the underwriter indicated early on, we were not going
to issue an endorsement adding that vehicle.
Importantly, once Berkshire expressly agreed and committed to paying the
claim on October 24, 2017, it no longer had a reasonable basis for refusing to
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issue or delaying such payment. At that point, the thirty-day statutory clock
began to run.
The thirty-day deadline is strictly construed. “Any insurer who fails
to pay said undisputed amount has acted in a manner that is, by definition,
arbitrary, capricious or without probable cause.” La. Bag Co., 999 So.2d at
1120. “[T]he failure to pay an undisputed amount is a per se violation of the
statute.” Versai Mgmt. Corp. v. Clarendon Am. Ins. Co., 597 F.3d 729, 739 (5th
Cir. 2010). Here, the imposition of statutory penalties was appropriate
because Berkshire failed to pay the amount within thirty days of October 24.
See La. Bag Co., 999 So.2d at 1119 (finding that as soon as “the blanket
coverage issue was resolved by September 1, 2003,” the insurer’s “failure to
tender those undisputed amounts within the statutorily mandated time
period was, by definition, arbitrary, capricious or without probable cause”);
see Versai Mgmt. Corp., 597 F.3d at 739 (affirming statutory penalties where
insurers “possessed adequate knowledge of an undisputed claim” on May
26th and eventually paid in late July and early August, because “merely
behaving in a less-arbitrary and capricious manner does not absolve insurers
of the consequences of delay”).
We also reject Berkshire’s suggestion that the thirty-day clock started
on November 2, 2017, when it requested the title to the truck in order to
verify ownership and who had interest in the vehicle. Berkshire received
notice that GE TF Trust was the loss payee of the policy on August 16, 2017.
Cf. Richardson v. GEICO Indem. Co., 48 So.3d 307, 315–16 (La. Ct. App.
2010). Further, an insurer need not pay a disputed amount where there are
“substantial, reasonable and legitimate questions as to the extent of the
insurer’s liability or of the insured’s loss.” La. Bag Co., 999 So.2d at 1114
(emphasis added). Berkshire’s verification of ownership did not pertain to
Berkshire’s liability or MLJ’s loss; instead, it was only part of a procedural
process in issuing the payment to the insured. Therefore, we cannot say that
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the district court committed “manifest error” in finding that Berkshire acted
arbitrarily by failing to issue payment within thirty days of agreeing to do so,
when it also had prior knowledge of who owned or had interest in the truck.
La. Bag Co., 999 So.2d at 1122.
IV. Conclusion
For the foregoing reasons, we AFFIRM.
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