Practitioners should be aware that Tennessee courts generally apply the law of the state where an insurance policy was issued and delivered if there is no enforceable choice of law clause in the policy. Gov't. Employees Ins. Co. v. Bloodworth, 2007 Tenn. App. LEXIS 404 (Tenn. Ct. App. 2007). So, for example, if a policy on a property in Nashville is issued and delivered to the owner at his home in California, the law of California would generally apply. However, the Bloodworth case cited above noted an exception that provides the an insurance policy is governed by the law of the principal location of the insured risk unless some other state has a more signficant relationship..
But what happens when there is a package policy that is delivered in California but covers properties in various states across the county? That's when it gets hairy, and there is authority going both ways. The best answer is probably found inThe Restatement (Second) of Conflicts, 193 cmt. f, which indicates that the court should treat such a case as if it involves multiple policies, each insuring its own individual risk. So if a house is located in state X were damaged by fire, then the law of State X would apply under this analysis.
Consider this scenario - - Jane Doe insures her home for $100,000, with a $1,000 deductible. Unfortunately, Jane's house burns to the ground and is undeniably a "total loss" within the meaning of Tennessee's valued policy statute (click here for a prior post on when a loss should be considered a "total loss"). After months of investigation, the insurance company decides to pay the claim "in full" and sends a check to Jane for $99,000 (policy limits minus the deductible). Was Jane inappropriately shorted $1,000. In my opinion, yes.
Under Tennessee's valued policy statute (T.C.A. 56-7-803), an insurer is liable to the policyholder for the full policy limits if a total loss occurs. In my view, this statute effectively prohibits an insurance company from subtracting the deductible in total loss cases. My research reveals only one case addressing this precise issue, and that is Thurston Nat'l. Ins. Co. v. Dowling, 535 S.W.2d 63 (Ark. 1976). In Thurston, the Arkansas Supreme Court held that an insurance company may not enforce a deductible provision in the case of a total loss when it results in the insured receiving less than policy limits in violation of Arkansas' valued policy law. There is no logical reason why the same rule of law would not be true in Tennessee as well.