For the past two years, the spring months have brought severe and deadly tornados to various parts of Tennessee. One issue that has often arisen, but has not yet been addressed by any Tennessee appellate court, is the extent to which Tennessee’s “Valued Policy Law” would, or should, apply to wind or tornado losses.

Tennessee’s “Valued Policy Law” (pdf)  is created by three separate statutes, T.C.A. §§ 56-7-801 through 803, all found under in Chapter 7 of the Insurance Code, and specifically in Part 8 (entitled “Fire Insurance”). Attorneys for insureds argue that this law, written in 1927, and last amended in 1932, no longer reflects insurance industry practice and insuring provisions, and that it must be interpreted to cover any losses to which it would otherwise apply (i.e., total losses to real property).

Such an argument is, in my opinion, contrary to a proper interpretation of Tennessee’s “Valued Policy Law.” Some states have specifically expanded the scope of their valued policy law to encompass other causes of loss. For instance:

  • The valued policy law of Minnesota applies to fire, lightning, or other hazard
  • The valued policy law of North Dakota applies to any covered cause of loss
  • The valued policy law of West Virginia applies to losses cause by fire or otherwise.

In contrast, Tennessee’s valued policy law references “fire insurance” and “loss by fire.” As mentioned, the three statutes in play appear in section 8 (“Fire Insurance”) of Chapter 7 of the insurance code. With respect to this issue, these statutes provide in pertinent part:

  • T.C.A. § 56-7-801 – Provides that there is a period of 90 days after which a “fire insurance policy” is issued for an inspection to occur, and prohibits any “fire insurance policy” being issued for an amount in excess of the fair market value of any building or structure;
  • T.C.A. § 56-7-802 – Provides for a return of premium where buildings “totally destroyed by fire” were over-valued and too high a premium was charged. The statue applies to “buildings within the state insured against loss by fire” which “are totally destroyed by fire”; and
  • T.C.A. § 56-7-803 – With respect to losses occurring after ninety (90) days after policy inception, the statute provides that the value as shown on the application or policy shall be “conclusively presumed to be reasonable, and settlement shall be made on that basis.”

Tennessee has recognized that a “fire policy” provided only narrow coverage, and under such coverage, the insured protected by loss from "fire." Allied American Mut. Fire Ins. Co. v. Wesco Paving Co., 35 Tenn. App. 154, 162-163 (Tenn. Ct. App. 1951).

Other jurisdictions having similar valued policy statutes have held that the statutes apply only to losses by fire. One of the best cases I have found is the South Carolina case of McNeely v. South Carolina Farm Bureau Mut. Ins. Co., 259 S.C. 39 (S.C. 1972) in which the court noted that South Carolina’s Valued Policy Statutes referenced total loss by fire, and thus held that the Valued Policy Law did not apply to loss by windstorm. The case analyzed the importance of the language “loss by fire” when reviewing the legislative history of the statute. The statute (Section 37-154 of the 1962 Code of Laws) is very close to the Tennessee version in parts quoted. It provides:

No company writing fire insurance policies, doing business in this State, shall issue a policy for more than the value stated in the policy or the value of the property to be insured, the amount of insurance to be fixed by the insurer and insured at or before the time of issuing the policy. In case of total loss by fire the insured shall be entitled to recover the full amount of insurance, and in case of a partial loss the insured shall be entitled to recover the actual amount of the loss, but in no event more than the amount of the insurance stated in the contract. * * *"

McNeely , 259 S.C. at 42. The Court commented as follows, and much of this reasoning could be applied to the Tennessee statute:

This section plainly says that "in case of total loss by fire the insured shall be entitled to recover the full amount of insurance" provided by the policy. . . . Therefore, under the clear language of the statute, the plaintiff would be entitled to recover the sum of Six Thousand ($ 6,000.00) Dollars, the amount of insurance which his policy admittedly provided, if the mobile home had been destroyed by fire; however, the question now arises as to whether or not this statute is applicable when the mobile home was destroyed by windstorm.

Section 37-154 of the 1962 Code of Laws of South Carolina requires the parties to a fire insurance contract to agree upon the value of the property to be insured and require that such value be stated in the policy.

Prior to 1947 the statute read as follows:

"No fire insurance company or individuals writing fire insurance policies, doing business in the State, shall issue policies for more than the value to be stated in the policy, the amount of the value of the property to be insured, and the amount of insurance to be fixed by insurer and insured at or before the time of issuing said policies, and in case of total loss by fire, the insured shall be entitled to recover the full amount of insurance and a proportion amount in case of partial loss . . ."

In 1947, the Legislature amended this Statute slightly however, in both the original statute and the amended statute the Legislature included the language "total loss by fire." Had the Legislature intended either statute to apply to loss by windstorm, it would have been a simple matter to so state. The 1947 amendment was to clear up any ambiguity that existed in the event of partial loss which we are not concerned with in the instant case. It is patently clear to me that the Legislature stated and intended in clear and unambiguous terms that "in case of total loss –" and described the manner by using the words "by fire."

McNeely, 259 S.C. at 43-44.

As in South Carolina, the province to change the coverage of this statute lies with the legislature, and unless these statutes are amended, this case, and principles of statutory construction, almost compel the conclusion that Tennessee’s Valued Policy Law applies only to “losses by fire.”