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Case 1:06-cv-00055-RHW Document 77-1 Filed 03/02/2007 Page 14 of 17 Id. at 923. question of punitive damages should not have been submitted to the jury. The evidence at trial will show that there was an arguable reason for denying the claim and thus punitive damages are not warranted. See Hans Constr. Co. v. Phoenix Assurance Co. of N.Y., 995 F.2d 53, 55 (5th Cir. 1993) (affirming grant of partial summary judgment on punitive damages under Mississippi law where insurer invoked exclusion for damage caused by overloading of insured equipment: "[B]ecause [the insurer] hired independent experts to determine the cause of the crane failure, it had, at the very least, an arguable basis for denying the claim."); Sansone v. Liberty Mut. Ins. Co., No. Civ. A. 3:04CV-886BN, 2006 WL 286779, at *5 (S.D. Miss. Feb. 3, 2006) ("An insurer's reliance on a physician's opinion in denying a [worker's compensation] claim has generally been a sufficient ground, in and of itself, to constitute an arguable or legitimate reason for denial of coverage.") (citations omitted); U.S. Fid. & Guar. Co. v. King Enters., Inc., 982 F. Supp. 415, 417 (N.D. Miss. 1997) (Senter, J.) (insurer "based its denial on an independent investigation and, therefore, has an arguable reason for denying the claim"); Reece, 684 F. Supp. at 145-46 (insurer denied first party claim based on expert's conclusion that fire loss was caused by accelerant; court granted partial summary judgment in carrier's favor as to punitive damages because insurer "had an arguable reason for denying payment on this claim due to the various facts suggesting" arson); Liberty Mut., 862 So. 2d at 534 (insurer had an arguable basis for discontinuing disability benefits based on its expert's investigation). Moreover, under Mississippi law, State Farm cannot be subject to punitive damages for litigating the question of law as to the applicable burden of proof. See Dunn, 927 F.2d at 874 ("For requiring the resolution of the legal issue [an insurer] cannot be liable under Mississippi 12
Case 1:06-cv-00055-RHW Document 77-1 Filed 03/02/2007 Page 15 of 17 law for punitive damages, even if it does not prevail on the underlying legal issue."); see also Strickland v. Motors Ins. Corp., 970 F.2d 132, 137-38 (5th Cir. 1992) (punitive damages properly denied where insurer acted in reliance on interpretation of statutory language that was "less than clear"); Southern United Life Ins. Co. v. Caves, 481 So. 2d 764, 769 (Miss. 1985) (rejecting punitive damages if an insurer's denial of a claim was based on a misunderstanding of the law). B. Plaintiffs Cannot Make the Additional RequiredShowing By Clear and Convincing Evidence that State Farm Acted with Actual Malice or Gross Negligence or Committed Actual Fraud in Denying Plaintiffs' Claim To prevail on their claim for punitive damages, in addition to showing the insurer had no "arguable reason" for denying the claim, Plaintiffs must show by clear and convincing evidence that "defendant acted with malice [or] with gross negligence or reckless disregard for the rights of others." Hartford Underwriters, 936 So. 2d at 895. See also Miss. Code Ann. § 11-1-65(1)(a) ("Punitive damages may not be awarded if the claimant does not prove by clear and convincing evidence that the defendant . . . acted with actual malice, gross negligence which evidences a willful, wanton or reckless disregard for the safety of others, or committed actual fraud."). 5 Plaintiffs cannot make any showing at trial – much less meet the required clear and convincing standard – that State Farm engaged in any conduct of the kind that would justify an award of punitive damages. Accordingly, the issue of punitive damages may not be submitted to 5 Miss. Code Ann. § 11-1-65 also mandates a bifurcated procedure that "insulate[s] [the jury] from both the issue and the evidence regarding punitive damages until after it has heard evidence concerning the basic issue of the culpability of the defendant, and rendered its verdict on the culpability issue. Then, and only if the jury has 13
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