Another Take on the U.S. Bank Case


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.” 

Morrison v. Allen, Part III

This is the third installment of my recent discussion of the Morrison v. Allen decision.  Assume these facts (a skeletal version of the facts in Morrison):  John Doe requests life insurance from his insurance agent in the amount of $1,000,000.  A policy is issued, but a claim by John's wife, Jane, for benefits under the policy is denied based on alleged misrepresentations in the insurance application. Jane claims that John's insurance agent failed to do his job and is liable to her on a failure to procure theory for the face amount of the insurance policy.  Jane then settles with insurance company for $900,000, but moves forward with her suit against the agent for the full amount of the insurance policy, i.e., $1,000,000.  And then Jane actually wins her case, resulting in her receiving $1.9 million on a $1 million policy.  Double recovery, right?  Wrong.

In Morrison, the plaintiff sued the insurance company on multiple theories, including violations of the TN Consumer Protection Act, negligence, breach of contract, etc.  She also sued the defendant insurance agents for failure to procure the appropriate insurance policy.  To decide whether the defendant agents were entitled to an offset as a result of the $900,000 payment by the insurance carrier in settlement of Ms. Morrison's claims against it, the Supremes were faced with the question of whether the claim against the insurance carrier was based in contract or some other theory.  If liability was based in contract, then the agent would be entitled to an offset.  But, if the claim was based in tort, then no offset is required.

The Morrison court ultimately found that the defendant agents were not entitled to an offset, which had the rather odd result that Ms. Morrison received $1.9 million on a $1 million policy.  The key to this decision appears to be that the actual settlement documents between Ms. Morrison and the defendant insurance company did not specifically state that payment was being made on the breach of contract claim.  On the contrary, the settlement settled all the claims, with no specific delineation as to what amount was being attributed to the various causes of action that had been alleged. Accordingly, no offset was required.  

This is an extremely important part of this case that will come into play in almost every case in which the policyholder has sued both his insurance agent and his insurance company.  It allows a plaintiff to settle with one, and still preserve his or her right to go after the other for the full amount of the alleged damages with no offset.  All it requires is a little thought when drafting the settlement agreement.  


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.  

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).


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. 

Utilizing the Unfair Claims Settlement Practices Act

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.