                    IN THE SUPREME COURT OF MISSISSIPPI

                                NO. 2007-CA-00585-SCT

GALLAGHER BASSETT SERVICES, INC.

v.

GARY LEE MALONE AND NABORS DRILLING
USA, INC.


DATE OF JUDGMENT:                         11/06/2006
TRIAL JUDGE:                              HON. BILLY JOE LANDRUM
COURT FROM WHICH APPEALED:                JONES COUNTY CIRCUIT COURT
ATTORNEYS FOR APPELLANT:                  MICHAEL A. HEILMAN
                                          PATRICIA J. KENNEDY
                                          CHRISTOPHER T. GRAHAM
ATTORNEYS FOR APPELLEES:                  JOSEPH A. O’CONNELL
                                          MARK A. NELSON
                                          RICHARD O. BURSON
                                          DORIS T. BOBADILLA
                                          THOMAS J. SMITH
                                          TOMMY SMITH
NATURE OF THE CASE:                       CIVIL - INSURANCE
DISPOSITION:                              REVERSED AND REMANDED - 01/07/2010
MOTION FOR REHEARING FILED:
MANDATE ISSUED:




       EN BANC.

       LAMAR, JUSTICE, FOR THE COURT:

¶1.    Gary Lee Malone’s right leg was amputated below the knee approximately two years

after he suffered a work-related injury. Subsequently, Malone instigated this bad-faith

lawsuit against several defendants, including his former employer, Nabors Drilling USA, Inc.
(Nabors), and a workers’ compensation insurance claims adjuster, Gallagher Bassett

Services, Inc. (Gallagher Bassett). Malone argued that the defendants’ bad-faith delay in

paying his viable workers’ compensation claim proximately caused him to delay medical

treatment, eventually resulting in the loss of his leg.

¶2.    Nabors cross-claimed against Gallagher Bassett for breach of contract, asserting that

it was a third-party beneficiary of a contract between Nabors’s workers’ compensation

insurance carrier, CNA Insurance Services (CNA), and Gallagher Bassett. Nabors argued

that Gallagher Bassett’s bad-faith delay in paying Malone’s workers’ compensation claim

proximately caused Nabors to incur potential liability and defense costs from Malone’s bad-

faith lawsuit.

¶3.    Subsequently, Nabors and Malone entered into a written agreement commonly

referred to as a “Mary Carter” settlement agreement,1 in which Nabors paid Malone $1.5

million and remained a litigant in the case. In the settlement agreement, the parties agreed

that Nabors’s liability to Malone arose out of Gallagher Bassett’s bad-faith failure to timely

pay Malone’s workers’ compensation claim.

¶4.    After a trial in the Circuit Court of Jones County, the jury found Gallagher Bassett and

Nabors liable for bad faith in handling Malone’s workers’ compensation claim and awarded

compensatory damages to Malone in the amount of $250,000. The jury also found Gallagher


       1
        A Mary Carter agreement is a contract whereby the contracting defendant settles with
the plaintiff, but remains a litigant in the case and will be reimbursed a specified amount of
the plaintiff’s recovery from the other defendants. McDaniel v. Anheuser-Busch, Inc., 987
F.2d 298 (5th Cir. 1993).
Bassett liable to Nabors on the cross-claim for breach of contract and awarded compensatory

damages in the amount of $1.25 million. Gallagher Bassett appeals; Malone and Nabors both

cross-appeal.

                                           FACTS

¶5.    Malone worked for Nabors as a motorman on an oil rig in Jones County, Mississippi.

Nabors, an oil and gas drilling company, had workers’ compensation insurance with CNA

Insurance Company (CNA). CNA had a claims-service agreement with Gallagher Bassett

under which Gallagher Bassett would adjust Nabors’s workers’ compensation claims during

times relevant to this appeal.

¶6.    We set out the facts leading up to Malone’s instigation of this lawsuit in the following

time line:

       July 28, 2000 – Malone struck his front lower right leg on a beam at work and
       suffered a cut at the site of a recurrent skin infection.2 Malone reported the
       injury to his supervisor, Bobby Wallace, who put a Band-Aid on the cut, filled
       out an incident report, and notified his supervisor, Rob Holbrook.

       August 7, 2000 – Malone visited his family physician, Dr. William Moak,
       who recommended that Malone keep the cut clean and bandaged.

       August 14, 2000 – At a follow-up visit, Dr. Moak observed that one
       centimeter of Malone’s shin bone was exposed in the middle of the cut. Dr.
       Moak informed Malone that he needed skin-graft surgery and referred him to
       the Southern Bone and Joint Clinic.


       2
         It is undisputed that Malone had longstanding medical problems at this location on
his right leg for which he had received prior medical treatment. The deposition of his family
physician, Dr. William Moak, reveals that Dr. Moak had treated the site on several occasions
for skin infection and, later, for osteomyelitis, an infection of the bone. Dr. Rocco Barbieri,
an orthopedist, testified that Malone reported a twenty-year history of problems at the site.

                                              3
       August 15, 2000 – Malone informed Wallace that he needed surgery; Wallace
       instructed him to discuss the matter with Holbrook.

       August 16, 2000 – Gallagher Bassett’s claims adjuster, Deborah Robichaux,
       called Wallace to discuss Malone’s injury. Wallace informed Robichaux that,
       although Malone had cut his leg at work and he needed surgery, Malone’s
       need for surgery might be attributable to his pre-existing condition. After the
       telephone conversation, Robichaux did nothing further toward investigating
       Malone’s potential workers’ compensation claim.

       August 16, 2000 – Dr. Keith Melancon and Dr. Rocco Barbieri at the Southern
       Bone and Joint Clinic recommended that Malone have surgery.

       August 16, 2000 – Malone discussed his anticipated surgery with Holbrook.
       According to Malone, Holbrook refused to allow him to make a workers’
       compensation claim for the surgery.3 In contrast, Holbrook testified that,
       although Malone had informed him that he needed surgery, Malone did not tell
       him the need for surgery was attributable to his work-related leg injury. It is
       undisputed that Malone asked Holbrook to approve his working eight weeks
       in a row in order to have eight weeks off to recover from the surgery;
       Holbrook approved the request.

       August 30, 2000 – Dr. Barbieri diagnosed Malone with a bone infection
       known as chronic osteomyelitis, and informed him that delaying surgery would
       risk the loss of his leg. After this visit, Malone worked eight weeks in a row.

       October 23, 2000 – Dr. Barbieri performed a bone scraping and a skin-graft
       surgery on Malone’s leg wound. Malone’s family medical insurer paid his
       medical expenses.

       January 24, 2001 – Malone fell and broke his injured leg; he suffered
       continuing problems with his leg thereafter.




       3
        Malone testified that, not only did Holbrook refuse to allow him to seek workers’
compensation benefits, but Wallace told him not to tell anyone at the district office or the
corporate office about having received medical treatment, because the rig would lose its
safety bonus for that period if there was a workers’ compensation injury.

                                             4
       January 31, 2001 – Nabors terminated Malone due to his inability to return
       to work due to a non-work-related injury.

       February 26, 2001 – Malone applied for social security benefits; in his
       application, he swore that he had not filed a workers’ compensation claim, nor
       did he plan to do so.

       November 19, 2001 – Malone contacted Nabors’s safety director, Jerry Poole,
       and informed him he was ready to return to work after the injury.

       November 27, 2001 – Poole completed a “B-3 first report of injury” form 4 and
       faxed the form to Robichaux at Gallagher Bassett.

       December 5, 2001 – Gallagher Bassett opened a claim file and sent medical
       release forms to Malone.

       January 9, 2002 – Nabors entered information concerning Malone’s injury
       into its incidents database.

       June 21, 2002 – Robichaux closed the claim file on Malone’s injury because
       she had never received medical records from Malone.

       July 12, 2002 – Malone filed a petition to controvert with the Mississippi
       Workers’ Compensation Commission (the Commission).

       July 23, 2002 – Robichaux reopened the claim file after being notified of the
       petition to controvert.

       August 19, 2002 – Dr. Barbieri amputated Malone’s injured leg below the
       knee due to a recurrence of infection.

       September 9, 2002 – Gallagher Bassett set Malone’s claim for payment of full
       workers’ compensation indemnity and medical benefits. Subsequently, the
       Commission entered an order recognizing that Malone had received a net



       4
        In the event of an injury which causes lost time in excess of five days, Mississippi
Code Section 71-3-67 requires the employer to file a report with the Mississippi Workers’
Compensation Commission on a form approved by the Commission. Miss. Code Ann. § 71-
3-67 (Rev. 2000). This form is commonly known as a “B-3" form. There was no evidence
that Nabors had completed a B-3 form prior to November 27, 2001.
                                            5
       balance of $111,684.22 in indemnity benefits after subtracting sums paid to
       him in penalties and interest, and his attorney’s fees.

       December 3, 2003 – Malone filed the instant bad-faith lawsuit in the Circuit
       Court of Jones County, alleging that the defendant’s delay in processing this
       workers’ compensation claim caused his injured leg to deteriorate to the point
       that it required amputation.

       A. Pre-trial proceedings

¶7.    On September 30, 2005, Nabors cross-claimed against Gallagher Bassett, asserting

it was a third-party beneficiary of Gallagher Bassett’s contract with CNA. Nabors argued

that Gallagher Bassett’s bad-faith delay in paying the claim had proximately caused

Malone’s damages, and it sought to recover from Gallagher Bassett all costs it incurred in

the defense of Malone’s bad-faith claim.

¶8.    On October 15, 2005, Malone and Nabors entered into a Mary Carter agreement that

resolved all claims between them. In the agreement, Nabors agreed to pay Malone $1.5

million for his physical injuries caused by the bad-faith actions of Gallagher Bassett, and

Nabors reserved the right to continue as a defendant in the matter. The parties further agreed

that Nabors would receive the first $250,000 of any sums awarded to either party against

Gallagher Bassett, and Malone and Nabors would divide equally any additional sums

awarded to either party.

¶9.    On November 2, 2005, Gallagher Bassett filed a cross-claim against Nabors that

sought indemnification for any damages arising out of Malone’s bad-faith claim.




                                              6
       B. The trial

¶10.   At trial, Malone sought to prove that Gallagher Bassett’s failure to investigate and pay

his legitimate workers’ compensation claim had caused him to delay the surgery, which

proximately caused the amputation of his leg. He presented the expert testimony of Dr.

Melancon, who testified to a reasonable degree of medical certainty that the delay caused an

increase in infection that necessitated aggressive surgery, and caused or contributed to the

amputation.   Nabors attempted to show that Gallagher Bassett’s failure to promptly

investigate and pay the claim after August 16, 2000, proximately caused Malone’s damages,

constituted a breach of Gallagher Bassett’s contract with CNA, and proximately caused

Nabors’s liability to Malone. Gallagher Bassett’s position was that it had no duty to

investigate the claim until November 27, 2001, when Poole faxed the B-3 first-report-of-

injury form to Robichaux.

       C. The jury verdicts and post-trial proceedings

¶11.   After all parties had rested at trial, the jury assessed compensatory damages to Malone

in the amount of $250,000. The jury allocated fault as follows: 42.5 percent to Gallagher

Bassett, 42.5 percent to Nabors, and 15 percent to Malone. Applying these percentages of

fault, the trial court entered final judgments in favor of Malone against Nabors and Gallagher

Bassett in the amounts of $106,250 each.

¶12.   The jury also found for Nabors on its cross-claim against Gallagher Bassett and

assessed damages in the amount of $1.25 million. The trial court entered a final judgment

on this verdict. The trial court declined to submit the issue of punitive damages to the jury.

                                              7
After the entry of final judgment, Gallagher Bassett moved for a set-off and for judgment

notwithstanding the verdict (JNOV). Malone moved for a JNOV, additur, or a new trial on

damages, and Nabors moved for a JNOV seeking additur. The trial court denied all post-trial

motions.

                                       ANALYSIS

¶13.   While the parties raise multiple issues before this Court, the most challenging issue

we face is that we are confronted with jury verdicts which reflect contradiction and

inconsistency. The jury was asked to consider both the independent tort of bad-faith denial

of a workers’ compensation claim and a separate claim, purely contractual in nature, between

employer Nabors and adjuster Gallagher Bassett. It is our duty to harmonize these verdicts,

if at all possible. See Gallick v. Baltimore & Ohio R.R. Co., 372 U.S. 108, 119, 83 S. Ct.

659, 9 L. Ed. 2d 618 (1963).

¶14.   On the one hand, the jury returned a verdict in favor of Malone and allocated fault at

42.5 percent each to Nabors and Gallagher Bassett and established Malone’s damages in the

amount of $250,000. The jury’s second verdict found, on a theory of breach of contract

and/or indemnity (the jury was instructed on both), that Gallagher Bassett was liable to

Nabors for $1.25 million – a figure five times the amount which the jury had established as

reasonable damages to Malone.

¶15.   Additionally, jury instruction D-34 (an instruction presented by Nabors) told the jury

that in order to find for Nabors on their claim, it must find “that nothing Nabors Drilling,

U.S.A., L.P., did contributed to the damages, if any, suffered by Malone. . . .” The jury’s

                                             8
finding that Nabors was as much at fault as Gallagher Bassett clearly is in direct conflict with

its finding that Nabors did nothing which contributed to Malone’s damages.

¶16.   In post-trial motions, Malone argued inter alia for additur, claiming that the verdict

was the result of bias and confusion resulting from conflicting jury instructions. Nabors,

post-trial, additionally sought additur. Gallagher Bassett, in post-trial motions, argued that

both verdicts fail as a matter of law, and pointed the court to the contradictions raised by the

verdicts. The trial court denied all post-trial motions.

¶17.   We have done our best to reconcile the verdicts after an exegetic review of the record,

especially concentrating on the jury instructions, jury verdict, and the post-trial motions.

However, we are left with the inescapable conclusion that the jury obviously was (as Malone

asserted in post-trial motions) confused. Ultimately, we conclude that there is no way these

two verdicts can be reconciled, as they create an uncertainty that is fundamentally

unacceptable. After careful consideration, we find that the appropriate remedy is to vacate

both judgments and remand this case for a new trial. See Gallick v. Baltimore & Ohio R.R.

Co., 372 U.S. 108, 119, 83 S. Ct. 659, 9 L. Ed. 2d 618 (1963) (ruling that appellate courts are

free to remand for new trial when the jury delivers inconsistent verdicts that cannot be

harmonized); see also Gordon v. Degelmann, 29 F.3d 295, 298-99 (7th Cir. 1994) (ruling

that “[t]here is no priority among inconsistent verdicts . . .[and] the proper thing to do is to

hold a new trial with respect to all affected parties”); Wood v. Holiday Inns, Inc., 508 F.2d

167, 175 (5th Cir. 1975) (ruling that “[w]here verdicts in the same case are inconsistent on

their faces indicating that the jury was confused, a new trial is certainly appropriate. . . .”)

                                               9
¶18.   Apparently, all parties elected for strategic reasons to try both the bad-faith claim and

the breach-of-contract/indemnity cases together, making full disclosure to the jury of the

settlement agreement between Nabors and Malone. The case presented multiple legal

theories, and the result was a completely confused jury.5 Our rules provide that a trial court

has broad discretion to consolidate or order separate trials for a cross-claim. Miss. R. Civ.

P. 42(b).6 Separate trials are appropriate when necessary to avoid undue confusion for the

jury. What is clearly evident in retrospect was perhaps not so obvious to the court and the

attorneys at the outset. Upon remand, we strongly urge the trial court to consider severing

Nabors’s cross-claim for trial.

                                       CONCLUSION

¶19.   The judgments of the circuit court are reversed and remanded for proceedings

consistent with this opinion.

¶20.   REVERSED AND REMANDED.




       5
       Three hours into deliberations, the jury sent a note to the court inquiring “Who will
pay Gary Malone’s future medical expenses, Nabors or Nabors’s insurance company?”
       6
           Mississippi Rule of Civil Procedure 42(b) provides that:

       [t]he court, in furtherance of convenience or to avoid prejudice, or when separate
       trials will be conducive to expedition and economy, may order a separate trial of any
       claim, cross-claim, counterclaim, or third-party claim, or of any separate issue or of
       any number of claims, cross-claims, counter-claims, third-party claims, or issues,
       always preserving inviolate the right of trial by jury as declared by Section 31 of the
       Mississippi Constitution of 1890.

Miss. R. Civ. P. 42(b).
                                               10
      WALLER, C.J., CARLSON, P.J., DICKINSON AND KITCHENS, JJ.,
CONCUR. GRAVES, P.J., CONCURS IN RESULT ONLY. CHANDLER, J.,
DISSENTS WITH SEPARATE WRITTEN OPINION. RANDOLPH AND PIERCE,
JJ., NOT PARTICIPATING.

       CHANDLER, JUSTICE, DISSENTING:

¶21.   With respect for the majority, I would reverse and render the judgments against

Gallagher Bassett. I would find that there was insufficient evidence of gross negligence,

malice, or reckless disregard for the rights of Malone to support the verdict in his favor

against Gallagher Bassett. I would further find that, under the facts presented, there was no

legal theory that enabled Nabors to recover damages from Gallagher Bassett for breach of

contract. Because the evidence presented at the trial was insufficient to support the verdicts,

a new trial is unwarranted.

¶22.   Gallagher Bassett specifically challenged the sufficiency of the evidence as to

Malone’s claim with its motion for a directed verdict at the close of evidence, and as to

Nabors’s claim with its motion for a JNOV. The denial of a directed verdict and the denial

of a motion for a JNOV are reviewed under the same standard. Tupelo Redev. Agency v.

Gray Corp., Inc., 972 So. 2d 495, 514 (Miss. 2007). This Court has stated:

       The standard of review for the denial of a directed verdict and a judgment
       notwithstanding the verdict is the same. Ala. Great S. R.R. Co. v. Lee, 826 So.
       2d 1232, 1235 (Miss. 2002). “This Court will consider the evidence in the
       light most favorable to the appellee, giving that party the benefit of all
       favorable inference[s] that may be reasonably drawn from the evidence.” Id.
       at 1235 (quoting Steele v. Inn of Vicksburg, Inc., 697 So. 2d 373, 376 (Miss.
       1997)). “If the evidence is sufficient to support a verdict in favor of the
       non-moving party, the trial court properly denied the motion.” Henson v.
       Roberts, 679 So. 2d 1041, 1044-1045 (Miss. 1996) (citations omitted). In
       other words, this Court considers “whether the evidence, as applied to the

                                              11
       elements of a party's case, is either so indisputable, or so deficient, that the
       necessity of a trier of fact has been obviated.” White v. Stewman, 932 So. 2d
       27, 32 (Miss. 2006).

Spotlite Skating Rink, Inc. v. Barnes ex rel. Barnes, 988 So. 2d 364, 368 (Miss. 2008).

       1. The Workers’ Compensation Act and the tort of bad-faith failure to pay
       workers’ compensation benefits.

¶23.   A review of pertinent provisions of the Mississippi Workers’ Compensation Act and

of our bad-faith law is warranted. The Act provides that compensation is payable for

“disability or death of an employee from injury or occupational disease arising out of and in

the course of employment, without regard to fault as to the cause of the injury or

occupational disease.” Miss. Code Ann. § 71-3-7 (Rev. 2000). The first installment of

compensation becomes due on the fourteenth day after the employer has notice of the injury,

but an employer disputing the right to compensation may file a petition to controvert with the

Commission on or before the day the first installment is due. Miss. Code Ann. § 71-3-37(2),

(4) (Rev. 2000). Automatic penalties for late payments are assessed in the amount of ten

percent for payments not made pursuant to an award, and twenty percent for payments made

pursuant to an award. Miss. Code Ann. § 71-3-37(5), (6) (Rev. 2000).

¶24.   Section 71-3-9 of the Mississippi Workers’ Compensation Act makes the Act the

exclusive remedy available to an employee who has suffered a work-related injury. Miller

v. McRae's, Inc., 444 So. 2d 368, 370 (Miss. 1984). Section 71-3-9 provides:

       The liability of an employer to pay compensation shall be exclusive and in
       place of all other liability of such employer to the employee, his legal
       representative, husband or wife, parents, dependents, next-of-kin, and anyone
       otherwise entitled to recover damages at common law or otherwise from such

                                             12
       employer on account of such injury or death, except that if an employer fails
       to secure payment of compensation as required by this chapter, an injured
       employee, or his legal representative in case death results from the injury, may
       elect to claim compensation under this chapter, or to maintain an action at law
       for damages on account of such injury or death. In such action the defendant
       may not plead as a defense that the injury was caused by the negligence of a
       fellow servant, nor that the employee assumed the risk of his employment, nor
       that the injury was due to the contributory negligence of the employee.

Miss. Code Ann. § 71-3-9 (Rev. 2000). Regarding the exclusivity provision, it has been

stated that:

       Three main themes make up the “compensation principle” that underlies
       workers’ compensation laws. The employer provides benefits for work
       injuries without regard to fault; the benefits are limited to those prescribed in
       the statute, and the employee gives up a common law tort claim for the
       compensable injury against the employer in exchange for the employer’s
       providing the no-fault benefits.

John R. Bradley & Linda A. Thompson, Mississippi Workers’ Compensation § 11:1 (2007).

¶25.   In Taylor v. U.S. Fidelity & Guaranty Co., 420 So. 2d 564 (Miss. 1982), this Court

reviewed a trial court’s dismissal of an employee’s lawsuit against a carrier for bad-faith

delay in paying workers’ compensation benefits. The complaint had alleged that the carrier

“negligently, carelessly, wrecklessly [sic], willfully and hazardiously [sic], failed, refused

and neglected to process legitimate medical claims . . . ,” causing mental distress and

exacerbation of physical pain. Id. at 564. The Court determined that the Legislature had

intended that a tort action of this kind be subject to the exclusivity clause. Id. at 566.

¶26.   In Southern Farm Bureau Casualty Insurance Co. v. Holland, 469 So. 2d 55, 59

(Miss. 1984), this Court limited Taylor by finding that the Act’s exclusivity clause does not

bar an injured worker’s action against a workers’ compensation insurance carrier for the

                                              13
commission of an intentional tort. Holland had alleged that she had suffered mental distress

caused by the carrier’s termination of her benefits, that the carrier had terminated her benefits

in order to force an inadequate settlement of her claim, and that the carrier’s actions

amounted to tortious breach of contract, breach of fiduciary duties, and an intentional

infliction of emotional distress. Id. Relying upon Taylor, the carrier argued that the action

was barred by Section 71-3-9. Id. This Court distinguished Taylor, stating:

       A review of the Taylor record discloses without question that the pleading
       sounds in negligence. No intentional tort is alleged, as is present in the
       allegation of this case. The rule in Taylor is accordingly limited to cases
       where the injured worker attempts to sue the carrier for negligent refusal to
       pay. In the case sub judice the pleading alleges the withholding of
       compensation for no legitimate or arguable reason and in an effort to force a
       settlement for an inadequate amount, harassment regarding an auto insurance
       policy issued by the same company, refusal to pay medical bills, using
       economic pressure to force a settlement, all such acts with "grossness and
       recklessness" as to evince utter indifference to the plaintiff. The comparison
       of the pleading factually distinguishes the cases. This Court, therefore,
       concludes that Taylor does not control this case and has no application to cases
       alleging independent, intentional torts between a worker and the employer's
       compensation carrier.

Id. at 57. The Court recognized several reasons that actions against the carrier are barred

when based on negligence, but not when based on intentional conduct: (1) a carrier’s

intentional failure to pay workers’ compensation benefits does not arise out of the

employee’s work-related injury, rather, it is independently tortious conduct by the carrier;

(2) a carrier is not the alter ego of the employer when the carrier’s intentional conduct is

alleged; (3) the statutory penalties were intended as the exclusive remedy for claims not




                                               14
promptly paid by the carrier, not for intentional conduct; and (4) the statutory penalties are

inadequate to deter carriers from intentional wrongdoing. Id. at 58.

¶27.   Since Holland, the parameters of a common-law action for bad-faith nonpayment of

workers’ compensation benefits have become well-established. In Luckett v. Mississippi

Wood, Inc., 481 So. 2d 288, 290 (Miss. 1985), the Court expanded Holland to permit a bad-

faith suit against an employer as well as a carrier. In McCain v. Northwestern National

Insurance Co., 484 So. 2d 1001, 1002 (Miss. 1986), the Court held that “[t]he same rules

applicable to health, fire, casualty, accident, and other insurance policies are likewise

applicable to workers' compensation insurance carriers.” Punitive damages are available

against an insurer that denies a claim without a legitimate or arguable reason, and acts with

malice, gross negligence, or reckless disregard for the rights of others. Caldwell v. Alfa Ins.

Co., 686 So. 2d 1092, 1095 (Miss. 1996).

¶28.   The Court has stated that, to succeed on a bad-faith claim, a workers’ compensation

claimant must show that the employer or carrier lacked “a legitimate or arguable reason to

deny the benefits,” and “that the denial constituted a willful or malicious wrong in disregard

for [the claimant’s] rights.” Miss. Power & Light Co. v. Cook, 832 So. 2d 474, 479 (Miss.

2002). Where there was a legitimate or arguable reason to delay or deny benefits, there is

no basis for an award of punitive damages. Id. However, “the absence of an ‘arguable

reason’ does not necessarily establish that the insurer acted with malice or with gross

negligence or reckless disregard for the insured's rights.” Caldwell, 686 So. 2d at 1098 (Miss.

1996) (quoting Blue Cross & Blue Shield of Miss. v. Maas, 516 So. 2d 495, 497 (Miss.

                                              15
1987)). This is because “we have repeatedly held that ‘punitive damages are not mandated

by the absence of an arguable reason . . . because the denial of the claim could be the result

of honest mistake or oversight—ordinary or simple negligence.’” Id. (quoting State Farm

Fire and Cas. v. Simpson, 477 So. 2d 242, 250 (Miss. 1985)).

¶29.   The Court has specifically set out the standard applicable to a bad-faith action against

an insurance adjuster for nonpayment of claims. Bass v. California Life Ins. Co., 581 So.

2d 1087, 1090 (Miss. 1991).        An adjuster’s relationship with the insured is purely

contractual; it owes the insured no fiduciary duty. Id. (quoting Dunn v. State Farm Fire &

Cas. Co., 711 F. Supp. 1359 (N.D. Miss. 1987)). Rather, an adjuster’s duty is “to investigate

all relevant information and . . . make a realistic evaluation of a claim.” Id. An adjuster can

be liable for conduct constituting malice, reckless disregard for the rights of the insured, or

gross negligence. Id. “However, an adjuster is not liable for simple negligence in adjusting

a claim.” Id. Thus, like an employer or carrier, an adjuster cannot be held liable for bad faith

when the conduct at issue amounts to ordinary or simple negligence. This Court applied this

standard in Gallagher Bassett v. Jeffcoat, 887 So. 2d 777, 786 (Miss. 2004), to find that a

claims adjuster’s delay in paying uninsured motorist benefits due to her unfamiliarity with

Mississippi insurance law was simple negligence as a matter of law, not bad faith.

       2. The sufficiency of the evidence supporting the verdict in favor of Malone
       for bad-faith delay of payment.

¶30.   Malone sought to prove that Gallagher Bassett’s bad-faith failure to investigate and

pay his legitimate workers’ compensation claim caused him to delay having skin-graft


                                              16
surgery, which proximately caused the amputation of his leg.            His expert, Dr. Keith

Melancon, testified to a reasonable degree of medical certainty that the delay caused an

increase in infection that necessitated aggressive surgery, and caused or contributed to the

eventual leg amputation. While there was voluminous evidence surrounding Gallagher

Bassett’s handling of Malone’s claim, the only relevant evidence pertains to what occurred

in August 2000, because it was Gallagher Bassett’s conduct during precisely that time frame

that Malone claimed to have delayed his skin-graft surgery. The appropriate analysis focuses

on Gallagher Bassett’s conduct in light of what Gallagher Bassett knew or reasonably should

have known at that time.

¶31.   The evidence of Gallagher Bassett’s role in the delayed payment of workers’

compensation benefits centered upon the conduct of a claims adjuster, Deborah Robichaux.

Robichaux’s only source for notice of a workers’ compensation injury was Nabors. The

evidence was that Robichaux had received notification from Nabors that Malone had a work-

related injury and a pre-existing condition. Then, she had initiated a conversation with

Malone’s supervisor, Bobby Wallace, who had confirmed that Malone had cut his leg at

work, that he had a pre-existing condition that affected the area of the cut, that he needed

skin-graft surgery, and that the need for the skin graft was due either to the cut or to the pre-

existing condition.

¶32.   After her conversation with Wallace, Robichaux did nothing. She testified that it was

Gallagher Bassett’s practice not to investigate a Nabors workers’ compensation claim until

Nabors had transmitted a B-3 form, and she expected that a B-3 form would be submitted.

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Nabors’s claims coordinator, Alice Lankford, and Nabors’s counsel, Laura Doerre, both

agreed that a B-3 form was required for Gallagher Bassett to set up a claim file. Lankford

testified that if a claim is reported by phone, the claim file should be set up after the B-3 form

is obtained by the claims adjuster. Nabors’s policy was to complete a B-3 form and transmit

it to Gallagher Bassett any time a first-aid-only injury necessitated surgery or lost time; yet,

it did not do so in this case. Nevertheless, Robichaux admitted that, when she did not receive

a B-3 from Nabors, she should have requested one.

¶33.   It is vital to evaluate Robichaux’s conduct in light of the applicable law governing the

compensability of workers’ compensation claims. Workers’ compensation benefits are

payable for a work-related injury that aggravates, accelerates, or lights up a pre-existing

condition, but no benefits are due for disability that is solely attributable to a pre-existing

condition, or when the work-related injury no longer combines with the pre-existing

condition to produce disability. Rathborne, Hair & Ridgeway Box Co. v. Green, 237 Miss.

588, 594, 115 So. 2d 674, 676 (1959). A federal court has recognized that in Mississippi, a

pre-existing condition may be a complete defense to workers’ compensation benefits, and an

adjuster placed on notice of a pre-existing condition has “a valid legal basis . . . to spend

some time investigating the relationship between the Plaintiff’s prior injury and his work-

place injury.” McClendon v. Wal-Mart Stores, Inc., 521 F. Supp. 2d 561, 566 (S.D. Miss.

2007). Thus, Robichaux’s conversation with Wallace only placed her on notice of a

possibility that Malone had suffered a compensable injury. Further investigation was needed

for Robichaux to determine compensability.          Viewing the evidence in the light most

                                               18
favorable to Malone, Robichaux’s next step should have been to commence an investigation

of the claim.

¶34.   Considering all of the evidence in the light most favorable to Malone, I do not find

that Robichaux’s failure to investigate after her conversation with Wallace rises to the level

of malice, reckless disregard for Malone’s rights, or gross negligence. No evidence suggests

that Robichaux acted maliciously or with reckless disregard for the consequences to Malone.

Nor is there sufficient evidence of gross negligence. “‘Gross negligence’ is that course of

conduct which, under the particular circumstances, discloses a reckless indifference to

consequences without the exertion of any substantial effort to avoid them.” Dame v. Estes,

233 Miss. 315, 318 101 So. 2d 644, 645 (1958). “Simple negligence” is the failure to

exercise due care, and signifies conduct that amounts to heedlessness, inattention, or

inadvertence. Turner v. City of Ruleville, 735 So. 2d 226, 229 (Miss. 1999) (citing Beta

Beta Chapter of Beta Theta Pi v. May, 611 So. 2d 889, 895 (Miss. 1992)); Green v. Ingram,

608 S.E. 2d 917, 923 (Va. 2005).

¶35.   In August 2000, Robichaux lacked any knowledge that, without the immediate receipt

of benefits, Malone would delay the surgery against medical advice. What she knew was that

Malone needed skin-graft surgery for a possible work-related injury, and she expected further

contact from Nabors. Although Robichaux should have followed up with Nabors, her failure

to do so amounts to mere inadvertence when considered in light of the facts that: (1)

Nabors’s admitted practice was to send a B-3 form to prompt Gallagher Bassett to investigate

a claim; (2) Robichaux had no notice that a claim definitely was going to be made; and (3)

                                             19
Robichaux commenced an investigation once she received a B-3 form in November 2001.

At worst, it appears that, in August 2000, Robichaux failed to follow up on a possible claim

due to her own thoughtlessness. Her omission constituted mere inadvertence, heedlessness,

or inattention, which constituted simple negligence. In my opinion, viewing the evidence in

the light most favorable to the verdict, Malone proved that Gallagher Bassett’s conduct

amounted to nothing more than simple negligence.7 Therefore, not only was Gallagher

Bassett’s conduct insufficient to support a finding of bad faith, but recovery against

Gallagher Bassett for simple negligence was barred by the exclusivity clause of the Workers’

Compensation Act. Miss. Code Ann. § 71-3-9 (Rev. 2000). The evidence was insufficient

to support the verdict against Gallagher Bassett in favor of Malone.

¶36.   I point out that a delay of virtually any length in the payment of workers’

compensation benefits invariably will cause damages of some kind to the injured employee,

such as a slight worsening of the work-related injury, emotional distress, or the like. The

Workers’ Compensation Act has established a balance between the interests of employers

and employees: the employer provides compensation for work-related injuries without regard

to fault, and the Act is the employee’s exclusive remedy. See 9 John R. Bradley, Jr.,

Encyclopedia of Mississippi Law (Jeffrey Jackson & Mary Miller eds.) § 76:1 (2002). This

balance is threatened if minor misconduct by the employer, carrier, or adjuster that causes




       7
        I note that the trial court appeared to recognize the paucity of evidence supporting
a heightened tort when the court refused to submit the issue of punitive damages to the jury.

                                             20
a delay in payment is sufficient to permit an employee to recover damages at law. On this

point, a California appellate court aptly has stated:

       [M]inor delays in getting medical service, such as for a few days or even a few
       hours, caused by a carrier, could become the bases of independent suits, and
       these could be many and manifold indeed. The uniform and exclusive
       application of the law would become honeycombed with independent and
       conflicting rulings of the courts. The objective of the Legislature and the
       whole pattern of workmen's compensation could thereby be partially nullified.

Taylor, 420 So. 2d at 566 (quoting Noe v. Travelers Ins. Co., 342 P. 2d 976, 979 (Cal. Dist.

Ct. App. 1959)).

¶37.   I would reverse and render the verdict against Gallagher Bassett in favor of Malone.

       3. The sufficiency of the evidence supporting the verdict in favor of Nabors for
       breach of contract.

¶38.   I turn to the verdict in favor of Nabors against Gallagher Bassett for breach of

contract. Gallagher Bassett argues that its conduct was not imputable to Nabors and could

not have rendered Nabors liable to Malone. At trial, Nabors’s theory of recovery against

Gallagher Bassett was that, but for Gallagher Bassett’s bad faith, Nabors would not have

been liable to Malone, and would not have incurred settlement and defense costs. Nabors

contended that Gallagher Bassett’s bad-faith delay breached the contract with CNA requiring

Gallagher Bassett to provide fair and expeditious handling of Nabors’s workers’

compensation claims, and the breach proximately caused Nabors to incur liability to Malone.

Nabors argued that its potential liability to Malone, based on Gallagher Bassett’s bad faith,

prompted its Mary Carter settlement with Malone. Nabors’s jury instruction D-33 permitted

the jury to find that Nabors had proven by a preponderance of the evidence that Gallagher

                                              21
Bassett’s breach of contract proximately caused or contributed to Nabors’s damages,

including:

       (1) the costs, benefits, and penalties associated with Gary Malone’s workers’
       compensation claim and (2) the settlement and cost of defense, including
       attorney’s fees, incurred in defense of both Gary Malone’s bad faith action and
       Gary Malone’s workers’ compensation claim against Nabors Drilling USA,
       L.P. and that Nabors Drilling USA, L.P. would not have incurred but for
       Gallagher Bassett Services, Inc.’s breach of contract, if any.

¶39.   In my opinion, Gallagher Bassett correctly argues that its acts were not imputable to

Nabors. In Luckett, this Court held that an employer, as well as a carrier, may be held liable

for bad-faith nonpayment of workers’ compensation benefits. Luckett, 481 So. 2d at 290.

However, when a carrier acts in bad faith, the carrier “ceases to be the ‘alter ego’ of the

employer,” but is involved in an independent relationship with the employee. Holland, 469

So. 2d at 58; Pilate v. Am. Fed. Ins. Co., 865 So. 2d 387, 395 (Miss. Ct. App. 2004). The

import of this rule is that an employer is not liable for the bad-faith acts of an insurance

carrier, or, as in this case, the bad-faith acts of an insurance adjuster with whom the carrier

has contracted to determine the compensability of claims. In the context of a fraudulent-

joinder claim, the United States District Court for the Southern District of Mississippi

determined that an employer who was free from any wrongdoing could not be held liable for

the carrier’s bad-faith nonpayment of a workers’ compensation claim. Toney v. Lowery

Woodyards, 278 F. Supp. 2d 786, 793 (S.D. Miss. 2003) (citing Holland, 469 So. 2d at 58).

Because the employer and carrier are not alter egos when acting in bad faith, the employer




                                              22
and carrier each are liable for their own bad-faith acts, and the bad-faith acts of one are not

imputable to the other.

¶40.   I have concluded that the evidence was insufficient to support a finding that Gallagher

Bassett acted in bad faith. But even if Gallagher Bassett was guilty of bad faith, its bad faith

was not imputable to Nabors. Holland, 469 So. 2d at 58; Pilate, 865 So. 2d at 395; Toney,

278 F. Supp. 2d at 793. Nabors settled the case because it perceived its potential liability to

Malone; however, any liability which Nabors had to Malone could have arisen only from

Nabors’s own failure to comply with the Workers’ Compensation Act concerning Malone’s

claim. Evidently, Nabors settled with Malone to avoid this potential liability, and then

sought to recover the settlement amount and defense expenses from Gallagher Bassett based

on an “alter-ego” theory. This Nabors could not do, because it was not liable as a matter of

law for any bad-faith conduct committed by Gallagher Bassett. I would reverse and render

the verdict against Gallagher Bassett in favor of Nabors.




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