Articles Posted in Insurance Litigation


In a recent insurance policy case, Lance. v. Owner’s Insurance Company, the Court of Appeals of Tennessee set aside a jury’s award of punitive damages in the amount of $267,500 against Owner’s Insurance Company (a subsidiary of Auto-Owner’s Insurance Company).  The case involved the complete destruction of the Plaintiff business-owner’s building and inventory.

The Plaintiff owned a retail business which was operated out of a 14,000 square foot building in Polk County, Tennessee. The building and inventory within it were completely destroyed by fire in April of 2011.  The insurance company’s investigators, as well as the fire department and state officials, determined that the fire was intentionally set. The Plaintiff did not challenge that the fire was intentionally set, but denied any involvement with it.

After the fire, the Plaintiff submitted a claim to the insurance company. The insurance company requested additional information. The Plaintiff submitted the additional information requested by the insurance company along with a bad faith notice under Tennessee’s bad faith failure to pay statute.  (That statute allows an insured to recover damages beyond the insured’s actual out-of-pocket loss in an amount up to 25% of the insured’s actual loss).

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Many people who are entitled to benefits under a life insurance policy are denied the benefits by the insurance company on the basis that the insured (the person whose life was covered) made a misrepresentation. In life insurance cases where the insurance company denies payment on the basis of misrepresentation, a statute that is weighted in favor of life insurance companies will apply. That statute is T.C.A. §56-7-103.

In a nutshell, that statute provides that a life insurance company may deny the payment of benefits under a life insurance policy if it can prove either of two things: (1) that the insured made a misrepresentation with “actual intent to deceive”; or (2) that the misrepresentation increased the risk of loss to the life insurance company.

The statute is unfair for a couple of reasons. First, it permits the life insurance company to deny benefits if the misrepresentation increased its risk of loss at all — it does not require that it materially increased its risk of loss. Second, it allows a life insurance company to deny benefits if its risk of loss was increased even where the misrepresentation had nothing to do with the insured’s cause of death.  For example, if the insured stated on his application that he had no history of heart disease, but did, and died later of skin cancer, nevertheless, the life insurance company can avoid paying if it can prove that the failure to identify a history of heart disease increased its risk of loss (which it will almost certainly be able to do).

A case that illustrates how the statute works in real life insurance litigation is Smith v. Tennessee Farmers (Tenn. Ct. App. 2006). Here is how I would summarize the procedural history of that case: The trial court reached a fair result, but to do so, pretty much had to ignore T.C.A. §56-7-103, and the Court of Appeals of Tennessee reversed the decision of the trial court based on the statute.  I think the Court of Appeals reached a reasoned and correct decision, which decision was, unfortunately, compelled by an unfair statute.

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Step One: Determining Which Statute of Limitations Applies

The Six Year Statute of Limitations Applies Most of the Time

Most breach of contract cases in Tennessee will be subject to the six (6) year statute of limitations codified at T.C.A. §28-3-109.  There is one (1) other possible statute of limitations which could apply in a breach of contract case which would require someone to file suit in less than six (6) years.  There is another statute of limitations which might allow a period longer than six (6) years.  Lastly, there is the possibility that none of the statutes of limitations codified in Tennessee apply because the parties have contractually agreed to a limitations period.

The Four Year Statute of Limitations for UCC Cases

If the breach of contract is for the sale of goods, the Uniform Commercial Code (“UCC”) will apply.  The statute of limitations for any contract for the sale of goods under the UCC is four (4) years. T.C.A. §47-2-725

The Ten Year Statute of Limitations for Demand Notes

In Tennessee, demand notes are subject to a ten (10) year statute of limitations. T.C.A. §28-3-109

Contractually Agreed to Limitations Periods May Be Shorter Than Four Years, Six Years, or Ten Years, and Are Enforceable in Tennessee

In many breach of contract cases, particularly insurance policy breach of contract cases and disability insurance policy cases, a statute of limitations placed in the parties’ contract will govern.  Even if the six (6) year statute of limitations might otherwise apply, a breach of contract case might have to be filed much sooner in order not to be barred by a shorter limitations period which was agreed to by the parties.  Such contractual statutes of limitations are fully enforceable in Tennessee, and trump the statutes of limitations in the Tennessee Code.  Under Tennessee law, a contractually agreed to limitations period for filing a lawsuit is enforceable so long as it provides a “reasonable time period” for filing a lawsuit.  One Tennessee court upheld a contractually agreed to limitations period of sixty (60) days.  See, Morgan v. Town of Tellico Plains (Tenn. Ct. App. 2002).  Another upheld a contractually agreed to limitations period of one (1) year.  See, Certain Underwriters at Lloyd’s of London v. Transcarriers, Inc. (Tenn. Ct. App. 2002). Continue reading

Pre-judgment interest is the interest which accrues from the date an obligation is due to the plaintiff until the day the judge or jury enters a verdict in favor of the plaintiff.

Given that a breach of contact case or other commercial litigation case may take a year or more to get to the point where a verdict is rendered once the case is filed, pre-judgment interest can be substantial in many cases. Consider also that, for various reasons, many cases are not filed until months, even years, after the debt was due to the plaintiff.

Where the parties in litigation do not have a contract about the amount of any interest due, as is often the case, T.C.A. §47-14-123 allows a judge or jury to award pre-judgment interest at any rate not in excess of ten percent (10%).  Under Tennessee case law, if you are relying on the statute for pre-judgment interest, you can never receive anything more than simple interest. You cannot compound statutorily awarded pre-judgment interest.

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In Tennessee, a bank account, certificate of deposit, money market account, or other type of financial account may be maintained as a joint account with a right of survivorship.  Such accounts may also be maintained as single owner accounts, but be made payable on death to a named beneficiary.  Payable on death designations are abbreviated as “POD.”

The difference between a single owner account, with no payable on death designation, and a joint account, with a right of survivorship, can have a major effect on relatives and beneficiaries under Wills.  The difference between a single owner account and a single owner account with a payable on death designation can also have a major effect on relatives and beneficiaries under Wills.

Let’s assume that I die with $200,000 in undisputed debt, and with $200,000 in a bank account which I own, but which has no payable on death beneficiary.  In that case, even if I bequeathed all of my assets to my wife in my Will,  and even if I specifically stated in my Will that I wanted her to have all of the money in my bank account, nevertheless, the $200,000 in my bank account at the time of my death would never become my surviving wife’s.  Why? The answer is because, at my death, it would become part of my probate estate. Once it became part of my probate estate, it would be subject to the claims of creditors.

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Daniel Kahneman’s bestseller, Thinking Fast and Slow, is not only a fascinating read, but also, it contains insights that can be an immense help to clients in making decisions about their cases, choosing lawyers, negotiating settlements, and evaluating the advice of their lawyers.  Here is what clients (and trial lawyers) can learn from the book:

Lesson One: Intuitions are not as Reliable as We Think

With objective evidence and data, Mr. Kahneman proves the point that many people are overconfident and place too much faith in their intuitions. I know from experience that lawyers are just as susceptible to this way of analysis as any other group. On many occasions, I have heard misguided advice from lawyers that was the result of their relying on some kind of intuitive impulse rather than spending time and effort evaluating a case from many angles (which takes time), bouncing the facts of the case off of several other people, including lawyers and non-lawyers (especially important where a jury trial is involved), and seeking and studying objective data (like published case law).

Lesson Two: Jury Outcomes are Unpredictable

When I first became a trial lawyer 25 years ago, I participated in the National Institute of Trial Advocacy and read extensively about the decision making process of juries.  What I learned, and was taught, by seasoned trial lawyers and psychologists, is that most juries will ignore the law, the jury instructions, to get to the result which they think is fair.  In my trial practice, I have found that to be true.

After reading Kahneman’s book, I realized that there is a whole other layer in the jury decision making process of which we have to be aware.  You can’t help but be persuaded by Kahneman that, even the people who make decisions, like jurors, do not understand fully why they decided something the way they did.  The point Kahneman makes, and makes well, is that we can all be primed to make decisions in a certain way without even knowing that we have been primed or what has primed us.

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There are, generally speaking, two types of long term disability insurance policies.  There are “private” policies which are not obtained through employment.  There are also long term disability policies which are obtained as the result of employment.

If you have a long term disability policy through your employer’s group long term disability insurance, the odds are that it is considered an “employee benefit plan” which is subject to a federal law known as “ERISA.”  If you have a long term disability policy which is subject to ERISA, then the federal law known as ERISA, and the Department of Labor regulations applicable to ERISA, will apply to your claim.

If your initial claim for long term disability benefits was denied, you have certain rights under ERISA, including, but not limited to:

  • Filing an appeal of the denial with the plan administrator
  • Having at least 180 days after the denial to file an appeal
  • Obtaining all of the records and documents relied on by the plan administrator in denying the claim
  • Having an experienced disability insurance lawyer represent you in your appeal

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Forum selection clauses are prevalent in contracts entered into by Tennessee companies and residents.  Often, the purpose of a forum selection clause in a contract is to force another party to litigate in a particular court in a particular state.   For example, companies which are based somewhere other than Tennessee, but which sign contracts with Tennessee businesses, frequently put forum selection clauses in their contracts. They do so to ensure that, if they have to sue the Tennessee business or, if the Tennessee business decides to sue them, the lawsuit can only be brought in their home state.

If you are a Tennessee business or resident and have signed a contract with a forum selection clause, how likely is it that a Tennessee court would not uphold the forum selection clause?  In my experience, in many cases, that result is not very likely.

Forum selection clauses are considered enforceable in Tennessee, and Tennessee courts will uphold them except in limited circumstances. Here they are:

  1. If the Tennessee business or resident who signed the contract cannot secure effective relief in the other state;
  2. If the other state would be a substantially less convenient place for trial;
  3. If the contract containing the forum selection clause or the forum selection clause itself was obtained by duress, abuse of economic power, misrepresentation or some other unconscionable means; or
  4. If, for any other reason, it would be unreasonable or unfair to enforce the forum selection clause.

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If you file a breach of contract case in Tennessee and demand a jury, what are the chances that the jury will actually decide if there was a contract, and/or if it was breached?  In my experience, in many Tennessee breach of contract cases, those issues are decided before they ever make it to a jury —— by a motion for summary judgment or by the court, after the trial has begun and proof has been taken, but before the case can be submitted to the jury.  So, the short answer is that, in many breach of contract cases where a jury is demanded, the jury will never decide whether the defendant is liable for breach of contract.

Why is it that, even if a jury is demanded, the jury might not resolve a breach of contract case?  The domain of juries in Tennessee is to resolve disputes about facts. Under Tennessee law, it is the role of the court, not the jury, to construe and to interpret the terms of a contract if the terms are clear and unambiguous.

Even if the terms of a written contract are not clear and unambiguous, it is not for the jury to decide the parties’ intent unless the court cannot resolve their intent using the recognized rules to be applied to aid in the construction of contracts (e.g., terms of a written contract are to construed against the drafter).  Similarly, the court can even interpret an ambiguous contract by considering facts extraneous to the written terms of the contract (parol evidence) if such facts are not conflicting and lead to only one conclusion about the parties’ intent.

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When you are faced with a lawsuit or have filed a lawsuit, do yourself a big favor, hire a Tennessee lawyer with trial experience (aka a “Tennessee trial lawyer”) at the outset of your legal matter.  Having practiced trial law and handled litigation and arbitration matters for nearly 25 years, I have seen people’s cases hurt because they waited to bring in a trial lawyer with the hope that things would just get worked out. I have also seen clients end up with bad results because they never retained a lawyer with trial experience.

I have a friend who is a successful businessman who does a substantial amount of business outside of Tennessee.  He was owed some money from a company in Louisiana, but the Louisiana company denied that he was owed anything.  He hired a lawyer in Louisiana. (I was not aware of his situation until well after the fact).

My friend paid the lawyer for many months as the case proceeded to trial.  My friend thought that his case was one of clear liability, and it sounded to me like it was.  For some reason, although he kept paying his lawyer and waiting for the other side to come to its senses and settle, the other side never made a settlement offer.


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