Mississippi Court Rejects Bad Faith Part of Katrina Damages Award

The Mississippi Supreme Court has upheld a breach-of-contract verdict in a dispute between an insurance company and a retired Navy admiral over coverage of damages from Hurricane Katrina.

However, the high court said Admiral James W. Lisanby and his wife, Gladys, failed to prove United Services Automobile Association acted in bad faith when it denied their claim.

As a result, the justices threw out $86,000 awarded by a Jackson County jury in 2008 for emotional distress and an additional $302,920 in attorneys’ fees and $211,069 in litigation expenses granted by the trial judge.

The high court’s decision let stand the jury’s awarding of $823,000 to the Lisanbys for wind damage to their home.

Lisanby had sued USAA, of San Antonio, Texas, for funds to repair damage to their Pascagoula beach front home, a rental cottage and garage as well as for other losses. They also asked the jury to award an unspecified amount for emotional distress.

The high court upheld Circuit Judge Billy G. Bridges’ decision not to allow the jury to consider punitive damages.

USAA lawyers had argued the company did not owe more than the roughly $45,000 it had already paid because they said the Lisanbys’ homeowners insurance policy did not cover damage caused by water, even wind-driven water.

The Lisanbys’ attorney said USAA failed to properly and fully investigate the claim on the couple’s home before denying coverage.

The Supreme Court said it would not overturn the jury’s finding on the issue of water and wind damage.

However, Justice Jim Kitchens wrote in the opinion, the Lisanbys’ burden “in proving a claim for bad faith refusal goes beyond proving mere negligence in performing the investigation. The level of negligence in conducting the investigation must be such that a proper investigation by the insurer would easily adduce evidence showing its defenses to be without merit.”

Kitchens said none of the Lisanbys’ claims of bad faith, which led to the emotional distress judgment and attorneys fees, were supported by the court record.

“Although the jury ultimately decided that it was wind, and not water, that initially caused the destruction, the evidence does not establish that USAA acted in bad faith in denying the majority of the homeowners’ claim,” Kitchens said.

“Because USAA had an arguable basis for its denial, the defendants are entitled to judgment as a matter of law on the issues of emotional distress damages, attorneys’ fees, and litigation expenses,” he said.

Some of the most contentious insurance lawsuits spawned by Katrina dealt with properties that were reduced to slabs, making it difficult to determine if wind or water was responsible.

Insurance companies have said their homeowner policies cover damage by a hurricane’s wind but not its rising water, including wind-driven storm surge. Insurers also have maintained that damage from a combination of wind and flood water can be excluded from coverage by “anti-concurrent cause” language in their policies.

In 2009, the Mississippi Supreme Court ruled that insurance companies must cover damage from a hurricane’s wind even if the home is later inundated by storm surge.

Miss. SC USAA v Lisanby Katrina Bad Faith