Far from being “ho hum” as my colleague writes, the case of U. S. Bank, N.A. as servicer for the Tennessee Housing Development Agency v. Tennessee Farmers Mutual Insurance Company, No. W2012-00053-COA-R3-CV, filed November 29, 2012, the did establish some important points of law - but from the insurer's perspective, in limiting bad faith and TCPA recovery. The Court of Appeals was presented with appellate review of a trial court finding imposing bad faith and Consumer Protection Act damages upon Tennessee Farmers Mutual Insurance Company for failing to pay a mortgagee. The case actually arose from a Supreme Court ruling in U. S. Bank, N.A. v Tennessee Farmers Mutual Insurance Company, 277 S.W. 3d 381 (Tenn. 2009), where the Tennessee Supreme Court held that the mere institution of foreclosure proceedings did not constitute and increase in hazard sufficient to allow an insurance company to avoid payment of a mortgagee under a standard mortgage clause. Upon remand, the trial court was presented with the issues of whether the interpretation advanced by Tennessee Farmers constituted bad faith and the violation of the Tennessee Consumer Protection Act. The trial court entered judgment under both bases, awarding the bank a judgment for the amount due on the mortgage plus accrued interest, but also attorney’s fees and costs based upon a finding that Tennessee Farmers’ interpretation of the policy amounted to bad faith and an unfair act or practice under the Tennessee Consumer Protection Act. The Court of Appeals reversed.
From a defense perspective, the significance of this holding lies in the fact that the issue was one of first impression, and the Court of Appeals noted as follows:
We respectfully disagree with the trial court’s conclusion that Tennessee Farmers’ interpretation of the policy throughout the litigation amounted to bad faith and an unfair act or practice under the TCPA. As noted by the Supreme Court, the issue of whether, under a standard mortgage clause in a fire insurance policy, the Bank’s commencement of foreclosure proceedings amounted to an increase in hazard requiring notification to Tennessee Farmers involved ‘a matter of first impression.’…The Supreme Court further noted that ‘no Tennessee case has squarely addressed the precise issue presented….’ Moreover, prior to the Supreme Court’s opinion, this Court agreed with Tennessee Farmers’ interpretation of the policy. Clearly, reasonable minds disagreed over the precise issue which the trial court claimed to be well-settled. In fact, had the Supreme Court agreed with the position taken by this Court, there would be no basis for the trial court’s reasoning that Tennessee Farmers’ interpretation was unreasonable and inconsistent with well-settled law.
Three cheers for the Court of Appeals! On an issue of first impression, even where law exists on both sides of the issue from other jurisdictions, it seems to this writer that a judgment of bad faith or violation of the Consumer Protection Act should not be warranted. This case may be appealed even further, and we will see if the Supreme Court takes further action, but for now, it seems that justice has been done.
But, Brandon contends that the Court of Appeals implicitly recognized a common law bad faith cause of action. I disagree. Brandon noted that it seemed a “rather odd opinion for such a big issue.” Indeed, creating or recognizing a cause of action which has not been recognized in Tennessee law would seem to be more noteworthy. But here’s why I do not think the Court of Appeals implicitly sanctioned the cause of action. First, the Court of Appeals did not really address it. Second, what they did address were the facts which formed the basis of the trial court’s findings on BOTH a bad faith action and the TCPA.
The Court of Appeals simply confirmed that, under neither theory, the same set of facts did not create liability. The cause of action for common law bad faith failure to pay has never been entrenched in Tennessee law, as evidenced by the fact that the trial court did not cite to any Tennessee case law supporting such cause of action. It would have been nice had the Court of Appeals indicated such a cause of action did not exist, but to make the leap that, under these facts, the Court of Appeals impliedly authorized such action seems, to use Brandon’s phrase in good natured banter, “rather odd.”
You might recall the 2011 legislation that took away consumers' right to bring claims against insurance companies under the Tennessee Consumer Protection Act, but that same legislation seemed to recognize the existence of a common law cause of action for bad faith in Tennessee. (click here for a prior post on that topic). Since that time, I've been tracking a couple of bad faith cases working their way through the Tennessee appellate courts. Today the Court of Appeals for the Western Section issued its ruling in one of those cases. See U.S. Bank v. Tennessee Farmers Mutual Insurance Company.
The opinion itself was rather "ho-hum," and doesn't offer much of any substantive discussion regarding common law bad faith claims, but it impliedly holds that such a cause of action exists. The issue in the case was whether a mortgage company who is a named mortgagee on an insurance policy has a duty to notify the insurance company of a foreclosure on the insured property. The Tennessee Supreme Court previously ruled that no such duty exists, but on remand one of the issues to be considered was the Bank's common law bad faith claim. After hearing proof on the issue, the trial court (Judge Clayburn Peeples) ruled that such a cause of action exists and expressly held that Tennessee Farmers Insurance Company acted in bad faith in denying the Bank's claim for insurance proceeds. In reviewing Judge Peeples' decision, the Court of Appeals quoted his ruling at length, which stated in part:
US Bank has shown by a preponderance of the evidence the following elements of a claim for common law claim for a bad faith failure to pay:
a.That [Tennessee Farmers] issued a policy of insurance to US Bank and that US Bank made lawful, reasonable claim under that policy;
b. That [Tennessee Farmers] intentionally refused to pay US Bank's claim;
c. That [Tennessee Farmers] had no reasonably legitimate or arguable reason for its refusal to pay the claim;
d. That [Tennessee Farmers] had actual knowledge of the absence of a reasonably legitimate, debatable or arguable reason for the refusal; and
e. That [Tennessee Farmers] intentionally failed to determine whether it had a reasonably legitimate or arguable reason for refusing to pay US Bank's claim.
In reviewing this holding by the trial court (which was a specific issue on appeal), the Court of Appeals seemingly accepted the elements of a bad faith claim as set forth by Judge Peeples, but then went on to hold that the facts before the Court did not amount to bad faith. Its a rather odd opinion for such a big issue, but nonetheless is an extraordinary win for victims of insurance bad faith in Tennessee. The door is now wide open for future common law bad faith claims.
This will probably come as no surprise to most but my feelings concerning the legislature's recent removal of the insurance industry from the protection of the Tennessee Consumer Protection Act are pretty strong. I called every member of the legislature I knew, and some I didn't, in an attempt to stop the bill. But there is a very strong insurance lobby in this state, and the bill flew through both the House and the Senate with flying colors.
The saddest part about the new law is that it sends a clear signal that insurance companies are above the law, i.e., that ethical conduct is required of all businesses in this state except insurance companies who are free to act unfairly and deceptively without the threat of private recourse via the consumer protection statutes. A decision by an insurance company to deny a claim is a very calculated risk. Only a very small percentage of people whose claims have been denied will even pursue litigation. And without the protection of the Consumer Protection Act, things will only get worse. The consumer protection statutes helped even the playing field, and heightened the risk for insurance companies that wrongfully denied claims by exposing them to attorney's fees and treble damages in the event a judge decided that it intentionally acted unfairly or deceptively.
The new law only hurts the consumer and really created no benefit at all for the insurance companies out there that were already acting in a good faith fashion. On the other hand, it benefits greatly those insurance companies who treat their insureds unfairly. This was not an area of the law that needed reform. There was no risk of a runaway jury because the judge, not the jury, decided whether to award attorney's fees and treble damages under the Consumer Protection Act. But without those protections, insurance companies can freely fun roughshod over insureds with little recourse.
There is one positive about the new law, and that is that the language utilized in the new statute may have acknowledged the existence of a common law bad faith claim. More on that in future posts . . .
Tennessee Legislature Restricts Application of Consumer Protection Act, Overruling Myint v. Allstate
On April 29, 2011, the Tennessee legislature adopted House Bill 1189 was enacted into law and signed by Governor Haslam. Public Chapter No. 130 will be codified in Tennessee Code Annotated, Title 56, Chapter 8, Part 1. The signed law is available by clicking here.
The law amends Title 56 related to insurance business acts and practices. It provides that Titles 50 and Title 56 shall provide the sole and exclusive statutory remedies and sanctions available for the “alleged breach of, or for alleged unfair or deceptive acts and practices in connection with a contract of insurance.” . The law essentially overrules the case of Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn.1998), which had allowed recovery under the Tennessee Consumer Protection Act for unfair or deceptive acts or practices in the handling of an insurance claim, obviously after the consumer transaction which created the relationship between the insured and insurer. This brought with it exposure for attorney fees and the potential for trebled damages.
Prior to Myint, it had long been the rule that statutes such as T.C.A. § 56-7-105, provided for the sole and exclusive remedies available to insureds for a carrier’s failure to handle a claim in good faith. It appears this is now the case once again.
In other entries on this blog, reader can see how Tennessee Consumer Protection Act allegations have expanded in scope since the Myint decision. I have handled cases where the consumer protection act allegations against the carrier were based upon alleged actions of independent adjusters, and even independent expert witnesses. Because of the expansive scope of Myint, courts were reluctant to dismiss even those cases on summary judgment.
In bad faith and Tennessee Consumer Protection Act cases, I routinely run into work product objections during discovery. Often these objections are made even as to reports and documents generated before the claim was denied. I believe work-product objections as to pre-denial materials are improper. As we know, Rule 26.02(3) protects against disclosure of materials prepared in anticipation of litigation. In general, courts seek to distinguish those materials that are generated “in the ordinary course of business” from those prepared “in anticipation of litigation.” The work product doctrine does not protect documents prepared in the ordinary course of business. See Boyd v. Comdata Network, Inc., 88 S.W.3d 203, 225 n.33 (Tenn. Ct. App. 2002) (citing Simon v. G.D. Searle & Co., 816 F.2d 397, 401 (8th Cir. 1987). In light of the above, the obvious question in litigation involving an insurance claim is when the insurance company begins investigating and acting “in anticipation of litigation” as opposed to doing so in the ordinary course of its business. Fortunately, there is case law to help, and I’ve compiled a few helpful citations below for use by lawyers fighting this decades old battle:
- “The investigation and evaluation of claims is part of the regular, ordinary and principal business of insurance companies." Fine v. Bellefonte Underwriters Ins. Co., 91 F.R.D. 420, 422 (S.D.N.Y. 1981).
- “It is . . . well established that insurance companies have an independent obligation to review and follow up on claims, and their reports are thus not protected, although they are usually prepared with an eye toward litigation." Fru-Con Constr. Corp. v. Sacramento Mun. Util. Dist., 2006 U.S. Dist. LEXIS 53763 at *4 fn. 3 (E.D. Cal. July 20, 2006) (citing Harper v. Auto-Owners Ins. Co., 138 F.R.D. 655 (S.D. Ind. 1991)).
- Any investigation, including statements obtained as part of this process, would fall within the insurance company's ordinary business and independent duty to investigate and evaluate claims. Accordingly, it can be presumed that "documents which were produced by an insurer for concurrent purposes before making a claims decision would have been produced regardless of litigation purposes . . . ." Stout v. Illinois Farmers Ins. Co., 150 F.R.D. 594, 605 (S.D. Ind. 1993).
If any Tennessee practitioners have dealt with this issue and received rulings from trial courts, I keep a database of such Orders and would love to hear from you.
Delay, Deny, Defend - Why Insurance Companies Don't Pay Claims and What You Can Do About It. No, that's not the theme of a bad faith trial. Its the title of Professor Jay M. Feinman's new book that chronicles the bad faith practices of insurance companies. Several months back, the book's publisher, Penguin, provided me with an advance copy, and I found it to be dead-on. An easy and enlightening read, Feinman details the systematic and widespread practices utilized by insurance companies across the country, and then shows insurance consumers exactly how to best deal with these mammoth companies that seldom have the insured's best interest at heart.
Here's a description of the book directly from its author and publisher, taken from the book's website:
Do you think your insurance policy has your property protected from life's many mishaps? That those premiums you pay every month guarantee you the help you need when you need it? That your insurance company is a benevolent entity that strives to pay claims fairly and promptly? Think again.
Your insurer's main objective is not to protect you; in fact, insurers often try to avoid paying justified claims. Today the name of the game is delay, deny, defend: to improve their profits, insurance companies delay payment of justified claims, deny payment altogether, and defend their actions by forcing claimants to enter litigation.
It's unconscionable, and it's widespread. From stonewalling and lowballing claims to instigating arbitrary fraud investigations, insurance companies are increasingly failing to live up to their contractual commitments. Some major insurers even hired the big-name consulting firm McKinsey to help them squeeze even more cash out of their claims centers. Why? Because insurance companies have realized they can add to their bottom line by using your monthly payments as a profit center, rather than a fund for giving you what you deserve if tragedy strikes.
Expert Jay M. Feinman details the infuriating systemic abuses, including:
Katrina victims left homeless because of an obscure flood exemption clause in their homeowners insurance policies.
Computer programs that arbitrarily cut the settlements offered to auto accident victims on a take-it-or-leave-it basis.
Claims adjusters who receive cash incentives to reduce the amount paid out on each claim.
Feinman shows you how to fight back, explaining how to choose a carrier that won't take advantage of you, how to file a claim so that your provider can't avoid paying you, and what to do when your insurer disputes your claim. He also details the steps lawmakers need to take to protect consumers and thwart the aggressive and abusive tactics of insurance companies. No matter what the advertisements say, your insurance provider is not your friend or a "good neighbor." You need to be smart and savvy to deal with your insurer-Delay, Deny, Defend tells you what you need to know.
Feinman did a great job with this one, and its a must-read for both insureds and insurance consumer advocates.
If you're a reader of insurance blogs, I'm certain you've read the recent warfare between Parks Chastain and Chip Merlin. They both make good points on the issue of advance payments (see their posts here and here). The truth is that there really is very little law in Tennessee concerning advance payments. Even so, Tennessee's Unfair Claims Settlement Act of 2009 provides some guidance:
- An insurer must adopt and implement reasonable standards for the prompt settlement of claims arising under its policies (T.C.A. 56-8-105(3)). This would seem to necessarily require that an insurance company have standards in place for advances as to undisputed portions of a claim. Even an insurance company would have a hard time making the argument that it doesn't have an obligation to pay a few thousand dollars to its insureds after a fire to ensure that they aren't sleeping on the street until the claim is resolved in full.
- An insurer must attempt to effectuate prompt, fair, and equitable settlement of claims submitted in which liability has become reasonably clear. (T.C.A. 56-8-105(4)). In other words, an insurance company has an absolute obligation to promptly pay undisputed portions of a claim.
- When making a payment, an insurer must indicate the coverage under which payment is being made. (T.C.A. 56-8-105(10)). Certainly an insurance company is entitled to a credit against the policy limits of the applicable coverage when it makes an advance, but this provision makes it mandatory that the insurance company let the insured know the coverage under which an advance is being made.
In a post several days ago, the co-author of this blog, Parks Chastain, commented that Tennessee's statutory bad faith penalty should rarely be awarded against an insurer. In reaching this conclusion, he noted a 1961 federal district court case that stated that the the bad faith penalty should not be awarded unless the insurer's conduct involves moral turpitude. While I won't bore you with the numerous cases in Tennessee which clearly demonstrate a different standard, I would like to point out one of the most obvious reasons why a finding of "conduct involving moral turpitude" is unnecessary for an an award of bad faith.
The bad faith statute itself, T.C.A. 56-7-105 doesn't speak in terms of "bad faith," but rather states the penalty is appropriate when "the refusal to pay the loss was not in good faith." Such a standard has no inference of any required vileness or depravity such to constitute "conduct involving moral turpitude."
So, you might ask, what is good faith? Obviously, the answer to that question depends on the circumstances, but here are a few pointers:
- An insurance company should not make a strained interpretation of an insurance policy. Every insurance company in Tennessee knows that a policy provision capable of two reasonable interpretations must be construed in favor of the insured.
- An insurance company should never attempt to settle a claim for less than what is owed under the policy.
- An insurance company should not condition payment of one portion of a claim until the entire claim is resolved or on the insured's agreement to drop other portions of the claim
- An insurance company must fully investigate a claim and make sure it has all available information before denying a claim.
- An insurance company must not rely on biased or speculative information and opinions in denying a claim.
- An insurance company must treat its insured's interests equal to that of its own.
These are just a few examples, but hopefully my readers get the point. When it comes right down to it, the absence of good faith is analogous to pornography - you know it when you see it. Also, don't forget about Tennessee's Unfair Claims Settlement Practices Act, which provides some very solid rules about good faith claims handling. For a discussion of that statute, see my previous post here.
My learned friend Parks Chastain recently posted here that Tennessee law provides for a reverse bad faith penalty of not more than 25% of the amount claimed when a policyholder does not bring an action in good faith. Parks' use of the adage "what's good for the goose is good for the gander" is right on point. I agree that a policyholder that files a clearly fraudulent claim should be held accountable. For example, if an insured files a claim for theft that is clearly proven to be staged and fraudulent, a reverse bad faith penalty is appropriate.
However, the facts necessary to bring such a claim are not commonplace, and if alleged in the wrong case, could prove catastrophic for the insurance company. If a jury finds in favor of the insured and believes he or she to be truthful, the fact that the insurance company has added insult to injury by filing a counterclaim will just add fuel to the fire as to the insured's bad faith or Consumer Protection Act claim against the insurer.
As a result of the numerous tornados that have passed through Tennessee over the past decade, I have become acutely aware of the fact that insurance companies use the same engineering firms over and over again in their investigation of whether a claim constitutes a covered loss. The obvious problem with insurance companies' repeated use of the same engineering firm is the fact that the engineering firm's opinions are clearly going to be biased. After years and years of repeat business, the engineers rely on the income generated by the insurance claim inspections in order keep their lights on. If an engineer finds in favor of the policyholder too often, he or she could soon feel the pain of a drop in referrals, and a corresponding drop in cash in his or her pocket.
I believe that an insurance company's reliance on biased expert opinions can constitute bad faith, especially when combined with other aggravating factors. If an insurance company is going to use the same engineer over and over again, it should certainly make sure the expert is qualified, that the engineer considers all possibilities, and that the expert utilizes accepted methodologies in determining the cause or scope of a loss. Unfortunately, many experts hired by insurance companies go into the investigation looking for a reason that the claim should be denied rather than giving an independent assessment. So for those policyholders out there who have recently been told by their adjuster that an engineer will be sent out to inspect the loss, you should consider hiring your own as well. Although it can be expensive, it sure beats a denial. You might even consider having your own expert present when the insurance company's engineer is conducting his site visit to make sure all appropriate factors are considered.
For a discussion on this same topic with references to a recent case out of Texas, click here for a post by Chip Merlin on his blog, Property Insurance Coverage Law Blog.
Tennessee Code Annotated § 56-7-106 brings the old adage of “what’s good for the goose is good for the gander” to first party insurance litigation in Tennessee. It provides a penalty against the policyholder of an amount not exceeding twenty-five percent (25%) of the amount claimed when:
- The policyholder does not recover under the policy; and
- Where the policyholder did not bring the action in good faith.
There is much less case law on this statute. As I have urged elsewhere on this blog, with respect to “bad faith” allegations against the insurance carrier, it would seem rare that this penalty would be awarded against an insured. In twenty years of practice however, I have actually seen this penalty awarded more often than the penalty under TCA § 56-7-106. I have obtained a verdict on this claim in several cases. All of them involved situations where:
- The insured was responsible for the loss (either arson or staged theft);
- The insured made material misrepresentations in the post-loss context (either in the examination under oath or in the sworn statement in proof of loss); and
- Despite denial of the claim, the insured chose to pursue litigation against the carrier.
As with any war story, each of these cases had its unique twist, from being able to produce some of the allegedly stolen property that the policyholder had sold at a yard sale to showing through neighbors that the policyholder had misrepresented his presence at the home immediately prior to the fire (when the policyholder, the jury believed, was moving truckloads of personal property out of the house).
Thus, if you represent the insured, be aware of this possibility. While the cases in which the penalty has been awarded have unique facts, the fact is that there is some level of proof that does exist where a jury will find that the policyholder has actually acted in bad faith against the insurer.
Tennessee Code Annotated § 56-7-105 provides that when an insurance company refuses to pay a loss within 60 days after demand, the company shall be liable to the holder of the policy, in addition to the loss and interest thereon, in a sum not exceeding twenty-five (25%) percent of the liability for the loss, providing that it appears to the court or jury that the refusal to pay the loss was not in good faith and that such failure inflicted additional expense, loss or injury upon the holder of the policy. This allegation appears far too often in cases where an insurer had a justifiable reason to refuse to pay a claim. Obviously, if the insurer prevails, the insured would clearly not be entitled to the statutory penalty since one of the elements necessary for recovery is that the policyholder must be successful in his suit to recover the policy proceeds. See, e.g., Squires v. Republic Ins. Co., 572 F.2d 560, 561 (6th Cir. 1978).
But what if the insurer loses on the coverage case? Does that man that the statutory ”bad faith” should be automatically awarded, even where the policyholder has been forced to incur expenses and bring suit? Absolutely not! Under the Tennessee statute, the penalty is not appropriate when the insurer’s refusal to pay rests upon legitimate and substantial legal grounds or when the payment demand is greater than the judgment ultimately recovered. Tyber v. Great Central Ins. Co., 572 F.2d 562 (6th Cir. 1978). An insurance company is entitled to rely upon the available defenses if there are substantial legal grounds that the policy does afford coverage for the alleged loss. Nelms v. Tennessee Farmers Mutual Ins. Co., 613 S.W.2d 481 (Tenn. Ct. App. 1978), cert. denied.
Some cases have held that the penalty should not be awarded to the insured under the statute unless the insurer’s conduct involves moral turpitude. Moore v. New Amsterdam Casualty Ins. Co., 199 F.Supp. 1941 (E.D. Tenn. 1961). The best definition of “moral turpitude” I could find is that “moral turpitude” is:
An act of baseness, vileness, or depravity in the private and social duties which a man owes to his fellowmen or to society in general, contrary to the accepted rule or right and duty between man and man.
Brooks v. State, 213 S.W. 2d 7, 11 (Tenn. 1948). How often does such action occur in claim handling? Very rarely. While attorneys may disagree with the claim handling, or the decision made by the insurer, an objective assessment of its conduct should lead, more often than not, to the conclusion that the carrier did not violate this statute, and did not fail to act in good faith.
Magistrate Ed Bryant (W.D. Tenn.) recently issued a Report and Recommendation in one of my cases in which he held that Tennessee law allows an independent adjuster to be held liable under the Tennessee Consumer Protection Act. The defendant independent adjuster argued that my client failed to state a claim under the TCPA because the adjuster provided a service to the insurance company and not the insured. Rejecting this argument, Judge Bryant ruled that the TCPA's broad scope contemplates services rendered by independent agents and adjusters who work in connection with insurance companies when adjusting claims.
The opinion also sheds some light on what actions of independent adjusters might constitute violations of the TCPA:
Plaintiff's Amended Complaint alleges that Defendant Cross, inter alia, destroyed estimates providing support for Plaintiff's claim, advised Plaintiff to reduce property value of damaged items to "cash value" and then fraudulently and deceptively depreciated the items further, resulting in "double depreciation," and unfairly delayed adjusting the claim resulting in a loss of the property to foreclosure. On these facts, there is an arguably reasonable basis for predicting that state law might impose liability . . .
Although the issue before the Court was whether the case should be remanded, this is yet another opinion that can help define the scope of the TCPA's application in first party insurance cases. For a copy of the opinion, click here (pdf).
Here's a tidbit that can come in handy in the right case. In Murphy v. Cincinnati Ins. Co., 772 F.2d 273 (6th Cir. 1985), the Sixth Circuit Court of Appeals affirmed a district court's ruling that an insured's willingness to submit to a polygraph test as part of the insurance company's investigation was admissible evidence at trial. In so holding, the court noted that a willingness to submit to a polygraph test does not depend on the scientific acceptability which is necessary to support the admissibility of polygraph test results. In other words, an insured's willingness to submit to a polygraph test may be admissible as probative of the insured's credibility and the insurer's motive for denial, but the polygraph test results most likely will be ruled inadmissible.
This type of evidence can obviously be very persuasive, especially in an arson case. So the next time an insurance company seems to be ramping up their investigation for suspected arson but your client swears up and down he or she had nothing to do with the fire, send a letter to the insurance company notifying it of your client's willingness to submit to a polygraph test. This approach obviously demands a risk v. reward analysis, but it is a great tactic in the right case. Also be aware of a distinguishing case, Wolfel v. Holbrook, 823 F.2d 970 (6th Cir. 1987), which made a point of noting that it was the insurer in Murphy that requested that the insured submit to the polygraph test.
The Tennessee legislature has listed certain certain practices which constitute unfair acts or practices in the business of insurance. See T.C.A. § 56-8-105. The statute, known as the Unfair Claims Settlement Practices Act, creates standards and rules by which insurance companies must abide when settling claims. For example, the Unfair Claims Settlement Practices Act provides that it is unfair and deceptive to "[fail] to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed." T.C.A. § 56-8-105(7). Similarly, it is an unfair claims practice to "[fail] to acknowledge with reasonable promptness pertinent communications with respect to claims arising under its policies." T.C.A. § 56-8-105(2).
Although the Unfair Claims Settlement Practices Act does not provide a private cause of action, that doesn't necessarily mean that it is irrelevant to a first party claim. Because the Unfair Claims Settlement Practices Act enumerates certain unfair or deceptive practices, it can be bootstrapped into defining violations of the Tennessee Consumer Protection Act, which obviously does provide a private cause of action. Both Acts prohibit "unfair" or "deceptive" practices, and the Unfair Claims Settlement Practices Act just happens to provide some very good guidance as to what constitutes unfair or deceptive practices by an insurance company.
Although I am aware of no Tennessee case addressing this issue head on, courts from other states have held that while there may not be a cause of action under a state's unfair claims practices act, the terms of such act are properly considered in determining whether an insurer's conduct amounts to bad faith. See, e.g., MacFarland v. United States Fidelity & Guarantee Co., 818 F.Supp. 108 (E.D. Pa. 1993); Wailua Associates v. Aetna Casualty & Surety Co., 27 F.Supp.2d 1211 (D. Hawaii 1998).
So what's the lesson? When drafting a complaint for bad faith and for violations of the Tennessee Consumer Protection Act, mimic the language of the Unfair Claims Settlement Practices Act. Although it does not provide a private cause of action, it is strong evidence of activities that reach the threshold of bad faith or unfair/deceptive actions.