Hemphill v. State Farm Mutual Automobile Insurance
805 F.3d 535
5th Cir.2015Background
- Feb 1, 2009: Hemphill ran a stop sign in his father's insured vehicle; Rodney Taylor (driver) became paraplegic; policy provided $50,000 per person liability.
- Hemphill initially denied driving but later admitted; State Farm learned of the admission via the accident report on Feb 25, 2009.
- State Farm contacted the Taylors, requested medical bills, verbally advised (per insurer notes and Taylor testimony) of coverage, and made settlement offers between July–Sept 2009 (ultimately offering $50,000 to Mr. Taylor on Aug 12 and later offers); the Taylors declined; they did not make settlement demands.
- Aug 11, 2011: Mississippi jury awarded Mr. Taylor $2,862,920.84; State Farm paid policy limits ($50,000) post-verdict.
- Sept 23, 2013: Hemphill sued State Farm alleging breach of fiduciary/duty to settle and failure to advise insured of excess exposure/right to independent counsel causing the excess judgment.
- District court granted summary judgment to State Farm; Hemphill appealed; Fifth Circuit affirms.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether insurer has a duty to initiate settlement when claimant has not made a within-limits offer | Hemphill: insurer must timely offer to settle when claim exposure greatly exceeds policy limits (should initiate in "dangerous" cases) | State Farm: no Mississippi authority imposing duty to initiate settlement absent a claimant offer | Court: No duty under Mississippi law; Erie guess that MS Supreme Court would not impose such a duty; summary judgment affirmed |
| Whether insurer must timely disclose policy limits to claimant (verbally or via certificate) | Hemphill: insurer should timely disclose limits (written and verbal) so claimant can make informed offer; written certificate should be provided earlier | State Farm: it verbally disclosed limits before suit and later provided certificate after suit filing; no binding law imposing earlier written-disclosure duty | Court: No genuine dispute State Farm verbally disclosed limits before suit; no duty to provide certificate earlier under MS law; summary judgment affirmed |
| Whether insurer’s failure to advise insured of excess exposure/right to independent counsel caused the excess judgment | Hemphill: State Farm’s failure to advise prevented him from obtaining counsel or otherwise avoiding excess verdict (causation) | State Farm: Hemphill already knew of severe exposure and had retained independent counsel before suit, so no causation | Court: Hemphill knew of potential excess exposure and had consulted counsel before suit; no genuine dispute on causation; summary judgment affirmed |
Key Cases Cited
- Indem. Ins. Co. of N. Am. v. Guidant Mut. Ins. Co., 99 So. 3d 142 (Miss. 2012) (insurer owes fiduciary duty to insured to protect insured’s interests in settlement contexts)
- Hartford Accident & Indem. Co. v. Foster, 528 So. 2d 255 (Miss. 1988) (when claimant makes within-limits offer, insurer must evaluate and may be liable for failing to protect insured; dictum suggesting insurer might initiate settlement in dangerous cases)
- S. Healthcare Servs., Inc. v. Lloyd’s of London, 110 So. 3d 735 (Miss. 2013) (insurer need not accept within-limits offer but must evaluate objectively reasonable offers)
- Liberty Mut. Fire Ins. Co. v. Canal Ins. Co., 177 F.3d 326 (5th Cir. 1999) (applying Mississippi law: insurer’s breach must cause insured’s damages)
- Boyett v. Redland Ins. Co., 741 F.3d 604 (5th Cir. 2014) (federal courts in diversity apply forum state substantive law)