JSI Communications v. Travelers Cslty & Surety Co.
17-60233
5th Cir.Dec 8, 2017Background
- McMillan–Pitts was prime contractor on a public project and obtained a payment bond from Travelers; Tackett was a subcontractor and JSI a second-tier subcontractor who installed cabling.
- Tackett failed to pay JSI $36,346.09 after JSI completed work; JSI submitted a bonding claim to Travelers and timely complied with bond notice requirements.
- McMillan–Pitts interpleaded $19,445.16 (remaining Tackett contract funds) in chancery court and obtained a broad release discharging McMillan–Pitts from liability related to Tackett’s subcontract funds.
- Travelers denied JSI’s bond claim, relying on the chancery-court interpleader release (and initially on timeliness, later dropped) and claiming a surety’s liability is coextensive with its principal’s liability.
- This Court (JSI I) reversed summary judgment for Travelers on the bond claim, holding the interpleader release did not discharge Travelers’ Little Miller Act liability and rendering judgment for JSI on the bond; remanded for consideration of bad faith and punitive damages.
- On remand the district court granted summary judgment to Travelers on JSI’s bad-faith/punitive-damages claim; JSI appealed and the Fifth Circuit affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Travelers had an "arguable or legitimate" basis to deny the bond claim (precondition for punitive damages) | JSI: Travelers’ denial was not arguable because JSI I already showed the interpleader could not discharge the bond; Travelers should have paid at least the undisputed portion. | Travelers: Denial rested on a long-standing rule that a surety’s liability is measured by its principal and on unsettled law about interpleader effects; reasonable basis existed when denial was made. | Held: Travelers had an arguable basis. Mississippi had not directly decided the interpleader effect on a Little Miller Act bond when Travelers denied the claim. |
| Whether Travelers conducted an independent, adequate investigation of JSI’s claim | JSI: Travelers failed to conduct a real independent investigation; record lacks internal legal research or interview notes. | Travelers: It requested and reviewed documents from JSI and McMillan–Pitts, spoke with the principal, and independently evaluated information. | Held: Evidence shows Travelers investigated; even a more thorough investigation would not have "easily adduced" that Travelers’ defense lacked merit given unsettled law. |
| Whether summary judgment was an improper procedure for resolving punitive damages entitlement (need for evidentiary hearing) | JSI: Court should have held an evidentiary hearing before deciding punitive damages. | Travelers: Summary judgment is appropriate where no genuine issue of material fact exists on bad faith/punitive_claims. | Held: Summary judgment was proper; Mississippi precedent permits resolving punitive damages on summary judgment in appropriate cases. |
Key Cases Cited
- JSI Comms. v. Travelers Cas. & Sur. Co. of Am., 807 F.3d 725 (5th Cir. 2015) (prior panel held chancery-court interpleader did not discharge Travelers’ bond liability under the Little Miller Act)
- Dunn v. State Farm Fire & Cas. Co., 927 F.2d 869 (5th Cir. 1991) (insurer had arguable basis when issue was unsettled in Mississippi)
- State Farm Mut. Auto. Ins. Co. v. Grimes, 722 So.2d 637 (Miss. 1998) (punitive damages require lack of arguable basis and willful/gross conduct)
- Murphree v. Federal Ins. Co., 707 So.2d 523 (Miss. 1997) (plaintiff must show a proper investigation would "easily adduce" that insurer’s defenses lacked merit)