Arrowood Indemnity Company v. Mississippi Windstorm Underwriting Association , 2016 Miss. LEXIS 249 ( 2016 )

IN THE SUPREME COURT OF MISSISSIPPI
NO. 2014-CA-01638-SCT
ARROWOOD INDEMNITY COMPANY
v.
MISSISSIPPI WINDSTORM UNDERWRITING
ASSOCIATION
DATE OF JUDGMENT: 06/16/2014
TRIAL JUDGE: HON. DENISE OWENS
TRIAL COURT ATTORNEYS: CHRISTOPHER ROYCE SHAW
ROBERT B. HOUSE
REBECCA SUZANNE BLUNDEN
ELLEN PATTON ROBB
TAMMRA CASCIO
COURT FROM WHICH APPEALED: HINDS COUNTY CHANCERY COURT
ATTORNEYS FOR APPELLANT: ANDREW S. HARRIS
H. MITCHELL COWAN
KAYTIE M. PICKETT
ATTORNEYS FOR APPELLEE: REBECCA BLUNDEN
CHARLES G. COPELAND
ELLEN ROBB
JAMES H. HEIDELBERG
NATURE OF THE CASE: CIVIL - INSURANCE
DISPOSITION: REVERSED AND REMANDED - 06/16/2016
MOTION FOR REHEARING FILED:
MANDATE ISSUED:
EN BANC.
LAMAR, JUSTICE, FOR THE COURT:
¶1. Arrowood Indemnity Company,1 a member of the Mississippi Windstorm
Underwriting Association (“the Windpool”), submitted its premium data as required for a
post-Katrina data-correction process. Arrowood failed to claim the appropriate credits
available to it by statute which, it alleges, resulted in a nearly five-million-dollar
overpayment. But Arrowood had based its data submission on information provided by the
Windpool, which was incorrect. So Arrowood requested an opportunity to submit the correct
information, but the Windpool denied its request because the deadline for corrections had
passed. The Mississippi Insurance Commissioner and the Hinds County Chancery Court
affirmed the Windpool’s decision. We find that the Windpool’s deadline is tolled under the
facts of this case as it pertains to Arrowood, because its incorrect representation precipitated
Arrowood’s incorrect data submission. We therefore reverse the decisions of the Insurance
Commissioner and the Hinds County Chancery Court and remand this case for proceedings
consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
¶2. The parties stipulated to virtually every fact in this case. The Windpool is a statutorily
created entity that provides wind and hail insurance to citizens on Mississippi’s Gulf
Coast—it is an “insurer of last resort.” Every insurance company that wrote property
1
We use the name “Arrowood,” though its name and ownership have changed since
2004. Arrowood is the current trade name for Royal Indemnity Company, which was an
affiliate of Royal & Sun Alliance Group, PLC, or simply “Royal,” which was the original
reporting company.
2
insurance in Mississippi at the time relevant to this appeal was a member of the Windpool.2
As members, the insurance companies were required to participate in the Windpool’s
expenses, losses, and profits. Each company’s share of the expenses, losses, and profits was
based on “their percentages of wind and hail insurance premium writings in Mississippi
during the preceding calendar year.” The member companies reported their premium data
to the Windpool every year, so that it could calculate each company’s participation
percentage. See Miss. Code Ann. § 83-34-9 (2006).
¶3. If the Windpool suffered losses that exceeded its available assets during a policy year,3
it would assess member companies a dollar amount based on each company’s participation
percentage to cover those losses. The applicable statutes offered an incentive to members
voluntarily to write wind and hail coverage on the Gulf Coast: “A member shall, in
accordance with the [Windpool’s] plan of operation, annually receive credit for essential
property insurance voluntarily written in a coast area, and its participation in the writings of
the association shall be reduced in accordance with the provisions of the plan of operation.”
Miss. Code Ann. § 83-34-9 (2006). So by voluntarily writing wind and hail policies on the
2
The applicable statutes were amended significantly in 2007, but those amendments
provided that the pre-2007 versions would apply to events that took place before March 22,
2007. Miss. Code Ann. 83-34-3(2) (Supp. 2015). The parties agree that the pre-2007
version of the statutes governs this appeal.
3
A policy year is the twelve-month period after a policy is issued. So when Hurricane
Katrina made landfall on August 29, 2005, it damaged properties that had policies in effect
from both the 2004 and 2005 policy years. Policies from policy year 2004 would have been
those that were issued between August 30 and December 31, 2004. And policies from policy
year 2005 would have been those issued between January 1 and August 29, 2005.
3
Coast, companies received credits that would reduce—or even eliminate—their portion of
an assessment.
¶4. On March 2, 2004, Arrowood reported to the Windpool that its wind and hail
premiums from 2003 totaled $3,328,914. This amount included premiums for excess
policies—even those that were voluntarily written—and was consistent with the position the
Windpool took the following year: that excess policies did not count as “essential property
insurance” and therefore were not eligible for voluntary-writings credit. On September 29,
2005, Arrowood employee David Thomas sent the Windpool an email stating: “We had
spoken with you late in 2004 to ask if excess policies were eligible for windstorm pool
credits. You[r] response was that they were not . . . .Would you please clarify how Excess
property coverage is not eligible for pool credits[?]”
¶5. Windpool accountant Jim Redd responded with a faxed attorney’s opinion which
explained that:
“Essential property insurance” is defined by the Act as insurance against direct
loss to property as defined and limited in the standard fire policy and extended
coverage endorsement thereon, as approved by the Mississippi Insurance
Commission. Essential property insurance is that insurance required by the Act
to be written by the Association. Excess insurance even though on the same
properties does not constitute essential property insurance within the meaning
of the Act . . . .
(Emphasis added.) Stated differently, the Windpool responded that, because excess
insurance did not qualify as “essential property insurance” under the Act, Arrowood was not
entitled to any voluntary-writings credit for those premiums. See Miss. Code Ann. § 83-34-9
(2006).
4
Hurricane Katrina and the “true-ups”
¶6. When Hurricane Katrina struck in 2005, the Windpool suffered its largest loss
ever—far above what its $175 million reinsurance would cover.4 The reinsurance proceeds
covered the losses from the 2004 policy year, but the Windpool was forced to assess its
members $545 million to cover the losses from the 2005 policy year. The Windpool based
that entire assessment on each company’s participation percentage from the 2005 policy year,
which, in turn, was based on premium data from 2004. Before the Windpool issued the final
installment of the assessment, it offered affected members an opportunity to examine their
2004 premium data to ensure that it had been properly reported. But the assessment did not
affect Arrowood because it did not write any relevant policies in 2004.
¶7. Dubbed a “true-up,” the corrections period had a deadline of March 1, 2006. Several
member companies attempted to submit new data after the deadline, but the Windpool
refused to accept the late data. Those members appealed that decision—along with several
other true-up-related issues—to the Commissioner of Insurance, who affirmed the actions
of the Windpool. The Hinds County Chancery Court reversed the Commissioner, ruling in
favor of the members, and the Windpool appealed to this Court.
¶8. On appeal, this Court held that the Windpool had the authority to conduct the true-up
and to set a deadline and enforce it:
4
“Reinsurance is a process by which an insurance company reduces the extent of its
possible loss under any issued policies by distributing all or part of its potential loss to
another insurance company.” Estate of Osborn v. Gerling Global Life Ins. Co., 529 So. 2d
169 (Miss. 1988) (citing Fontenot v. Marquette Cas. Co., 247 So. 2d 572, 575 (La. 1971)).
In other words, the Windpool had purchased $175 million worth of insurance for its
insurance policies.
5
Hurricane Katrina was one of the deadliest and most costly natural disasters
in the United States, specifically on the Gulf Coast. [The Windpool]
recognized the magnitude of Hurricane Katrina’s unprecedented effect on its
members and, in an effort to administer the association in a fair and equitable
manner, gave all members an opportunity to resubmit corrected data.
....
It is true that no previously adopted rule gave the [Windpool] permission to
allow a true-up. But because these were exigent circumstances that demanded
unusual and immediate action, [it] was allowed to circumvent the process. The
true-up was not an effort on behalf of [the Windpool] to make a new rule; it
was simply a remedy to the property-insurance chaos caused by Hurricane
Katrina.
....
[The Windpool], and any entity for that matter, must have enforceable
deadlines to operate properly. As the law existed prior to Hurricane Katrina,
a member’s assessment was based on its net direct premiums written during
the previous calendar year, and credit for voluntar[y] writings is given
annually. Miss. Code Ann. § 83-34-9 (2005). Each member’s assessment is
made in proportion to the total premiums written by all members during the
previous calendar year. See id. Yes, members shall receive credit annually for
their voluntary writings . . . . But members can receive these benefits only if
they timely report the information.
Mississippi Windstorm Underwriting Ass’n v. Union Nat’l Fire Ins. Co., 86 So. 3d 216, 223
(Miss. 2012).
¶9. But this Court also found that the Windpool’s decision to apply a majority of the
reinsurance to cover the 2004 policy-year losses was erroneous. Id. at 225-26. Rather, this
Court said, “[t]he reinsurance should be applied consistent with the liabilities for any given
policy year . . . . For an accurate assessment, the figures should be recalculated using the
method mandated by Section 83–34–9.” Id. at 226.
¶10. Following Union National, the Windpool reallocated the $175 million reinsurance
between the policy years based on participation percentage, rather than using most of it to
cover completely the 2004 policy-year losses. As a result, “the 2004 policy year did not have
6
sufficient funds to cover the losses without an assessment.” And because some of that
resulting assessment would be based on 2003 premium data, the Windpool decided to offer
companies another true-up for that year’s information.
¶11. On August 16, 2012, the Windpool sent members a letter informing them of the
upcoming true-up and telling them that details and deadline information would be released
over the next few months. On October 25, 2012, the Windpool sent a more detailed letter
to members, setting out the forms needed, the procedure for submission, and a final
submission deadline of January 1, 2013. The Windpool sent a third letter to members on
December 10, 2012, which reminded them of the January 1, 2013, deadline and stated that
“submissions received by the [Windpool] after January 1, 2013 will not be accepted.”
¶12. Arrowood sent the Windpool a letter of intent on December 13, 2012, and said that
it would not be resubmitting any data for the second true-up. As such, the Windpool would
use Arrowood’s original 2003 data that it had submitted in early 2004 to calculate its
participation percentage for the reassessment made necessary by Union National. On
February 15, 2013, the Windpool informed each member of its estimated participation
percentage.
¶13. Arrowood then emailed the Windpool on March 27, 2013, expressing concerns about
“[a] significant issue with [its] 2003 reportable data,” and asking to schedule a conference
call with Windpool representatives. During a subsequent email exchange, Arrowood
attached the attorney’s opinion that the Windpool had sent it in 2005 to explain why it had
reported its premiums the way it did.
7
¶14. Brad Little, an assistant manager for the Windpool, responded and stated that the
attorney’s opinion contained incorrect information, and that Arrowood should have received
voluntary-writings credit for much of its 2003 premiums:
[P]roperty extended coverage premium[s] written on a direct basis by a MS
Dept. of Ins. admitted member carrier was assessable by the [Windpool] in the
pre-[2007] structure.
It [does] not matter whether the extended coverage premium was written for
the entire limits for a given risk, or some layer of limits for the risk. If the
coverage was direct premium reportable to the MS DOI, it was subject to wind
pool insurer reporting requirements. It was also eligible for voluntary
wind/hail write out credits if related to a risk located in the lower 6 coastal
counties (when wind/hail was included for coverage).
Non admitted, excess and surplus carrier premium was not assessable.
However, a layered property extended coverage premium written on a direct
basis through any admitted carrier as reported to the MS DOI was (and is)
assessable.
Joel [Ferriss, another Windpool official] and I did see where some form of
attorney opinion was included with [Arrowood’s] 3-27-13 email. However, the
author was not noted and it frankly appears incorrect. We can discuss issues
for clarification if you continue to feel an appeal to the [Windpool] Board is
desired.
(Emphasis added.)
¶15. On April 5, 2013, Arrowood responded to Little via letter and stated
Given that Essential Property Insurance does not include excess coverage;
such coverage should not be reportable for purposes of participation
calculations. To assess companies using [a] participation calculation that
include[s] other than essential property insurance when they are not allowed
to report voluntary writings is inequitable. Alternatively, should Arrowood be
required to report the excess premiums, we believe that it is appropriate to
allow those same excess premiums written in the wind zone counties to be
eligible for wind pool credits.
8
We request that you accept this re-filed 2003 end of year premium data to be
used for 2004 participation calculation. We only became aware of the
reporting error upon our review of the Preliminary Calculation of Participation
Percentages After Allowing for Re-filing which was received with your letter
dated February 15, 2013.
But the Windpool denied Arrowood’s request via letter, because Arrowood made the request
after the January 1, 2013 deadline. The Windpool noted that it had apprised Arrowood of
the deadline in its various letters sent in late 2012, and that this Court had upheld its authority
to conduct a true-up and to set and enforce a deadline. The Windpool also informed
Arrowood that it could appeal its decision to the Insurance Commissioner within thirty days.
Arrowood’s Appeals to the Commissioner and Chancery Court
¶16. Arrowood appealed to the Commissioner, who affirmed the Windpool’s decision.
Although the Commissioner’s findings of fact included the email-and-fax exchange wherein
the Windpool told Arrowood that its excess policies were ineligible for voluntary-writings
credit, he did not analyze that information in his conclusions of law. Rather, the entirety of
the Commissioner’s substantive analysis consisted of three sentences explaining that Union
National controlled:
[T]he [Windpool] has not denied Arrowood any constitutional or statutory
right; the Mississippi Supreme Court has already determined that the
[Windpool] has the power to set a deadline, require adherence to the deadline,
and deny its former member an unlimited right to correct their own reporting
errors.
[T]he [Union National] case addressed the exact same issue on essentially
identical facts. The only material difference between the previous Hurricane
Katrina assessment appeals and this one is that the true-up is for 2004 rather
than 2005.
9
Arrowood failed to submit the now-requested changes prior to the January 1,
2013 deadline.
So the Commissioner held that the Windpool could enforce the deadline and prevent
Arrowood from resubmitting its data.
¶17. Arrowood then appealed to the Hinds County Chancery Court, which affirmed the
Commissioner’s decision. The chancellor, like the Commissioner, found that Union
National allowed the Windpool to set and enforce deadlines. As for the Windpool’s
misrepresentation to Arrowood, the chancellor found that Arrowood was simply “confused”
about excess policies, and that “if Arrowood wanted the credit Arrowood should have timely
provided all the information [the Windpool] requested.” The chancellor made no mention
of the fax that the Windpool sent to Arrowood with admittedly false information about
credits, but found instead that “the fact that Arrowood had several chances to adhere to th[e]
deadline and failed to do so is not [the Windpool]’s fault or concern.” The chancellor also
said that “[f]or Arrowood to delay [the true-up] process due to being ‘confused’ about the
information it was supposed to submit, goes to the very nature of why deadlines are
important to the Supreme Court.”
¶18. The chancellor denied Arrowood’s motion for rehearing, and Arrowood now appeals
to this Court and raises several issues. But we address Arrowood’s second issue only, which
we find dispositive, and restate as: Is the Windpool’s deadline tolled as to Arrowood because
the Windpool’s own incorrect representations led to Arrowood’s inaccurate submission?5
5
Arrowood raises three other issues, which we do not address: (1) the Windpool
arbitrarily and capriciously allowed one insurer and not another to circumvent its deadlines;
(3) the Commissioner’s decision to enforce the Windpool’s deadlines was not within his
10
ANALYSIS
¶19. Arrowood argues that the Commissioner erred when he “[allowed] the Windpool to
ignore the effect of its prior misrepresentation.” Arrowood points out that, while the
Commissioner was aware of the Windpool’s 2005 misrepresentation, he still found that it had
the authority to enforce its deadlines; a finding which was an “erroneous” interpretation of
this Court’s precedent. Arrowood argues further that the Windpool “misrepresented its
interpretation of key statutory terminology to Arrowood,” and that the misrepresentation was
material.
¶20. Negligent misrepresentation is applicable when a party proves:
(1) a misrepresentation or omission of a fact; (2) that the representation or
omission is material or significant; 3) that the person/entity charged with the
negligence failed to exercise that degree of diligence and expertise the public
is entitled to expect of such persons/entities; (4) that the plaintiff reasonably
relied upon the misrepresentation or omission; and (5) that the plaintiff
suffered damages as a direct and proximate result of such reasonable reliance.
Horace Mann Life Ins. Co. v. Nunaley, 960 So. 2d 455, 461 (Miss. 2007). And this Court
has acknowledged that misrepresentation by a party may toll the applicable statute of
limitations when another party relies on that misrepresentation. Holbrook v. Albright Mobile
Homes, Inc., 703 So. 2d 842, 845 (Miss. 1997) (“It is clear that genuine issues of material
fact exist in this case such that summary judgment should not have been granted . . . ,
whether Albright misled the Holbrooks into believing no coverage existed is disputed,
scope or power because the Windpool lacks authority to set and enforce the true-up deadline
without promulgation and approval of formal rules; and (4) the Commissioner erred as a
matter of law in granting the Windpool deference in his review.
11
whether the Holbrooks relied on any such misleading statements such that the statute of
limitations should be tolled must be resolved.”).
¶21. Here, the parties have stipulated, and the Commissioner found, that Arrowood asked
the Windpool if it could receive voluntary-writings credit for its excess policies. Arrowood
explained in that email that it had “locate[d] a definition of Essential Property in the Plan,
but [was] unable to clearly find a specific exclusion of Excess coverage.” And as explained
above, the significance of this inquiry is that only “essential property insurance” is eligible
for voluntary-writings credit. See Miss. Code Ann. § 83-34-9.
¶22. The Windpool answered Arrowood’s question by stating expressly that “[e]xcess
insurance even though on the same properties does not constitute essential property insurance
within the meaning of the Act. . . .” Based on that answer, Arrowood did not seek to correct
the reporting of its net direct premiums during the true-up, nor did it seek to get voluntary-
writings credit for the portion of those premiums that were for excess policies. Only after
the deadline did the Windpool disavow the information in the attorney’s opinion it had faxed
to Arrowood.
¶23. The Windpool ostensibly concedes that its representation to Arrowood was
“confusing.” But Arrowood has not argued that it ever was confused about the Windpool’s
answer, and we fail to see how that answer could be confusing to someone who had asked
that specific question. Indeed, we find only one time in the record where counsel for
Arrowood used the term “confusion” regarding the excess-policy question, and he did so
when referring to Arrowood’s state of mind that led to it asking the Windpool for
12
clarification, not when referring to the Windpool’s answer. So we disagree with the
chancellor’s finding6 and the Windpool’s implication that Arrowood was “confused” by the
Windpool’s answer. Rather, any confusion Arrowood had is what prompted it to ask the
Windpool why excess coverage was not eligible for voluntary-writings credit. And it was
the incorrect information provided by the Windpool upon which Arrowood relied when it
failed to claim that credit.
¶24. The Windpool also argues that Arrowood’s reliance was unreasonable because the
pre-true-up letters it sent contained “accurate and complete information . . . including what
a voluntary writing was and how to get credit for it.” Specifically, the Windpool highlights
several statements in those letters that purportedly “contradicted [its] previous misstatement,”
such that Arrowood could not reasonably rely on it:
C The 2004 policy year percentages of participation are based upon 2003
end of year reported data (statewide writings and wind zone voluntary
writings credit).
C [M]any member companies advised the [Windpool] that they had not
properly reported their 2004 voluntary property writings on the
Mississippi coast. Failing to properly report these writings increased
their percentage of assessment for policy year 2005.
C Each member company participated in the profits or losses of each
policy year based on its percentage of the property insurance in
Mississippi for the preceding year, with credit modifications for
6
The chancellor said in her order that “For Arrowood to delay [the true-up] process
due to being ‘confused’ about the information it was suppose[d] to submit, goes to the very
nature of why deadlines are important to the Supreme Court . . . . Arrowood gave [the
Windpool] notice that it would not be submitting any new data. Arrowood made the choice
not to respond. Arrowood made the choice not to ask questions and clear up any confusion.”
13
voluntarily writing property with wind coverage on the Mississippi
Gulf Coast.
C We invite your special attention to the provision of the Plan of
Operation which allows credit for business voluntarily written in the
Mississippi Coast Area.
C Any property insurance policies which do not cover the perils of
Windstorm and Hail should not be submitted.
C It will be necessary for each member company of the [Windpool] to
submit a bordereau listing all property insurance written which covers
the perils of Windstorm and Hail . . . .
¶25. But we disagree that any of these statements provided information that would cast
doubt on the Windpool’s original answer to Arrowood’s question. To be sure, none of the
statements specifically echo the information in the Windpool’s attorney’s opinion, but neither
do any of the statements contradict that opinion. Indeed, all of the statements appear either
to provide less information than, or specifically refer to, the governing statutes and
Windpool’s Plan of Operation that led to Arrowood’s inquiry in the first place. In short, we
see nothing in these letters that would alert a member that excess policies are a basis for
voluntary-writings credit, when that member previously had been told the opposite.
Accordingly, we reject the Windpool’s argument that “[a]ny mistaken information that may
have existed as a result of the September 29, 2005 facsimile was corrected in the August 12th
and October 25th letters.”
¶26. In sum, we find that all of the elements of negligent misrepresentation are present
here. The Windpool incorrectly represented to Arrowood that it could not receive credits for
excess policies, and that representation certainly was material. The Windpool’s decision to
14
reply to Arrowood with an erroneous attorney’s opinion evidences a lack of that “degree of
diligence and expertise” that the public is entitled to expect of the Windpool. As discussed
above, Arrowood reasonably relied on the Windpool’s representation, and it certainly
suffered damages when it failed to get credit for voluntarily writing wind and hail policies
on the Coast. While we agree with the Commissioner that this Court said in Union National
that the Windpool has the authority to allow true-ups, to set deadlines and to enforce those
deadlines, we did not say that those deadlines were immutable and were not subject to other
mitigating principles of law. As such, we find that the Windpool’s misrepresentation tolled
its deadline as to Arrowood. We therefore reverse the decisions of the Commissioner and
the Hinds County Chancery Court.
CONCLUSION
¶27. For the foregoing reasons, we reverse the decisions of the Insurance Commissioner
and the Hinds County Chancery Court and remand this case to the Insurance Commissioner
for proceedings as necessary, consistent with this opinion.
¶28. REVERSED AND REMANDED.
RANDOLPH, P.J., KITCHENS, KING, MAXWELL AND BEAM, JJ.,
CONCUR. DICKINSON, P.J., CONCURS IN RESULT ONLY WITH SEPARATE
WRITTEN OPINION JOINED BY COLEMAN, J. COLEMAN, J., CONCURS IN
PART AND IN RESULT WITHOUT SEPARATE WRITTEN OPINION. WALLER,
C.J., NOT PARTICIPATING.
DICKINSON, PRESIDING JUSTICE, CONCURRING IN RESULT ONLY:
15
¶29. Because I maintain my view that the Windpool possesses no statutory authority to
promulgate a statute of limitations for the true-up process,7 I do not join the majority’s tolling
analysis but agree the Windpool had no right to refuse to accept Arrowood’s refiled premium
data.
COLEMAN, J., JOINS THIS OPINION.
7
Miss. Windstorm Underwriting Ass’n v. Union Nat’l Fire Ins. Co., 86 So. 3d 216,
231–32 (Miss. 2012) (Dickinson, P. J., dissenting).
16