INSURANCE-RELATED COURT CASES
Digested from case reports published online
COURT DECISIONS
State code question debated
Casey Cotton was involved in a car collision with Caleb and Adriane Crabtree, resulting in severe injuries to Caleb. The Crabtrees filed a lawsuit against Cotton and his insurer, Allstate, alleging that Allstate refused early settlement offers and failed to inform Cotton of these offers.
While the claims against Allstate were dismissed, the claims against Cotton proceeded in the Lamar County Circuit Court. During the pendency of the personal injury suit, Cotton declared bankruptcy. Included in his bankruptcy estate was a potential bad faith claim against Allstate based on the timing with which liability proceeds were tendered to the Crabtrees.
The Crabtrees were unsecured creditors to Cotton’s estate and petitioned the bankruptcy court to allow the personal injury suit to proceed to trial. “The [b]ankruptcy [c]ourt directed that the suit in Lamar County Circuit Court against Cotton be liquidated by proceeding to jury trial to obtain a judgment in order to pursue the claims against Allstate for any resulting excess judgment and other damages.”
The Crabtrees, however, could not afford the $10,000 up-front legal payment, so they engaged Court Properties, L.L.C., to assist with financing. The bankruptcy trustee agreed to allow the Crabtrees to purchase Cotton’s bad faith claim for $10,000. Court Properties paid the bankruptcy trustee $10,000 to acquire the bad faith claim, then assigned that claim to the Crabtrees in exchange for $10,000 plus interest at 8% with repayment contingent on successful recovery from Allstate.
On January 11, 2022, Cotton was discharged from bankruptcy, and on January 19, 2022, a jury verdict in favor of the Crabtrees on the personal injury suit in the amount of $4,605,000 was entered. This significantly exceeded the $25,000 limit on Cotton’s insurance with Allstate.
Allstate moved for judgment on the pleadings and summary judgment regarding the bad faith suit the Crabtrees had filed. It argued, among other points, that the assignments from the bankruptcy trustee to Court Properties and from Court Properties to the Crabtrees were void because they violated Mississippi’s law against champerty, which is where a person provides litigant funds to prosecute an action in return for a share of the proceeds. The court denied the motions without prejudice at a hearing in July 2022, to allow for a more fully developed record.
The next month, Allstate filed a new Motion to Dismiss for Lack of Jurisdiction, Motion for Summary Judgment. In addition to a renewed champerty argument based in part on a more complete record, Allstate asserted that the Crabtrees had not actually been assigned anything because Court Properties executed its assignment of Cotton’s claims to the Crabtrees before Court Properties had received the claims from the Bankruptcy Trustee. In an attempt to cure this alleged deficiency, Court Properties executed a second assignment to the Crabtrees in September of 2022.
In response, the Crabtrees filed an action in the United States District Court for the Southern District of Mississippi on December 22, 2022. The district court dismissed the action for lack of subject matter jurisdiction. It held that the assignment of Cotton’s claim to Court Properties and the assignment by Court Properties back to the Crabtrees were champertous and hence void under a Mississippi Code Section 97-9-11. Thus it found that the Crabtrees lacked Article III standing because absent Cotton’s bad faith claims, the Crabtrees had not suffered any injury at Allstate’s hands.
The Crabtrees appealed to the United States Court of Appeals for the Fifth Circuit, averring that (1) champerty was not available to Allstate as a defense to its suit, or alternatively (2) the assignments at issue were not champertous.
On appeal, the Fifth Circuit determined that tension existed between the text of a section of the code and case law that deprived it “of state court guidance on whether a section of the code voids the assignment in this case.” Accordingly, the Fifth Circuit certified a question to the Mississippi Supreme Court for an answer.
The certified question read: Does a section of the code allow a creditor in bankruptcy to engage a disinterested third party to purchase a cause of action from a debtor?
In answering the certified question, the supreme court held that Mississippi Code Section 97-9-11 prohibited a creditor in bankruptcy from engaging a disinterested third party to purchase a cause of action from a debtor. It pointed out that the code section clearly states that it is unlawful for any person to “solicit, request or donate any money … as an inducement to any person to commence or to prosecute further … any proceeding in any court[.]”
Moreover, the supreme court noted, solicitation of a truly disinterested third party to prosecute a case in which it has no legitimate interest would violate the plain terms of the code section, and engaging a truly disinterested third party to purchase a cause of action in which they have no legitimate interest would be champerty.
The code section remains a binding statute enacted by the legislature, the upper court ruled, adding that the parties have not shown any reason to question the enforceability or constitutionality of the section and that the statute would clearly prohibit the actions described in the certified question. The certified question was answered.
Caleb and Adriane Crabtree as assignees of the claims of Casey Cotton v. Allstate Property & Casualty Insurance Company—Supreme Court of Mississippi—No. 2024-FC-00827-SCT—May 15, 2025.
