A couple of weeks ago I wrote a blog post describing how policyholders are unable to enforce insurance adjuster breaches in good faith for actions such as failing to acknowledge communications or failing to affirm or deny coverage within a reasonable time after a proof of loss.1 The post articulated that such enforcement ability resides solely with the insurance commissioner, pursuant to T.C.A. § 56-8-101(c).2 This restriction is quite vexing when policyholders call me asking for help after insurance adjusters behave badly, but I am unable to help them directly address their poor treatment.
However, despite the removal of the previously enjoyed avenues for recovery, policyholders can still hold insurance carriers responsible for one particular breach of good faith. Under T.C.A. § 56-7-105(a), policyholders remain able to bring suit against insurance carriers for failure to pay:
The insurance companies of this state, […], in all cases when a loss occurs and they refuse to pay the loss within sixty (60) days after a demand has been made by the holder of the policy or fidelity bond on which the loss occurred, shall be liable to pay the holder of the policy or fidelity bond, […]3
Recovery under this failure to pay statute is limited. First, the statute outlines a number of procedural requirements, including a 60-day cure period after demand and a judicial finding that “the refusal to pay the loss was not in good faith and that failure to pay inflicted additional expense, loss, or injury […].”4 This judicial finding requirement means coverage must legally be determined as existing and as deficient before recovery can be sought under this statute. More significantly, this deficiency in coverage must be shown to the court as “an insurer’s disregard or demonstratable indifference toward the interests of its insured,” and not merely a disagreement in the amount of coverage.5
Second, the maximum amount of recovery under T.C.A. 56-7-105 cannot exceed 25% of the deficient amount, which is notably less than treble damages available under previous recovery options. Further, even this 25% maximum limit is not guaranteed as such is “in the discretion of the court or jury trying the case.”6 Under the statute, the court is to take into consideration any additional expense, loss, and injury, including attorneys’ fees.
Despite its limitations, T.C.A. 56-7-105 breach of good faith for failure to pay provides some relief to policyholders who have been wronged by insurance carriers. This statute may also satisfy requirements that can open the door to other extra contractual damages, which I will discuss further in my next blog.
1 Tennessee Bad Faith Claims: Is a Statutory Good Faith Breach Available for Tennessee Policyholders, Prop. Ins. Blog (May 25, 2021).
2 Tenn. Code Ann. § 56-8-101(c)
3 Tenn. Code Ann. § 56-7-105(a)