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.