Last month an article in the Enterprise-Journal, written by Russ Latino of the Magnolia Tribune, lamented the fact that the Mississippi Supreme Court affirmed a $10 million punitive damage verdict plus an additional $4.5 million in attorney fees against an insurance company.
The jury verdict was against USAA Insurance Company for the mishandling of a claim concerning a home on the Mississippi Gulf Coast which was destroyed by Hurricane Katrina. Most of the time, insurance companies handle claims in a fair manner; but this case requires scrutiny.
The Supreme Court in December 2024 affirmed the punitive damages award and stated that it was clearly within the purview of the statute that addresses reckless disregard for the “safety of others.”
The court has consistently stated that the word “safety” in the statute encompasses more than physical safety. That language has been interpreted by the Mississippi Supreme Court to encompass the reckless disregard for the rights of the insured person.
The derogatory Tribune article was highly critical of the Supreme Court as not abiding by the law. But it actually did decide the case based upon the law.
Prior to insuring the home, contents and outbuildings, USAA carefully inspected it and made numerous photographs and studies in 1994 and 2001. The house had 360-degree windows, and it was constructed 15 feet above sea level. Katrina hit in August 2005, with winds of more than 110 mph.
The estate of Paul Minor, which owned the home, filed a claim against USAA for a total loss. After its adjusters inspected, USAA hired an independent engineering firm to inspect the extent of damage and determine the cause.
The engineering firm issued a report in March 2006 stating that the wind caused damage to the window systems, shingles, canopies, overhangs, trim and other material around the eaves of the structures.
The adjusters then asked the engineers what they meant by “window systems.” The response was that USAA should pay for all the windows, which opened up the contents in all rooms of the home, causing the destruction.
Even after that report, USAA sent a letter to the homeowner that estimated the structural damage to be $56,000 less depreciation and deductible, for a net payment of $37,000. In that letter, the adjuster stated that their engineers’ report as well as the company’s inspection “does not warrant any additional claim because the bulk of the damage was caused by water.”
In January 2007, a supervisor with USAA sent a note to the adjusters, telling them to “get this file moving. It’s a $1 million home and it’s gone.” The adjuster re-evaluated the estimate to a total of $289,000, less depreciation and deductible.
After having given the insurer ample time to honestly evaluate the claim, the owner filed suit in August 2008. He asked for actual losses, punitive damages and attorney fees.
In September 2013, the jury rendered a verdict of $1.5 million for actual damages. Since the trial judge did not allow the jury to consider punitive damages, the owner appealed to the Supreme Court to allow a jury to determine punitive damages based upon the bad-faith actions of its insurance company. The court agreed and remanded the case for jury consideration of punitive damages.
The second trial on punitive damages occurred in September 2022, and a different jury heard all of the testimony concerning the bad-faith actions of USAA. That jury returned a verdict of $10 million in punitive damages, which was only .00025 of USAA’s $40 billion net worth.
A fairly conservative Supreme Court affirmed the punitive damages award 8-1. Although $10 million is a large sum of money, it was totally justified by the willful, wanton and reckless disregard for the homeowner and the insurance policy itself. The homeowner had the right to be timely paid, but the insurance company dragged the case along for many years.
Most people cannot sustain years of litigation and living without assets, and insurance companies are well aware of that. Usually whatever is offered is accepted.
The lawyers who undertook the challenge of the punitive damages issue did so under a contingency fee agreement of 45%. Thus, there was an additional $4.5 million in attorney fees awarded to them for battling with USAA for years over its deceitful, wrongful actions. The court voted 5-4 in favor of the issue of attorney fees in addition to punitive damages.
This is an example of the judicial system working. USAA deserved what it got. Hopefully they will get the message.
John H. Ott, McComb
