Tennessee’s valued policy law(T.C.A. 56-7-803) provides that an insurer is liable to the policyholder for the full policy limits if a total loss occurs. As a result, the big "fight" is often over the issue of whether a loss is "total" or "partial" in nature. Back in May, Parks Chastain commented here that the identity test should be used to determine whether a structure will be deemed a total loss. Parks relied on the Laurenzi and Hollingsworth cases to support his contention that the test is whether a building has lost its identity and specific character as a building. I think our courts interpret the valued policy law in a less restrictive manner than Parks suggests is appropriate.
First, let me point out that the Tennessee Supreme Court, with its present composition, would almost certainly adopt the prudent man test if given the opportunity. Such a test would be an alternative to the identity test referenced by the Laurenzi decision. Under the prudent man test, a house could be considered a total loss if a prudent man would not repair the property because the repair costs would be close to or exceed the replacement cost of the structure. Such a test has been widely accepted across the nation.
Second, and more importantly for a present analysis, the Tennessee Court of Appeals has made clear that Tennessee law does not require that a house is necessarily only a partial loss simply because it can still be identified as to its type of structure. King v. Dunlap, 945 S.W.2d 736 (Tenn. Ct .App. 1996). On the contrary, both the King and Laurenzi cases make clear that a building can still be deemed a total loss even when walls are still standing, the foundation is unimpaired, and some parts of the structure are unconsumed. There is no requirement that there be an absolute extinction, or that all materials be physically destroyed. For example, in Mann v. Grange Mut. Cas. Co., 1986 WL 14223 (Tenn. Ct. App. 1986), the Tennessee Court of Appeals affirmed the trial court’s holding that a building was a total loss even when the second level of the house, including the roof and walls, were not completely destroyed.
The lesson? Just because the brick is still standing doesn’t mean your loss isn’t total in nature. Don’t get confused by the "total loss" language. At its base level, it really all boils down to whether it would be reasonable to repair a house or not. Even though that’s not technically the legal test, its going to result in the same conclusion most of the time. So if an insurance company attempts to argue that a house isn’t a total loss even though it is agreeing the home needs to be demolished and rebuilt, don’t go for it. You’ve got a total loss, and you are entitled to the full face value of your insurance policy.