The Court of Appeals of Tennessee recently affirmed an award which included bad faith damages against Farmers Mutual of Tennessee where the insurer repeatedly failed to explain to the insured what the basis for the denial of the claim was until the insurer answered certain requests during litigation.

In Burge v. Farmers Mutual of Tennessee,1 the insureds had applied for insurance coverage on their mobile home and identified one mortgage holder. Following a fire, the insurer denied their claim and the insureds sought information from Farmers as to the basis for the denial. Farmers provided no reason or explanation to the insureds—in fact the insureds were forced to file suit and then figure out the basis of the denial from information provided in the insurer’s discovery responses.

Farmers filed a response to the insured’s summary judgment motion, stating as its basis for denying the claim that the insured property was encumbered by two mortgages when the application was submitted, so there had been a material misrepresentation. The trial court found there was one lien holder—who was listed on the insurance application—and consequently there was no misrepresentation by the insured.

The trial court awarded prejudgment interest and imposed a statutory bad faith penalty of 15%, noting the insurer’s delays, its failure to pursue its claimed defense in an efficient manner, and the “harsh and rude treatment” the insured received from the insurance company adjuster and representatives when they sought information.

The appellate court affirmed the trial court’s award of bad faith damages, noting that the insurer had no substantial legal grounds for failing to pay the claim. The appellate court stated that a simple inquiry would have disclosed that only one mortgage encumbered the property. Specifically, the appellate court indicated that had the insurer explained its position to the insured during the months after the fire, additional documentation could have been provided and any confusion about the mortgage could have been clarified. The appellate court agreed with the trial court’s conclusion that the insurer’s refusal to pay the loss was not in good faith and the penalty awarded matched the attorney’s fees incurred by the insured.
1 Burge v. Farmers Mut. of Tennessee, No. M2016-01604, 2017 WL 1372864 (Tenn. App. Apr. 13, 2017).

  • Ridiculous – besides, even if there were two mortgages how would that material misrepresentation had anything to do with the facts of or contributed to the loss itself, or somehow increased the insurability of the risk? Is it a common practice that they do not underwrite properties with two mortgage companies – otherwise they would have lost on those grounds also? I’m glad Burge exposed them for this behavior. I wonder if Farmers Mutual reviews all applications after a loss as a common practice and procedure in order to find a mistake or apparent misrepresentation so they can deny claims. Most people would just walk away. Good for these folks!!

    • Acdc1a

      It’s only a material misrepresentation if they otherwise wouldn’t have taken the risk. I don’t know of any company that won’t insure a home with 2 mortgages though I know several who won’t insure a home with 3. This seems only like a misrepresentation even if there had been 2 mortgages.

      It’s this type of nonsense that gives the industry a bad name.

  • A relative has homeowners and personal auto insurance with this insurer. Lightning struck a tree, causing a branch to fall and destroy his satellite dish. The carrier denied coverage over the phone without a reason other than “It’s not covered” with nothing in writing. I got involved and found, as expected, that it was clearly covered. When confronted with the facts, they paid the claim.

    Later, he had property stolen from the bed of his pickup truck. He called it in as an auto claim and, rightfully, it was denied. However, the claims rep on the phone never volunteered the information that it was covered under his homeowners policy. I got involved again and the carrier paid the claim.