The Mississippi Supreme Court published an opinion regarding insurance bad faith litigation that could have a severe impact on the insurance industry in State Farm Mutual Automobile Insurance Co. v. Earl Grimes, No. 95-CA-00918 SCT (decided 10/22/98). The case arose out of a suspicious alleged theft of the insured's 1969 Corvette automobile, which was recovered a few blocks from the insured's home on the day the theft was reported. There was no damage to the exterior of the vehicle although the engine, transmission, shock absorbers and other parts of the vehicle had been removed. After an extensive investigation, State Farm denied the claim and the insured filed suit in the Circuit Court of Hinds County against State Farm, seeking both compensatory and punitive damages. After a three day trial, the jury returned a verdict of $1,900.00 in contractual damages for the theft and $1,250,000.00 in punitive damages against State Farm.
The Supreme Court reiterated the law in Mississippi that the issue of punitive damages should not be submitted to the jury unless the trial court determines there are jury issues with regard to whether: (1) the insurance carrier lacked an arguable or legitimate basis for denying the claim; and (2) the insurance carrier committed a wilful or malicious wrong, or acted with gross and reckless disregard for the insured's rights. In determining whether State Farm had an arguable basis for denying the claim in the Grimes case, the Court had to consider the facts that were available to State Farm at the time the claim was denied, which were as follows:
The disappearance of the car was suspicious because there were no signs of forced entry to the car or steering column and the car could not be steered without the key. The insured had the only set of keys. The physical facts were inconsistent with theft because the condition of the vehicle was much neater than the typical vehicle recovered after theft. Hard-to-remove parts were taken while easily-removed parts were not. The car was recovered in front of the insured's apartment manager's office, so it would be discovered, but not stripped further. There was no damage to fiberglass, which negated the possibility of this low-slung body having been towed by a standard wrecker. The behavior of the insured was inconsistent with theft beginning with his two-hour delay in reporting the theft. The insured had a financial motive to stage the loss because he had tried unsuccessfully to sell the car. He had frequent mechanical problems with the car and was, in his own words, "tired of messing with it". He was adept at trading engines and parts between vehicles, gave three different versions of where the engine came from, and could not recall the serial number of the engine although he ran it on the NCIC when he bought the car. He collected on a prior suspicious vandalism loss claim to the Corvette and had the car totally repainted, and changed the color. Other matters tending to implicate the insured included the "word on the street" that the theft was an inside job and that the parts were at Joe's Garage. Both the investigating Deputy Sheriff and a retired auto theft investigator from the Mississippi Highway Patrol (State Farm's expert) testified that the facts were not consistent with, nor typical of, an actual theft.
At the trial, the Circuit Judge refused to grant the insured a directed verdict with regard to the contract claim. The Supreme Court recognized that it previously held that the fact that a trial judge denied an insured's Motion for Directed Verdict on the underlying contract claim generally indicates that a punitive damages instruction should not have been submitted to the jury. Blue Cross & Blue Shield of Mississippi, Inc. v. Campbell, 466 So.2d 833 (Miss. 1984). However, the Court in Grimes confirmed a change in the law by stating that a trial judge could submit the issue of punitive damages to the jury regardless of whether or not a directed verdict was granted to the insured on the contract claim. The Grimes court also imposed a new standard on insurance companies by stating that if the insurance company could not "reasonably expect to succeed on any claimed defense", the jury could determine that the insurance company deliberately refused, in bad faith, to pay the claim and award punitive damages. The punitive damages in the Grimes case were $1,250,000.00 and the compensatory damages were $1,900.00 which resulted in a ratio of 658 to 1 and was approved by our Mississippi Supreme Court's majority opinion.