At the request of a reader, I turn my discussion of total loss definitions to Tennessee. Similar to other states we have looked at so far, the total loss definition stems from Tennessee case law interpreting fire insurance policies. In 1988, one Tennessee court took a closer look at this issue.
The Court recognized the general rule that,
[T]otal destruction of a building within the meaning of an insurance policy means its complete destruction as a building, but not necessarily the absolute extinction of all its materials, or even that no part of it can be left standing.1
After perusing case law from other states, the Court explained there were essentially two standards it could use – the “identity test” and the “prudent man test.”
The identity test:
[I]f the building loses its identity and specific character by fire, although a large part of the materials or component parts are left standing, it is a “total destruction” within the meaning of the policy.2
The prudent man test:
[T]here cannot be a total loss so long as the remnant of the structure standing is reasonably adapted for use as a basis upon which to restore the building to the condition it was in before the fire; and that whether it is so adapted depends upon whether a reasonably prudent owner, uninsured, desiring such a structure as the one in question was before the fire, would in proceeding to restore it to its original condition utilize the remnant thereof as such a basis.3
The Court noted a Tennessee Supreme Court case from 1915 in which the “identity test” was adopted and reaffirmed that this was the proper standard.4
1 Hollingsworth v. Safeco Ins. Companies, 782 S.W. 2d 477, 478 (Tenn. App. 1988).
2 Id. at 479.
4 See Laurenzi v. Atlas Ins. Co., 131 Tenn. 644, 176 S.W. 1022 (1915).