A Venue Quiz
The facts: Plaintiff Doe presently lives in Carroll County, and his fire damaged home was also in Carroll County. Defendant Insurance Company has a claims office in Madison County. Defendant Agent resides in Carroll County, has his principal place of business in Carroll County, but also has a satellite office in Madison County. Plaintiff Doe brought suit against the Defendants for negligence, breach of contract, and violations of the Tennessee Consumer Protection Act in Madison County.
The question: Is venue appropriate in Madison County in light of the general venue rule that suit must be filed in the common county of residence?
The answer: Suit must be brought in Carroll County, right? Wrong. According to a very recent ruling by Chancellor Jimmy Butler (and the Tennessee Code), venue is appropriate in Madison County. Although the general rule is that suit must be brought in the common county of residence, the Tennessee Consumer Protection Act has a special venue statute (T.C.A. 47-18-109) that trumps the general venue rules. Under the TCPA's special venue provision, suit can be brought in the county where the defendant resides, where he has his principal place of business, or the county in which he transacts or has transacted business. Under these facts, because the agent has a satellite office in Madison County, Madison County is a proper venue even though the plaintiff and the agent both live in Carroll County, the alleged negligence occurred in Carroll County, and the the insured home was in Carroll County.
The TCPA's special venue statute can be an effective weapon in the right case, and practitioners should be aware of the options for venue that it might afford. The right judge, or the right jury pool, can obviously make a huge difference in some cases.
Full disclosure - The above facts outline the facts of a real case I am handling. To their credit, the defendant agent and his attorney, disagree with the Chancellor Butler's decision and may seek an interlocutory appeal. Although I don't anticipate that the result will change in light of the plain language of the TCPA, I'll be sure to post any contrary rulings.
THE "CO-INSURANCE" PENALTY - OR INSUFFICIENT INSURANCE TO VALUE - AND ITS IMPACT ON AN INSURED
What happens when an insured does not carry enough insurance on his/her/its property? Often, the answer is that, that insured, when suffering a loss, also suffers what some have characterized as a “co-insurance” penalty, or as some prefer, a penalty for maintaining insufficient “insurance to value.”
Remember that, for the most part, the insured is the person initially setting the value of the property. In most instances, an insured will be asked what the property is worth by the agent, or perhaps how much insurance is designed. When that coverage is written, and a loss occurs, the companies will often look to see if the insured had sufficient insurance when compared to the value of the property.
Many policies - especially commercial policies - contain a formula for determining the amount of coverage owed in instances where there is insufficient insurance to value. Here is a typical formula:
1. Coinsurance
If a Coinsurance percentage is shown in the Declarations, the following condition applies.
a. We will not pay the full amount of any loss if the value of Covered property at the time of loss times the Coinsurance percentage shown for it in the Declarations is greater than the Limit of Insurance for the property.
Instead, we will determine the most we will pay using the following steps:
(1) Multiply the value of Covered Property at the time of loss by the Coinsurance percentage;
(2) Divide the Limit of Insurance of the property by the figure determined in Step (1);
(3) Multiply the total amount of loss, before the application of any deductible, by the figure determined in Step (2); and
(4) Subtract the deductible from the figure determined in Step (3).
We will pay the amount determined in Step (4) or the limit of insurance, whichever is less. For the remainder, you will either have to rely on other insurance or absorb the loss yourself.
So, let’s go through an example. Assume that an insured has a limit of coverage for $100,000.00. When a loss occurs, the value of the property at the time of loss is placed at $250,000.00. The policy has an 80% coinsurance percentage, meaning that the building has to be insured to 80% of value. The deductible is $500.00, and the amount of loss is $50,000.00. Let’s follow the steps set forth above:
(1) We first multiply the value of property at the time of loss ($250,000) by the coinsurance percentage (80%). This product is $200,000, which represents the minimum amount of insurance an insured must have to be in compliance with the Coinsurance requirements.
(2) Since the insured does not have that much coverage, we proceed through the calculation. We divide the limit of insurance ($100,000.00) by the figure derived in step 1 ($200,000). This leads to a figure of .50
(3) Then, we would multiply the total amount of loss ($50,000.00) by the figure in step 2 (.50), which gives us $25,000.00
(4) Then we subtract the deductible from this figure ($25,000.00 - $500.00), leaving $24,500.00.
The company’s proper obligation on a $50,000.00 loss is thus only $24,500.00.
Whose fault is under-valuation? In most cases I have seen, the fault lies with the insured. Remember that, typically speaking, an agent has no duty to verify the accuracy of information provided by an applicant when seeking coverage. Thus, when an applicant walks into an insurance agent’s office, and asks for $300,000.00 in insurance on his home, that’s what the agent will write. Clearly, there are some circumstances where the agent’s expertise is involved, and even circumstances when an agent provides the value, but the typical scenario involves the applicant/insured seeking a specified coverage amount. Also, remember that the carrier is actually not under a duty to inspect the property once the application is submitted and the policy is written. Elsewhere in this blog, we have discussed the imposition of the valued policy law, which can arise when the carrier has failed to inspect the property. But, the carrier can simply decide not to conduct the inspection and live with the valued policy law in cases of covered total losses. Therefore, the responsibility for valuation really lies with the insured, at least initially.
Rules of Interpretation for Insurance Policies
Insurance litigation requires a lot of briefing so we keep a stash of helpful citations that are often used in our court filings. An example is the rules that courts must follow when interpreting insurance policies. These rules of construction can be quite helpful in the right case. Below are several that insurance practitioners should not forget:
- Insurance contracts, being subject to the same rules of construction as contracts generally, should be interpreted and enforced as written. Absent fraud or mistake, the terms of a contract should be given their plain and ordinary meaning, for the primary rule of contract interpretation is to ascertain and give effect to the intent of the parties. U.S. Bank, N.A. v. Tennessee Farmers Mut. Ins. Co., 277 S.W.3d 381, 387 (Tenn. 2009).
- The parties' respective rights and obligations are governed by their contract of insurance whose terms are embodied in the policy. As with any other contract, our responsibility is to give effect to the expressed intention of the parties, by construing the policy fairly and reasonably, and by giving the policy's language its common and ordinary meaning. We are not at liberty to rewrite an insurance policy simply because we do not favor its terms or because its provisions produce harsh results. In the absence of fraud, overreaching, or unconscionability, the courts must give effect to an insurance policy if its language is clear and its intent certain. Angus v. Western Heritage Ins. Co., 48 S.W.3d 728, 731 (Tenn.Ct.App. 2000).
- Exclusionary clauses are to be strictly construed against the insurer when drafted by the insurer. Palmer v. State Farm Mut. Auto. Ins. Co., 614 S.W.2d 788, 789 (Tenn. 1981).
- The language of the policy must be taken and understood in its plain, ordinary and popular sense. Where language is susceptible to more than one reasonable interpretation, the language is ambiguous. If such ambiguous language limits the coverage of the insurance policy, that language must be construed in favor of the insured. In determining the “plain, ordinary and popular” meaning of language, courts may refer to dictionary definitions. CBL & Associates Management, Inc. v. Lumbermens Mut. Cas. Co., 2006 WL 2087625, 6 (E.D.Tenn. 2006); Am. Justice Ins. Reciprocal v. Hutchison, 15 S.W.3d 811, 814 (Tenn. 2000).
- Language in a policy is ambiguous if it is capable of more than one reasonable interpretation. Tata v. Nichols, 848 S.W.2d 649, 650 (Tenn. 1993). A contract is ambiguous only if it is of uncertain meaning and may fairly be understood in more ways than one. Rogers v. First Tennessee Bank Nat. Ass'n., 738 S.W.2d 635 (Tenn.Ct.App. 1987).
- If possible, all provisions in the contract should be construed in harmony with each other to promote consistency and to avoid repugnancy between the various provisions. Guiliano v. Cleo, Inc., 995 S.W.2d 88, 95 (Tenn. 1999).
- In Tennessee, exceptions, exclusions, and limitations in insurance policies must be construed against the insurance company and in favor of the insured. Allstate Ins. Co. v. Watts, 811 S.W.2d 883, 886 (Tenn. 1991). The entire policy, however, including insuring clauses and exceptions thereto, must be read as a whole. Am. Sav. & Loan Ass'n v. Lawyers Title Ins. Corp., 793 F.2d 780, 782 (6th Cir. 1986). Further, exceptions should not be construed so narrowly as to defeat their evident purpose. Standard Fire Ins. Co. v. Chester-O'Donley & Assocs., Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).
- “[T]he paramount rule of construction in insurance law is to ascertain the intent of the parties.” Blue Diamond Coal v. Holland-America Ins. Co., 671 S.W.2d 829, 833 (Tenn.1984).
- The insuring agreement defines the outer limits of an insurance company's contractual liability. The courts are not at liberty to rewrite an insurance policy solely because they do not favor its terms, and must avoid forced constructions that render a provision ineffective or extend a provision beyond its intended scope. As long as a policy's terms are unambiguous, it will be enforced as written, and courts cannot rewrite an unambiguous policy simply to avoid harsh results. Therefore, the insured cannot simply focus on the declarations/summary portion of a contract in isolation; the policy must be read as a whole. Hoyt v. Pyles, 2007 WL 1217264, 5-6 (Tenn.Ct.App. 2007).
- The insuring agreement sets the outer limits of an insurer's contractual liability. If coverage cannot be found in the insuring agreement, it will not be found elsewhere in the policy. Exclusions help define and shape the scope of coverage, but they must be read in terms of the insuring agreement to which they apply. Exclusions can only decrease coverage; they cannot increase it. Exclusions should also be read seriatim. Each exclusion reduces coverage and operates independently with reference to the insuring agreement. Exclusions should not be construed broadly in favor of the insurer, nor should they be construed so narrowly as to defeat their intended purpose. Once an insurer has established that an exclusion applies, the burden shifts to the insured to demonstrate that its claim fits within an exception to the exclusion. Standard Fire Ins. Co. v. Chester O'Donley & Associates, Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).
- An insurance contract should be construed in “a reasonable and logical manner.” Standard Fire Ins. Co. v. Chester O'Donley & Associates, Inc., 972 S.W.2d 1, 7 (Tenn. Ct. App. 1998). When coverage questions arise, the components of a policy should be construed in the following order: 1) the declarations; 2) the insuring agreements and definitions; 3) the exclusions; 4) the conditions; and 5) the endorsements. Id.
Please Just Give Me a Trial by Ambush
I came in this morning to an email from my partner, Justin Gilbert. Justin lost a jury trial last week in Decatur County Circuit Court, and offered some insightful thoughts about the experience in a short article he entitled, "Please Just Give Me a Trial by Ambush." Here's an excerpt:
The point is this: The cost of our normal legal rules is a price too steep for most
Tennesseeans. Often, we cannot enforce our laws because it is too expensive to follow our rules.Today, motions for summary judgment -- intended to weed out frivolous cases and
conserve on the cost of litigation -- are filed in every discrimination case. Most
depositions are taken not because they are needed to better understand a case; they are taken to mount and respond to summary judgment. And electronic discovery requirements can overwhelm, regardless of the actual merits or size of the case.Many employment discrimination cases do settle, particularly if it’s done early.
But something is fundamentally unsettling where the basis for the settlement is the
monetary price of the alternative: Our own judicial system. It makes companies feel
“extorted” by the judicial system. And employees feel cheapened because their
discrimination complaints are processed by system costs.I’ve practiced fifteen years now. I had grown accustomed to, if not wary of, some
of the rules and their costs to individual claimants in Tennessee. If my recent experience was a “trial by ambush,” or one resembling “the days of old,” can you please just give me some more of that?
Justin practices employment discrimination law with Gilbert Russell McWherter PLC. You may write to him at jgilbert@gilbertfirm.com or at www.gilbertfirm.com
An Insured Need Not Rebuild at the Same Premises in Order to Recover Replacement Cost
Parks' recent post about whether an insured has to rebuild at the same location in order to recover replacement cost got me thinking, and then researching. Here's what I found:
Although none in Tennessee, there are a dozen or so cases across the country dealing with the issue of whether an insured has to rebuild at the same location in order to recover replacement cost. For example, in Hess v. N. Pac. Ins. Co., 859 P.2d 586 (Wash. 1993), the Supreme Court of Washington held that insureds are entitled to replace at an alternate location, but that the reimbursement amount is limited to the amount it would have cost to rebuild at the original location. Specifically, the court stated,
"This particular limitation does not require repair or replacement of an identical building on the same premises, but places that rebuilding amount as one of the measures of damage to apply in calculating liability under the replacement cost coverage. The effect of this limitation comes into play when the insured desires to rebuild either a different structure or on different premises. In those instances, the company's liability is not to exceed what it would have cost to replace an identical structure to the one lost on the same premises. Although liability is limited to rebuilding costs on the same site, the insured may then take that amount and build a structure on another site, or use the proceeds to buy an existing structure as the replacement, but paying any additional amount from his or her own funds."
Several other courts have rendered similar decisions. See, e.g., Kumar v. Travelers Ins. Co., 211 A.D.2d 128 (N.Y. 1995) (holding that insurance provision offering to pay full cost to repair or replace damaged dwelling on the same premises merely established the limits of coverage and that replacement cost is limited to what it would cost to replace the damaged structure on the same premises, however, the insured is not required to replace the damaged dwelling on the same premises in order to recover replacement cost); Conway v. Farmers Home Mut. Ins. Co. , 26 Cal. App.4th 1185 (Cal. App. 1994 (“[W]hen the insured desires to rebuild either a different structure or on different premises . . . the company’s liability is not to exceed what it would have cost to replace an identical structure to the one lost on the same premises); S and S Tobacco and Candy Co., Inc. v. Greater New York Mutual Ins. Co., 617 A.2d 1388 (Conn. 1992) (holding that construction of replacement structure at different location constituted replacement under the policy).
So as much I hate to say it, Parks seems to have a lot of folks with "Judge" in front of their names who agree with him. And so I guess I agree as well.
Hope everyone had a great Thanksgiving!
In Order to Invoke Replacement Cost Coverage, Does An Insured Have to Rebuild at the Same Location?
In most cases, the answer is no. Most policies use replacement cost at a specific location as a measure of the maximum recovery that can be afforded under a property insurance policy. Most policies contain a “Valuation” condition similar to the following:
B. Replacement Cost – When replacement cost is shown on the “declarations” for covered property, the value of covered property will be based on the replacement cost without any deduction for depreciation.
The replacement cost is limited to the cost of repair or replacement with similar materials on the same site and used for the same purpose. The payment shall not exceed the amount “you” spend to repair or replace the damaged or destroyed property.
Replacement cost valuation does not apply until the damaged or destroyed property is repaired or replaced. “You” may make a claim for actual cash value before repair or replacement takes place, and later for the replacement cost if “you” notify “us” of “your” intent within 180 days after the loss.
Typically, absent any other endorsement or provision, this policy language simply limits the amount of replacement cost coverage that is available to the cost of repairing or rebuilding on the same site, with like kind and quality. Therefore, if an insured wants to move to a different location, and spends more than the actual cash value payment made by the insurance company, that insured could possibly be entitled to replacement cost coverage, even though not rebuilding at the same location.
However, it is important to recognize that the “same site” (some policies use the phrase “same location”) requirement will be a cap upon the amount of replacement costs. Let’s assume that the property insured is in Hickman County, Tennessee (a fairly rural area). It is a 2000 sq. ft. brick home with all amenities. The replacement cost of that home, for the sake of argument, would be $175,000.00. When a loss occurs, the policyholder decides that she wants to move to Williamson County, Tennessee (a more suburban area) and builds a home almost exactly like the one that existed in Hickman County. The price of this home was $380,000.00. The carrier previously paid an actual cash value amount (replacement cost less depreciation) of $125,000.00. What additional monies does the policyholder get upon completing the property in Williamson County?
The answer should be only $50,000.00 – the amount it would have taken to rebuild the house with material of like kind and quality at the same site or same location in Hickman County.
The Little Recognized Side Effect of the Broad Duty to Defend
As our first substantive liability blog, I want to talk about the duty to defend. Most attorneys recognize that the duty to defend is a broad duty – one broader than the duty to indemnify. But, the breadth of that duty has a side effect that some lawyers have not anticipated. If, after looking at the duty to defend, not a single allegation of the Complaint would raise a duty to defend, then by necessity, there cannot be a duty to indemnify. If the duty to defend is broader than the duty to indemnify, and analysis of the Complaint or claims against the insured show that there is no duty to defend, then there can never be a duty to indemnify.
In these cases, it is entirely appropriate for an insurer simply to disclaim coverage and, effectively, walk about from the claim or suit. There is no reason for the insurance carrier to remain involved if the duty to defend does not exist. I am often met with an objection when a defense is withdrawn of – “but you don’t know what will happen.” If the duty to defend does not exist, then what happens in that suit, where no duty to defend exists – is really a moot point. If the broad duty cannot exist, the specific duty of indemnity cannot exist.
Case law holds that this conclusion is based upon “logic and common sense,” and the cases hold that logic and common sense dictate that if there is no duty to defend, then there must be no duty to indemnify. See e.g. American States ins. Co. v. Bailey, 133 F. 3d 363 (5th Cir. 1998).
Tennessee courts have long noted it is not uncommon that an insurer will have a duty to defend based on the allegations in the complaint, yet have no subsequent duty to indemnify the insured. St. Paul Fire & Marine Ins. Co. v. Torpoco, 879 S.W.2d 831(Tenn. 1994). I point this “twist” out because it has come up in a couple of my recent cases, where my client is challenging both the duty to defend and the duty to indemnify.
THIRD-PARTY COVERAGE LITIGATION ISSUES NOW ADDRESSED ON BLOG
Although the focus of this blog was, and will remain, first-party insurance coverage litigation, many of our readers have asked if we are going to include third-party coverage litigation topics in the blog. While we initially wanted to remain “purists,” so to speak, demand is such that we will create a separate “Category” entitled “Third-Party Coverage Issues” and will start blogging on these when first-party coverage litigation issues get a little slow or as the need arises. Our focus will remain first-party coverage litigation, but hopefully these new topics will prove helpful and provoke continued discussion.
A Break from the Intricacies of Insurance Litigation
A fine lawyer and an even better friend, Jonathan Bobbitt, sent an article around the office this morning that reminded me of something very important - the value of knowing your priorities, and, just as importantly, possessing the ability to disregard the unimportant. The article was written by Peter Bregman, and is entitled "Two Lists You Should Look at Every Morning." Those two lists are (1) your focus list; and (2) your ignore list. An excerpt,
Some people already have the first list. Very few have the second. But given how easily we get distracted and how many distractions we have these days, the second is more important than ever. The leaders who will continue to thrive in the future know the answers to these questions and each time there's a demand on their attention they ask whether it will further their focus or dilute it.
Which means you shouldn't create these lists once and then put them in a drawer. These two lists are your map for each day. Review them each morning, along with your calendar, and ask: what's the plan for today? Where will I spend my time? How will it further my focus? How might I get distracted? Then find the courage to follow through, make choices, and maybe disappoint a few people.
The rigorous demands of practicing law, and life in general, simply require you to prioritize your time and energies in order to be efficient and effective. With emails blasting across your Outlook inbox at an ever increasing pace, it is incredibly easy to lose focus in the shuffle. So have the courage to close Outlook from time to time, and focus on the things that deserve your time. When I exercise the discipline it takes to do that, those often turn out to be my most productive days.
What Does a Mercedes-Benz Have to Do with Insurance Litigation?
The Tennessee Court of Appeals, Eastern Section, issued a new opinion yesterday interpreting the Tennessee Consumer Protection Act. The case, Timoshchuk v. Long of Chattanooga Mercedes-Benz et al (.pdf), arose from a Mercedes dealer's sale of a "new" Mercedes which turned out to be not so new. A few months after purchasing his shiny new Mercedes, the very distraught and obviously angry new car owner discovered that the paint on the vehicle's trunk appeared discolored in certain lighting conditions. The car owner eventually learned that the car had been damaged during shipment and subsequently repaired by a dealer. Now thoroughly upset, he demanded to return the vehicle, which the dealer refused to accept. As expected, a lawsuit ensued.
The issue in the case, as relevant for our discussion here, was whether the defendants violated the Tennessee Consumer Protection Act's general prohibition "unfair or deceptive acts or practices affecting the conduct of any trade or commerce constitute unlawful acts or practices." T.C.A. 47-18-104. The defendant argued that the TCPA claim was barred because the plaintiff could not prove one of the specifically enumerated acts or practices of TCA 47-18-104(b). The Court of Appeals disagreed with this analysis, noting that such an argument ignores the fact that a specific claim was made under the broader prohibition of T.C.A. 47-18-104(a).
Although the case itself has nothing to do with insurance, it is important because it makes clear that a plaintiff does not have to plead one of the specifically enumerated unfair or deceptive acts or practices of TCA 47-18-104(b). Granted, TCA 47-18-104(b) also has a "catch-all" provision that prohibits "engaging in any other act or practice which is deceptive to the consumer." But this provision of subsection (b) only prohibits "deceptive" conduct, not both "unfair" and "deceptive" conduct. This distinction is important because "unfair" and"deceptive" have been separately defined by Tennessee courts, with the term "deceptive" having a somewhat more limited scope than "unfair."
I've had this issue come up in several cases when defense attorneys argue that a particular claim is barred when relief is sought for an act that fits into the definition of "unfair" but not "deceptive." Although I never considered it to have much merit, such an argument is now officially dead in the water. The Timoshchuk case makes clear that there are really two "catch-all" provisions in the TCPA. One is at TCA 47-18-104(b)(27) (engaging in "any other act or practice which is deceptive"), but the general prohibition in TCA 47-18-104(a) that prohibits both unfair and deceptive acts or practices is a stand-alone "catch-all" provision as well.
The lesson? If you are going to plead violations of the TCPA by pleading violations of specific portions of the statute, then be sure to plead both TCA 47-18-104(a) and (b).
By the way, the unhappy Mercedes owner didn't fare too well. His claims were dismissed (for reasons completely unrelated to the issues discussed above).
