United States Court of Appeals,

                            Fifth Circuit.

                             No. 94-60306.

          Earnest GREER, Plaintiff-Appellee Cross-Appellant,

                                  v.

                Hardye BURKHARDT, et al., Defendants,

 United States Fidelity & Guaranty Insurance Company, Defendant-
Appellant Cross-Appellee.

                            July 20, 1995.

Appeal from the United States District Court for the Southern
District of Mississippi.

Before REAVLEY, KING and WIENER, Circuit Judges.

     REAVLEY, Circuit Judge:

     Ernest Greer won a judgment against his insurance carrier,

United States Fidelity & Guaranty Insurance Company (USF & G), for

$225,000 in mental anguish damages.        Greer claimed that USF & G

failed to defend a personal injury suit brought against him,

resulting in a default judgment.       On appeal, USF & G argues, inter

alia, that Mississippi law does not allow for mental anguish

damages     under   the   circumstances    presented   here.     Greer

cross-appeals, arguing that the district court erred in denying his

claim for punitive damages.     We reverse and render.

                          FACTUAL BACKGROUND

     Greer had a homeowner's policy with USF & G.       USF & G agreed

under the policy to provide a defense to covered personal injury

claims.    It required Greer to "forward to us every notice, demand,

summons or other process" relating to an accident or occurrence


                                   1
under the policy. Greer obtained the policy through a local agent,

Pickens Insurance Agency.

     In 1986 Nora Levy fell when she slipped on a toy at Greer's

residence.     Greer gave notice of this occurrence to a Pickens

employee, Hardye Burkhardt. A USF & G claims adjuster investigated

this claim, meeting with Greer and Levy, and obtaining a recorded

statement from Greer.   Several months later, the adjuster closed

the file on this incident, because of "lack of interest" by both

the claimant and the insured.

     Some four years later, on February 21, 1990, Don Barrett,

Levy's attorney, wrote to Greer, informing him that a suit against

Greer had been filed.   A copy of the unfiled complaint, with cause

number left blank, was enclosed with the letter.        The letter

advised Greer that "[y]ou should go ahead and give this copy of the

Complaint to your insurance company, and they will handle the

matter."

     There is no dispute that Greer took the unfiled complaint to

Burkhardt. Greer testified that Burkhardt told him she "would take

care of it."     Burkhardt testified that she made a copy of the

complaint for her file and mailed a copy to USF & G.       USF & G

witnesses, however, testified that USF & G never received the copy

in the mail.   USF & G contends that the letter forwarding the copy

of the unfiled complaint was lost in the mail.

     On February 22, 1990, Levy's suit was filed, and Greer was

served with process in March.   Greer testified that he took a copy

of the filed complaint to Burkhardt, while Burkhardt testified that


                                 2
she had no further contact with Greer until 1991.

       In May of 1990 a default judgment was entered in state court

against Greer for $225,000. An amended judgment was later entered,

reducing the amount of the judgment to $90,000.

       On February 6, 1991 Levy's attorney notified Greer of the

default judgment by letter.          The letter stated that Levy intended

to    execute    on   Greer's    property     and   garnish   his    wages   unless

arrangements were made to pay off the judgment by February 11,

1991.      On February 11, 1991, Levy's attorney filed suggestions for

writ of garnishment on several banks and an execution on judgment.

The    sheriff's      office    tagged    certain    pieces   of     Greer's   farm

equipment on February 21, 1991.            Greer also received a letter from

his bank notifying him that his bank account, with a balance of

$1137, had been seized.           On February 22, 1991, Greer filed this

suit.

       Burkhardt testified that neither she nor USF & G knew of the

default judgment until February 20, 1991, when Greer's attorney

notified her of the judgment, and that she immediately contacted

USF    &   G's   claims   office.        Greer   testified    that    he   notified

Burkhardt of the default judgment shortly after receiving the

February 6 letter from Levy's attorney.               On February 27, USF & G

paid the judgment and obtained a release and cancellation of the

judgment.

       The district court, after hearing the evidence, instructed the

jury that USF & G was negligent, in effect directing a verdict on

liability.       It refused Greer's request for a jury instruction on


                                          3
punitive damages, and asked the jury to determine actual damages

for mental anguish.     The jury awarded $225,000 in mental anguish

damages. The jury was also instructed to award $1500 in attorney's

fees, an amount to which the parties had stipulated as reasonable.

                               DISCUSSION

A. Mental Anguish Damages

      USF & G complains that the evidence presented by Greer does

not support an award of actual damages for mental anguish under

Mississippi law.     The evidence on mental anguish consisted solely

of Greer's testimony.     When asked to describe his reaction to the

February 6, 1991 letter, Greer stated that "it was frustrating.           It

was humiliating.     I felt as if someone had shoveled bricks in my

stomach.    I had problems resting, and I—it was just a humiliating

situation.    I knew I didn't have $90,000 to pay."         When asked to

describe his "reaction to the sheriff seizing your property and

your reaction to the Bank of Yazoo County giving up your accounts,"

he testified:     "It was embarrassing.     It was embarrassing.     It was

the most embarrassing thing that had ever happened to me in my

life."

     In    this   diversity   case   we   face   the   vexing   problem   of

determining how the Mississippi Supreme Court would decide this

issue.     After carefully reviewing recent Mississippi cases on

mental anguish damages, we find ourselves in agreement with USF &

G.

     In Strickland v. Rossini, 

(Miss.1991), the

plaintiff, who had purchased a home, sued an inspection company and


                                     4
its employee for negligently representing that the home was free of

termites. The jury awarded $62,000 in actual damages, a portion of

which consisted of mental anguish damages. The Mississippi Supreme

Court held that a long line of cases had led to the present rule

that a "a plaintiff may recover for emotional injury proximately

resulting from negligent conduct, provided only that the injury was

reasonably foreseeable by the defendant."          

  The court

held, however, that the record proof on mental anguish damages was

legally insufficient to support such an award.               The evidence

consisted of the plaintiff's boyfriend's testimony that plaintiff

was "very upset," "very depressed" and unable to sleep over the

incident.1

     In    Universal   Life   Ins.    Co.   v.   Veasley,   

(Miss.1992), the court upheld an award of $500 in mental anguish

damages.     The plaintiff was the beneficiary of her daughter's life

insurance policy.      After plaintiff's daughter died, the insurer

initially denied coverage.           Several weeks later, the insurer

realized that it had wrongfully denied coverage and paid the claim.

While agreeing with the insurer that punitive damages were not

     1
      The entirety of the boyfriend's testimony concerning the
plaintiff's emotional state consisted of the following:

             She's been very depressed. Her kids have been very
             upset over all this and emotional. They've gone
             through a lot of stress and worry over the way their
             mother has been upset and sick and not able to sleep at
             night. I've been called to come out there and sit with
             her [on] occasions at night because of being [sic] so
             upset, and it's just ..[.] it's been a very detrimental
             thing for her.

     

the court upheld the award of mental anguish damages.

The court reasoned that even in cases that involve no more than

simple negligence:

     [I]t is entirely foreseeable by an insurer that the failure to
     pay a valid claim through the negligence of its employees
     should cause some adverse result to the one entitled to
     payment. Some anxiety and emotional distress would ordinarily
     follow, especially in the area of life insurance where the
     loss of a loved one is exacerbated by the attendant financial
     effects of that loss.... It is no more than just that the
     injured party be compensated for these injuries.

     The court set out the evidence plaintiff had offered in

support of mental anguish damages:

     [Plaintiff] testified that Universal's refusal to pay her
     claim caused her worry, nervousness, and depression. She also
     claimed she had sleepless nights and little or no tolerance
     for children or noises.        She stated she was taking
     tranquilizers for her problems.       There was no medical
     testimony presented during the trial and [plaintiff] admitted
     that she had some of the same problems before and after her
     daughter's death.

     In Finkelberg v. Luckett, 

(Miss.1992), the

plaintiff sued his broker for refusing to allow him to withdraw

funds from a jointly-held account, while allowing his wife to do

the same, all while plaintiff and his wife were in the midst of

divorce proceedings.   The plaintiff claimed that without the money

the wife had withdrawn from the account, she would not have been

able to leave the state with their children.   When asked how he had

been damaged by the broker's conduct, he testified:

     I gave them my life savings and I trusted them to take this
     money and to use it to help me make money and for them to make
     money.   I was intentionally told that I could not get the
     money when I went to get it when, in fact, I went to the

                                 6
     lawyer, I was able to get the money.      I guess the most
     important way that I've been harmed is I've been without my
     children for two years. It's been a very difficult time and—

  The court concluded that the evidence presented at

trial did not support an award of mental anguish damages under

Mississippi law:

     The coup de grace on any claim for damages for mental anguish
     in this record, however, is the total absence of proof
     justifying it. In the seminal case of Sears Roebuck & Co. v.
     Devers, we held that in a case of simple negligence damages
     for mental anguish unaccompanied by physical injury would be
     upheld only "if there is a resulting physical illness or
     assault upon the mind, personality or nervous system of the
     plaintiff which is medically cognizable and which requires or
     necessitates treatment by the medical profession." 405 So.2d
     [898] at 902 [ (Miss.1981) ]. Quoted with approval in Wirtz
     v. Switzer, 

, 784 (Miss.1991).

     Doing our best to determine how the Mississippi Supreme Court

would decide our case, we conclude that it would not sustain the

award of mental anguish damages.        While Veasley appears to support

the award given in our case, both Rossini and Finkelberg support

USF & G's position.    Rossini accepts that mental anguish damages

are recoverable even in simple negligence cases where such damages

are reasonably foreseeable, but does not allow them where the proof

offered consists of nothing more than generalized testimony that

the plaintiff was very upset and depressed, and was unable to

sleep.   In our case, the proof offered did not rise above this

level,   consisting   solely   of   Greer's    testimony   that   he   was

embarrassed, humiliated and "had problems resting."           Finkelberg

permits mental anguish damages only where the injury results in a

medically cognizable condition which requires professional medical


                                    7
treatment, a requirement that was not met here.      We also note that

Finkelberg was decided after Veasley, and that the dissent in

Finkelberg pointed out the apparent inconsistency in the two

.   Further, Finkelberg was decided by the

court sitting en banc, while Veasley was decided by a three-judge

panel of the court.

B. Punitive Damages and Attorney's Fees

         Greer complains that the district court erred in refusing an

instruction on punitive damages, in effect directing a verdict in

favor of USF & G on this claim.         Again, Mississippi law in this

area is not crystal clear. We conclude, however, that the district

court did not err in denying punitive damages.

     The Mississippi Supreme Court has often stated that punitive

damages are appropriate only in the rare and extreme case.          In

Veasley, for example, the court allowed mental anguish damages but

reversed the award of punitive damages.        It noted that punitive

damages are only allowed where the plaintiff proves "(1) malice, or

(2) gross negligence or reckless disregard for the rights of

others," and that the facts in that case suggested no error that

was "anything more that clerical" and "an unfortunate episode of a

failure of 

.     Likewise, in

Finkelberg, the court reversed the award of punitive damages,

noting that such damages "are to be awarded only in extreme cases,"


     2
      Although Finkelberg is the later decided case, it appears
earlier in the Southern Reporter, perhaps because the Veasley
opinion as published includes a opinion dissenting from the
denial of a petition for rehearing.

                                    8
and that the defendant's conduct "was an act of negligence in which

no greed, avarice or oppression was involved, and clearly was not

the degree of negligence which would give rise to punitive damage

.               On the other hand, the

Mississippi Supreme Court recently reversed a lower court's partial

summary judgment denying punitive damages to an insured in Lewis v.

Equity Nat'l Life Ins. Co., 

(Miss.1994).                  The insurer

had refused to pay medical benefits under a policy when the

plaintiff      was   injured    in   an    automobile      accident.     The   court

cataloged numerous circumstances where punitive damages against an

insurer may be appropriate even where the insurer had an arguable

basis for denying the claim, including those where the insurer (1)

denies a claim because of a material misrepresentation by its own

agent,   (2)    denies    a    claim      without   proper    investigation,     (3)

inordinately delays processing the claim, and (4) engages in

"post-claim underwriting."             

     On balance, however, we believe that Mississippi law does not

allow for the award of punitive damages against the insurer here,

where    the    plaintiff's     proof      fails    to    establish    any   legally

recoverable      actual    damages.          The    Mississippi   Supreme      Court

implicitly recognized such a rule in Travelers Indem. Co. v.

Wetherbee, 

(Miss.1979).               The court affirmed an award

of punitive damages against an insurer who had intentionally

withheld payment on a fire insurance claim.                  The court explained

that punitive damages were appropriate, in part because actual

damages consisting of the policy proceeds were properly awarded:


                                            9
       In Standard Life Insurance Co. of Indiana [v. Veal, 

(Miss.1977) ], we upheld a judgment for punitive damages
       in conjunction with an award for the policy coverage. In our
       opinion this satisfied the requirement that punitive damages
       will not be awarded absent actual damages. We presently think
       it is fulfilled since the verdict for exemplary damages is in
       conjunction with compensatory damages including the policy
       proceeds.

(emphasis added). In contrast to Wetherbee, the insurer

in our case paid the full amount of the default judgment, and Greer

failed to prove any recoverable actual damages, for the reasons

explained above.        In a case of zero actual damages, we believe that

Mississippi law does not allow him any punitive damages.

           As for the attorney's fees awarded, the prevailing view in

Mississippi appears to be that attorney's fees are not recoverable

absent an award of punitive damages,3 although some cases indicate

that       attorney's   fees   can   be    awarded   as   extra-contractual   or

consequential       damages     even      where   punitive   damages   are    not

warranted, if the insurer denied a claim without any arguable

basis.4       Finding no authority to the contrary, however, we are

       3
      See, e.g., Miller v. Allstate Ins. Co., 

, 795
(Miss.1994) ("In the absence of a showing of gross or willful
wrong entitling the Movant to an award of punitive damages, the
Mississippi Supreme Court has never approved of awarding
attorneys fees to the successful litigant."); Central Bank v.
Butler, 

, 512 (Miss.1987) ("[T]his Court has held
that in the absence of contractual provisions or statutory
authority, attorneys' fees may not be awarded as damages in a
case unless punitive damages are also proper."); Aetna Casualty
and Sur. Co. v. Steele, 

, 801 (Miss.1979)
("Attorney's fees are not recoverable as an element of damages
unless the infliction of punitive damages is justified.").
       4
      See 

("Some justices on this court
have suggested that extra-contractual damages ought be awarded in
cases involving a failure to pay on an insurance contract without
an arguable reason even where the circumstances are not such that
punitive damages are proper.... [I]t is entirely foreseeable by

                                           10
persuaded that Mississippi law does not allow the recovery of

attorney's fees where the insured recovers neither actual nor

punitive damages.

     REVERSED AND RENDERED.




an insurer that the failure to pay a valid claim through the
negligence of its employees should cause some adverse result to
the one entitled to payment.... Additional inconvenience and
expense, attorneys fees and the like should be expected in an
effort to have the oversight corrected. It is no more than just
that the injured party be compensated for these injuries.");
Andrew Jackson Life Ins. Co. v. Williams, 

, 1186 n.
13 (Miss.1990) ("Conceivably, upon presentation of sufficient
proof, consequential or extra-contractual damages (e.g.,
reasonable attorney fees, court costs, and other economic losses)
may be awarded in cases involving a lack of a reasonably arguable
basis—notwithstanding that the insurer is not liable for punitive
damages.").

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