                                                                                  United States Court of Appeals
                                                                                           Fifth Circuit
                                                                                         F I L E D
                       IN THE UNITED STATES COURT OF APPEALS
                                                                                        November 5, 2003
                                FOR THE FIFTH CIRCUIT
                                                                                     Charles R. Fulbruge III
                                                                                             Clerk
                                           No. 02-60956




                   PRIDE FORD LINCOLN MERCURY INCORPORATED;
                         PRIDE AUTO SALES INCORPORATED;
                           PRIDE NISSAN INCORPORATED,

                                        Plaintiffs-Appellants,

                                               versus

                           MOTORS INSURANCE CORPORATION,

                                        Defendant-Appellee.



                           Appeal from the United States District Court
                             for the Northern District of Mississippi
                                          2:00-CV-226



Before REAVLEY, HIGGINBOTHAM and BENAVIDES, Circuit Judges.

PER CURIAM:*

       Appellant Pride Ford Lincoln Mercury (“Pride Ford”) filed this diversity action against

Appellee Motors Insurance Company (“MIC”) for wrongly refusing to pay certain “false

pretense” insurance claims. After a jury trial, the district court entered judgment as a matter of

law in favor of Pride Ford on the issue of liability. The district court also entered judgment as a

       *
               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not be published and is not precedent except under the limited circumstances set forth in 5TH CIR.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.
matter of law in favor of MIC vis-a-vis punitive damages. A jury returned a verdict awarding

Pride Ford over $140,000, in actual and consequential damages. The district court partially

granted Pride Ford’s request for attorneys’ fees, but for approximately one half of the amount

requested.

       Pride Ford appeals the district court’s refusal to allow the jury to consider punitive

damages, by way of granting judgment as a matter of law as to punitive damages, and the district

court’s reduction in Appellant’s request for attorneys’ fees.

                                       I. Punitive damages

       We review de novo the district court’s judgment as a matter of law in MIC’s favor with

respect to punitive damages. See Hidden Oaks Ltd. v. City of Austin, 138 F.3d 1036, 1042 (5th

Cir. 1998). Reasonable inferences as to the evidence are made in Pride Ford’s favor as the non-

moving party. Id.

       The district court cited the Mississippi Punitive Damages Act in its discussion of whether

to instruct the jury as to punitive damages. Appellees concede this was erroneous and that this

act does not apply to cases arising under contract law. See Mississippi Punitive Damages Act §

11-1-65(5)(a).

       The parties further agree that the proper test of whether to instruct a jury as to punitive

damages is the Mississippi common law test. Under Mississippi contract law, “determination of

whether to submit a punitive-damages issue to the jury generally will be contingent on a

determination of whether the insurer denied the underlying policy or contract claim on an arguable

basis.” Andrew Jackson Life Ins. Co. v. Williams, 566 So. 2d 1172, 1184 (Miss. 1990).

“Arguably-based denials are generally defined as those which were rendered upon dealing with the


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disputed claim fairly and in good faith.” Id. “[W]here the judge conclusively determines that an

arguable basis for the denial or breach is not evidenced, the insurer may be deemed to have acted

unfairly and in bad faith. In these cases, the punitive-damages issue generally should be submitted

to the jury -- notwithstanding whether a directed verdict (or the like) was granted on the insured's

policy or contract claim.” Id. at 1185. Though, “[p]unitive damages are generally denied when an

insurance company defends, rather than settles, a close case; when a company honestly contests

the amount; or when a company contests coverage because the insured has failed to meet a policy

condition.” Nichols v. Shelter Life Ins. Co., 923 F.2d 1158, 1164 (5th Cir. 1991).

       There are, however, instances when “[s]ubmission of the punitive-damages issue may not

be warranted -- notwithstanding an absence of an arguable basis for the denial or breach.”

Williams, 566 So. 2d at 1185. “For example, the punitive-damages issue should not be submitted

to the jury in cases involving an insurer who wrongfully denied a claim because of clerical error or

honest mistake -- though objectively speaking, error or mistake does not constitute an arguable

reason for failure to honor a just claim.” Id. at 1185-86 (internal quotations and citations

omitted).

       “Conversely, Mississippi law has evolved to a point of recognition that submission of the

punitive-damages issue may be submitted -- notwithstanding the presence of an arguable basis.”

Id. at 1186. “For example, an insurer who denies a claim on an arguable basis could conceivably

be held liable for punitive damages if the insured's financial straits were used as a settlement

leverage.” Id.

       The reasons the district court gave for not allowing the jury to consider punitive damages

were that the policy was confusing and hard to follow and that the adjuster was merely following


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company policy. We do not find the contract to be confusing. Indeed, the district court was able

to properly find for Pride Ford as a matter of law on its claim of wrongful refusal to pay.

Furthermore, the reasons given by the district court are not on par with the clerical or honest

mistake exceptions as outlined by the Mississippi Supreme Court. The facts were obvious to MIC

at the time, and the law was settled. The jury, therefore, should have been given the opportunity

to consider awarding punitive damages per Mississippi law.1

                                         II. Attorneys’ fees

       “On appeal, this Court reviews the district court's award of attorneys' fees authorized by

statute for abuse of discretion, and the supporting factual findings are reviewed for clear error.”

Riley v. City of Jackson, 99 F.3d 757, 759 (5th Cir. 1996).

       “This Circuit uses the ‘lodestar method’ to calculate attorneys’ fees. Thus, in assessing

attorneys' fees, this Court has stated that the district court must examine the factors set out in

Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir.1974).” Riley v. City of

Jackson, 99 F.3d 757, 760 (5th Cir. 1996). “If the Johnson factors are not evaluated and

explained by the district court with a reasonable degree of specificity in making its fee award

determination, the case will be remanded, if necessary, for an explanation to facilitate appellate

review.” Id. In this case, the district court did not address the Johnson factors or give any reason

for the amount of fees it awarded. As such, vacating and remanding as to attorneys’ fees is

appropriate.

                                           III. Conclusion
       1
               To the extent evidence must also show that the insurer acted intentionally or was
grossly negligent, this requirement is “superfluous since an insurer's failure to pay a claim without
an arguable reason is usually tantamount to a wilful or grossly negligent refusal to pay.”
Merchants Nat'l Bank v. Southeastern Fire Ins. Co., 751 F.2d 771, 775 n.3 (5th Cir. 1985).

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        The district court erred by not instructing the jury to consider awarding punitive damages.

We reverse the district court’s entry of judgment as a matter of law in favor of MIC with respect

to punitive damages. Accordingly, this case is remanded for the limited purpose of allowing a

jury to decide whether to award punitive damages. “On remand, the district court will grant a

new trial to determine punitive damages and instruct the jury that it may assess such damages

against [MIC] if it believes that there was no legitimate or arguable reason to deny payment and it

further believes that the denial was intentional or grossly negligent.” Merchants Nat'l Bank, 751

F.2d at 777. “The district court will, at the close of [the new] trial, submit only the punitive

damage issue to the jury. The actual damage award in the first trial will not be disturbed.” Id. at

781.

        Additionally, the district court’s award of attorneys’ fees is vacated. Upon completion of

the proceedings, an award of attorneys’ fees by the district court should include a Johnson

analysis.

        REVERSED IN PART, VACATED IN PART, and REMANDED.




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