I recently learned that Tennessee Farmers Mutual Insurance Company (Farm Bureau) has changed the way it will pay roof claims. Specifically, a recent endorsement changes roof coverage to actual cash value for roofing materials instead of replacement cost. This means that roof materials will be depreciated in the event of a roof claim. For example, if hail damages a roof that is 10 years old, the replacement cost would be depreciated to account for the age of the roof. The depreciation rate will vary depending on the age and condition of the roof, but could be as high as 75%, which will impact consumers' ability to replace their roofs after a catastrophe. This is obviously a huge deal for Tennessee consumers, particularly in light of the wind and hail storm events that has become common in our state.
Yesterday, I wrote a bit about the recent Tuturea v. Tennessee Farmers Mutual Insurance Company case that was decided last week by the Western Section of the Court of Appeals. Remember, this is the case where the plaintiff's allegedly insane husband set fire to the house in an unsuccessful effort to commit suicide. I saved the best part for today . . .
One of Mrs. Tuturea's arguments in favor of coverage was that the innocent co-insured doctrine should allow her to recover. However, like pretty much all policies I read these days, Tennessee Farmers had contracted around that doctrine to prohibit an innocent insured from recovering when another insured intentionally causes the loss. Accordingly, Mrs. Tuturea lost.
What's intriguing about this this case is that the Court of Appeals stepped outside of its scope of review and considered, without deciding, an issue that was not presented by Ms. Tuturea, i.e., whether the policy language excluding recovery by an innocent co-insured is enforceable at all. The Tuturea court stated,
We recognize that insurance companies have written policies in response to the proliferation of the innocent co-insured doctrine that often expressly exclude recovery by an innocent co-insured or, at the very least, more clearly impose joint responsibility on the co- insureds. An argument exists that these carefully written provisions return the relationship between insureds and the insurer to the former status quo previously deemed unacceptable, but it is not the duty of the judiciary to impose liability where none exists. See Certain Underwriter's at Lloyd's of London v. Transcarriers Inc., 107 S.W.3d 496, 499 (Tenn. Ct. App. 2002) (citations omitted) (recognizing that courts are not at liberty to rewrite an unambiguous insurance policy simply to avoid a harsh result). While courts in other jurisdictions have reformed or held unenforceable policies excluding recovery by an innocent co-insured where the policies did not comply with legislative limitations on liability exclusions, e.g., Sager v. Farm Bureau Mutual Insurance Co., 680 N.W.2d 8, 9 (Iowa 2004); Watson v. United Services Automobile Ass'n., 566 N.W.2d 683, 692 (Minn. 1997). Mrs. Tuturea has not argued that similar limitations govern the enforcement of insurance agreements in Tennessee. Because the specific language of the policies before us clearly excludes recovery by an innocent co-insured, the trial court’s decision is affirmed.
Needless to say, I'll be taking a hard look at the cases cited above as the Court's dicta seems to be a clear invitation for someone to present the issue. A favorable ruling would certainly be advantageous for policyholders, and I see plenty of opportunities to give the Court an opportunity to do just that.
Earlier this week, the Tennessee Court of Appeals issued a 24 page opinion addressing a variety of issues affecting insureds in the State of Tennessee. The case is Adams v. Tennessee Farmers Mutual Insurance Company, a copy of which is available here. My partner, Clint Scott, and I represented the insured in this case, which was tried way back in December 2008 before Judge Roy Morgan in Chester County. The case was defended by Charlie Trotter, a very talented and experienced defense lawyer who certainly keeps us on our toes. The Court of Appeals opinion is worthy of several blog posts, but I’ll try to summarize the major points here.
First, the Court of Appeals made it crystal clear that legal title is not required in order to have an insurable interest in real property. Tennessee Farmers argued that an insured’s transfer of legal title to a family member mandated a finding that there was no insurable interest. The Court of Appeals disagreed, finding that any interest in property, even the mere right to use property, is enough for a finding that there is an insurable interest. All that is required is that the insured benefit from the property’s continued existence or suffer a loss as a result of its destruction.
Second, the Court of Appeals rejected the proposition that an insured has a duty to notify an insurer of a change in ownership of the insured property when the change in ownership occurs after the policy is issued. This contention actually raised an even broader issue of first impression in Tennessee, i.e., whether an insured has a duty to supplement the disclosures made on an application for insurance after a policy has been issued. After surveying several jurisdictions across the country, the Court of Appeals concluded that there is no such duty, reasoning “the burden is more appropriately placed on the insurer to specify when the insured will be required to notify it of changes in circumstances after the policy is delivered.” Because the policy at issue in this case had no such provision, there was no duty to disclose the change in legal ownership subsequent to the issuance of the policy.
Finally, the Adams case also addressed the issue of whether an insured is entitled to the full policy proceeds when he or she was occupying the property but lacked legal title. In considering this issue, the Court of Appeals again referenced decisions from our sister states and adopted the reasoning of the Oklahoma Supreme Court in concluding that “the insurable interest requirement should not be extended beyond the reasons for its existence by an overly technical construction that frustrates the legitimate expectations of the insured or that permits an insurer to avoid the very risk it intended to insure.”
The Adams case is an important case for first party insurance practitioners on both sides of the bar, and all such lawyers would be wise to read it closely.