Mississippi's highest court has thrown out a $5,035,000 jury award based on the General Motors Acceptance Corp. practice of forced placement of insurance for customers who fail to obtain their own physical-damage coverage.
The state Supreme Court found no basis for a customer's allegations of bad faith, fraud or breach of fiduciary duty in the dispute over collateral protection insurance. However, the court authorized a new trial to determine whether GMAC must pay $762 in damages for breach of contract.
In 1991, Menola Baymon bought a new Mitsubishi Galant from Regency Mitsubishi in Jackson. She signed a five-year installment sales contract that required her to maintain insurance coverage against physical damage.
The contract empowered GMAC to buy insurance and charge her the cost plus a finance charge if she failed to do so, with an option to repossess the car if Baymon breached the agreement.
Due to financial problems, she let her insurance lapse. GMAC then sent notices encouraging Baymon to reinstate coverage and reminded her of its right to buy collateral protection insurance at her expense. It then did so through its captive insurer, Motorists Insurance Co., and increased Baymon's monthly payments. GMAC claimed Motorists Insurance Co.'s insurance was the least expensive available in the state.
Baymon eventually obtained her own insurance again, leading to a reduction in her monthly payments to GMAC.
Her suit in Humphreys County Circuit Court accused GMAC of improperly inflating the additional charges by including a commission, excessive concealed profits and an administrative expense, thus billing customers for more than GMAC's cost of obtaining the coverage. She also claimed GMAC fraudulently failed to disclose that Motorists Insurance Co. was its subsidiary and that GMAC had a written policy never to repossess a borrower's vehicle for failure to pay the add-on insurance.
At trial, a jury awarded her $5 million in punitive damages and $35,000 in compensatory damages.
The state Supreme Court reversed the verdict, citing errors by the trial judge and a lack of evidence to support most of the allegations. For example, it found no breach of fiduciary duty because GMAC merely had exercised its legal rights.
'When Baymon defaulted on her obligation to maintain insurance, GMAC took only those actions which were duly authorized by the contract,' Justice James Roberts Jr. said, noting that GMAC repeatedly had notified her of the breach and had chosen to buy collateral protection insurance instead of repossessing the car.
TRIAL JUDGE CRITICIZED
There also was no fraud, the court held. GMAC was not required to disclose its relationship with Motorists Insurance Co., it said, and 'the price of the coverage provided by MIC was comparable to, if not lower than, other policies of its kind.'
The Mississippi Supreme Court criticized the trial judge for allowing prejudicial testimony that suggested GMAC's use of collateral protection insurance discriminated against African Americans. It said the judge also should not have allowed two of Baymon's experts to testify about matters outside their areas of expertise.
The court said Baymon is entitled to another trial on her breach of contract claim but said potential damages are limited to the $762 she claimed GMAC overcharged.
GMAC spokesman Jim Kobus said, 'collateral protection insurance has been part of our standard business practice for a long time and certainly doesn't contain the abuses the plaintiff claimed. The facts of this case never warranted the damages awarded by the jury.'
Baymon's lawyer, Brian Herrington of Lexington, said the decision is disappointing, adding, 'I think GMAC customers in Mississippi better watch out.' He said his client is reviewing her options.