The Tennessee Supreme Court's Treatment of Tennessee Consumer Protection Act Claims in the Insurance Setting
I ran across a good article (pdf) this evening by Robins H. Ledyard entitled Treatment of Insurance Claims under Tennessee Consumer Protection Act. Published in the Federation of Regulatory Counsel Journal in the Fall of 2008, the article gives a short synopsis of our Supreme Court's analysis of TCPA claims in the insurance setting. Although not exhaustive, its a good primer for those who don't practice in this area often. The article gives a quick summary of the most often reported Tennessee Supreme Court insurance cases - - Myint v. Allstate, Sparks v. Allstate, and Gaston v. Tennessee Farmers.
A Word About the Crossley Decision
On the topic of whether independent adjusters should be held liable under the Tennessee Consumer Protection Act (see my prior post here and Parks' rebuttal here), a case commonly cited by defendant insurance companies and adjusters is Crossley Const. Corp. v. National Fire Ins. Co. of Hartford, 237 S.W.2d 652 (Tenn. Ct. App. 2007). Although Crossley does hold that the TCPA does not apply to the claims handling process, the opinion is somewhat of an aberration in that it is completely out of line with other decisions of the Tennessee Court of Appeals and the Tennessee Supreme Court. For example, in Gaston v. Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815 (Tenn. 2003), the Tennessee Supreme Court encountered the issue of whether an insurer can be held liable under the Tennessee Consumer Protection Act for unfair and deceitful actions in the handling of an insured's claim. In that case, the insurance adjuster withheld important information from the insureds concerning how the insureds needed to proceed during the claims process. The insurance company argued that the TCPA does not apply to insurance companies in the handling of claims, but this argument was flatly rejected by the Tennessee Supreme Court. See also Newman v. Allstate Ins. Co., 42 S.W.3d 920 (Tenn. Ct. App. 2000); Stooksbury v. Am. Nat'l. Prop. & Cas. Co., 126 S.W.3d 505 (Tenn. Ct. App. 2003).
In my opinion, the Crossley decision was simply not an accurate application of binding Tennessee law. The purpose of the TCPA is to protect consumers from those who engage in unfair or deceptive acts or practices of any trade or commerce, and it must be construed broadly to effectuate that purpose. As a result, it would be contradictory to public policy and the stated intent of the legislature if unfair or deceptive actions of adjusters, whether employees or independent, were punishable only up until the point of contract formation. Everything is usually rosy and nice at the front end when the policy is first obtained. Its what happens when a claim is filed that demands attention.
Independent Adjusters Should Not Be Liable To Insureds Under The Tennessee Consumer Protection Act
I understand the reasoning of Magistrate Bryant, and the state court judges with whom I have debated this topic, but it just does not seem right that a person or entity not associated with the consumer transaction at all should be held liable under the Act. How was the independent adjuster involved in the consumer transaction of issuing the contract of insurance with the insured? He or she was not. How could someone not associated with the consumer transaction be liable under a statute designed to protect consumers from unfair or deceptive trade acts or practices by consumer entities?
I certainly do not dispute that the Tennessee Consumer Protection Act was made applicable to insurance companiesunder Myint v. Allstate Insurance Company, 970 S.W.2d 920 (Tenn. 1998) under the premise that “the sale of a policy of insurance easily falls under this definition of “trade” and “commerce.” Id. at 926. But that premise should not apply to someone who did not contract or sell the insurance policy in question, should it? According to Myint, the Tennessee Consumer Protection Act is applied to insurance companies selling policies to Tennessee consumers when the insurance company is found guilty of unfair or deceptive trade practices. Id. at 926. It seems to me that the consumer entity may be liable for the actions of the independent adjuster, if the requisite elements of agency can be shown, but it does not seem appropriate to impose liability under the Act to an independent adjuster who was not a party to the formation of the contract of insurance and did not sell the insurance policy in question. Where would this stop? Could liability be imposed against the expert engineer retained by the insurance carrier to investigate the loss? Could it be imposed upon the lawyer hired by the carrier to take the Examination Under Oath?
I have some Tennessee case law support for my position. One case is Crossley Const. Corp. v. National Fire Ins. Co. of Hartford, 237 S.W.3d 652, 657 (Tenn.Ct.App.,2007). In this case, the Court held that the Tennessee Consumer Protection Act was not applicable to post transaction acts because none of the defendant's actions complained of by plaintiff were a part of "the advertising, offering for sale, lease or rental, or distribution of any goods, services, or property…" Tenn. Code Ann. § 47-18-103(11) (2001). Id. Are the acts of an independent adjuster, handling a claim perhaps 5 or 10 years after the date of the consumer transaction, really part of the “advertising, offering for sale, or the distribution” of the contract of insurance? I understand the breadth of the Act, but simply believe the answer to this question must be an unequivocal “NO!”
Next, there has been no clear state law pronouncement of the duty owed by an independent adjuster. I tried to get the Court of Appeals to rule on this issue back in 2000, but the Court determined that our extraordinary appeal did “not present an appropriate vehicle for determining whether insureds may maintain either negligence or Tennessee Consumer Protection Act claims against adjusting companies because the Heatherlys' claims, even if they had them, are clearly time-barred.” See Heatherly v. Merrimack Mut. Fire Ins. Co. , 43 S.W.3d 911, 915 (Tenn.Ct.App.,2000).
So I hope the issue is resolved by our state courts very soon. My concern over broadening the scope of this Act to persons not involved in the transaction itself – or since privity is not required, perhaps the better way to say it is broadening the scope of this Act to persons not even contemplated to be involved at the time of the transaction – is that there is no logical stopping point. If the Act truly does apply to an independent adjuster because an insurance carrier hiring that adjuster sold an insurance policy some years ago, the implications for potential “slippery slope” liability are simply unacceptable.
