Tennessee Business Litigation Lawyers Blog

Tennessee Law Regarding an Insurance Company’s Right to Deny Benefits for Misrepresentation

Published on: November 14, 2012 | by J. Ross Pepper

In a recent Tennessee case, the beneficiary of a life insurance policy prevailed over the insurance company which denied coverage under the policy at issue based on alleged misrepresentations by the insured in the application for the policy. The case discusses some basic law that is applicable in Tennessee when an insurance company denies coverage because of an alleged misrepresentation on an insurance policy application. Although the case involved a term life insurance policy, many of the rules discussed by the Court of Appeals of Tennessee in the opinion are applicable to other types of insurance policies, e.g., whole life insurance policies, disability insurance policies, health insurance policies, and even liability policies.

The case involved a woman (the “Insured”) who purchased a twenty-year term life insurance policy from Tennessee Farmers. The life insurance policy was issued, but only after the Insured had completed and signed an application. In her application, the Insured identified a number of health and medical problems including a nervous disorder, sleep disorder, arthritis, and a partial disability resulting from a car accident. The Insured disclosed that she smoked half a pack a day of cigarettes, and that she was taking Percocet for pain and Xanax for sleep assistance. As part of the application process, Tennessee Farmers did a drug screen of the Insured which was negative.

Because of the numerous health issues of the Insured, Tennessee Farmers charged a premium which was 50% more than the basic policy premium. Following the issuance of the life insurance policy, the Insured died from acute methadone intoxication. Her death occurred before the contestability period in the policy, which was two years, expired. (Many life insurance and disability policies have non-contestability provisions which, generally, prevent an insurance company from denying coverage for any statement made in the application after a certain period of time—typically around two years after the issuance of the policy).

Lessons About Tennessee Bad Faith Insurance Law

Published on: November 6, 2012 | by J. Ross Pepper

Tennessee has a statute, which, provided certain conditions are met, allows an insured to recover “bad faith” damages against the insured’s insurance company. The United States Court of Appeals for the Sixth Circuit, which is the federal appeals court with jurisdiction over federal cases tried in Tennessee (and several other states), in the case of Heil v. Evanston Insurance Company, reversed a jury verdict for two million dollars in punitive damages in a bad faith case. The court’s explanation and application of the Tennessee bad faith failure to pay statute in that case is informative for anyone with a bad faith claim against an insurance company.

Before discussing the case, a couple of common misconceptions about the Tennessee bad faith failure to pay law should be discussed. First, the bad faith statute only allows an insured to recover up to 25% of the loss of the insured. For that reason, the Tennessee bad faith statute has been rightly criticized as being pretty toothless. Second, the bad faith penalty allowed in Tennessee can only be recovered by someone who was insured by the insurance company which acted in bad faith. In other words, if you have a claim against someone else for damages, and that person’s insurance company acts in bad faith in failing to pay you, you cannot make a claim under the Tennessee bad faith statute against that “third party” insurance company.

In the Heil case, the plaintiff was a company which manufactured dump truck bodies. One of its dump truck bodies lowered onto someone and killed him. Heil was sued for wrongful death. Heil was insured by Evanston Insurance Company (“Insurance Company”) under a commercial general liability policy (the “Policy”).

Tennessee Court Allows Lost Profits Resulting from Damage to Truck Tractor

Published on: October 22, 2012 | by J. Ross Pepper

In a recent lost profits case decided by the Court of Appeals of Tennessee, DBK Trucking Co., LLC v. JNJ Express, Inc., that court held that the owner of a 1998 Kenworth tractor could recover the profits it was not able to earn because of the damage to the tractor caused by the defendant in that case. The Kenworth tractor which was damaged was a “wet line” tractor which was able to haul hazardous waste.

At trial, the owner of the Kenworth testified that it took three months to obtain all of the necessary government permits and licenses to put a wet line tractor, like the Kenworth which was damaged, into service. He also testified that the “average revenue” earned by the Kenworth had been approximately $3,700.00 per week. The jury in the case awarded the owner of the Kenworth $44,000.00 in lost profits.

The trial judge in the case set aside the verdict of the jury on the grounds that the owner of the Kenworth was only permitted to recover the fair market value of the tractor at the time it was damaged. The Court of Appeals of Tennessee reversed the decision of the trial judge, and reinstated the jury verdict for lost profits.

Contractor’s Lawsuit Against Subcontractor Barred by Tennessee Statute of Repose

Published on: September 30, 2012 | by J. Ross Pepper

In Tennessee, there are two types of statutes that might bar an otherwise meritorious claim: (1) statutes of limitation; and (2) statutes of repose. A construction defect case may be filed within the statute of limitation, but, nevertheless, be barred by the statute of repose which establishes an outer limit for the filing of construction defect cases.

In a recent Tennessee construction defect and warranty case, The Counts Company v. Praters, Inc., which was decided by the Court of Appeals of Tennessee, a contractor’s lawsuit against a subcontractor, which installed the wood flooring on the project, was dismissed based on the statute of repose.

The Tennessee statute of repose which applies to claims arising from the construction of an improvement bars any lawsuit to recover damages for a construction defect which is not brought within four years of substantial completion of the improvement. If a defendant purposefully engages in conduct intended to conceal the plaintiff’s injury, often referred to as “fraudulent concealment,” then the statute of repose is tolled (meaning its length is extended).

Court Of Appeals Of Tennessee Upholds Ambiguous Codicil To Will

Published on: September 23, 2012 | by J. Ross Pepper

Rather than executing an entirely new will to change a provision in a will or, in order to make a specific bequest of property, sometimes a person will execute a codicil to an existing will, which, in effect, changes the will. Generally, codicils to wills are enforceable in Tennessee to the same extent as are wills.

In a recent Tennessee case, the testator (the person who made the will) signed a codicil (“Codicil”) to his will (“Will”) about thirty six hours before he died and years after he made the Will. That Codicil became the subject of a dispute between a beneficiary of the Will and the beneficiary named in the Codicil. In the Will, the 100 acre farm owned by the testator was bequeathed entirely to his daughter (“Daughter”). In the Codicil, the testator bequeathed part of his farm to a Mr. Powell, a close friend.

The wording of the Codicil is important to an understanding of the case. In it, the testator bequeathed to Powell a part of his farm of “approximately 35 acres” and described, very generally, the location of that acreage. In the Codicil, the testator also bequeathed to Powell another part of his farm of “approximately 20 acres” and, again, described its location in very general terms. At the very end of the Codicil, the testator stated that approximately 45 acres of his 100 acre farm, which remained after the bequests to Powell, were to be distributed to Daughter.

“Time Is Of The Essence” Clauses And Their Effect On Real Estate Contracts In Tennessee

Published on: September 11, 2012 | by J. Ross Pepper

Many real estate contracts, and other contracts, which are entered into in Tennessee and governed by Tennessee law, contain “time is of the essence” clauses. What difference do such clauses make in Tennessee contracts? A recent decision of the Tennessee Court of Appeals demonstrates how such a clause can make a practical and critical difference in a breach of contract case in Tennessee.

In the case of Seaton v. Wise Properties-TN, LLC, the Tennessee Court of Appeals was confronted with the following facts relating to a breach of contract case:

• Buyer and Seller entered into a real estate contract for the purchase and sale of real estate in Athens, Tennessee

Using Appraisers As Expert Witnesses In Eminent Domain Cases In Tennessee

Published on: August 20, 2012 | by J. Ross Pepper

Landowners in Tennessee sometimes become defendants in eminent domain cases (also called condemnation actions) filed by the state, or a city or county government. These cases often become “battles of appraisers.”

When the government files a condemnation case, it must pay just compensation to the landowner. Tennessee courts have defined “just compensation” to mean “market value” which they have further defined to mean the price which a willing buyer would pay to a willing seller assuming that the seller was not required to sell the land and the purchaser was not required to purchase it. The date that market value is to be determined, in an eminent domain case, is the date of appropriation. (Not some future date or past date).

In determining market value in condemnation cases, all the factors that enhance or detract from the value of the land should be considered. For example, it is proper to consider the other reasonable available uses of the property, and comparable sales. It is not proper for a jury to consider any increase or decrease in the value of the land because of the announcement or construction of a new improvement on the property.

Tennessee Member-Managed Limited Liability Companies: Liability Of Members To Other Members And/Or The LLC

Published on: August 13, 2012 | by J. Ross Pepper

This blog addresses Tennessee law regarding the liability of members of Tennessee limited liability companies to other members and/or to the LLC itself. In 1994, the “Tennessee Limited Liability Company Act” became law in Tennessee. In 2005, the “Tennessee Revised Limited Liability Company Act” became law. The Revised Act added statutes regarding the conduct of LLC members which would subject them to personal liability to other LLC members, the LLC, and to holders of financial rights.

Tennessee recognizes three types of LLCs: (1) member-managed LLCs; (2) manager-managed LLCs; and (3) director-managed LLCs. This blog focuses only on member-managed LLCs, though much of the law discussed herein is equally applicable to the two other types of LLCs.

The starting point for understanding the potential liabilities of members of Tennessee member-managed LLCs to other members and/or to the LLC is Tennessee Code Annotated §48-249-403. Even though that statute has been in effect for about seven years, there is no Tennessee case law interpreting that statute or discussing its application. In fact, a Westlaw search for all Tennessee cases in which the statute is mentioned turns up no cases.

Changing Insurance Policy Beneficiaries In Violation Of Marital Dissolution Agreements: What Tennessee Courts Have To Say

Published on: August 6, 2012 | by J. Ross Pepper

Frequently, as part of a divorce, a spouse is required to maintain life insurance for the benefit of the other spouse or for children. In our practice, we have been involved in several cases where, in spite of a requirement in a divorce decree or marital dissolution agreement, a spouse has either changed the designated beneficiary of a life insurance policy, or let the life insurance policy lapse. Under Tennessee law, a former spouse or child who has been wronged by such conduct has the law on his or her side, as evidenced by the Tennessee cases discussed in this blog.

In Dossett v. Dossett, a decision of the Supreme Court of Tennessee, the plaintiffs were children of an insured (the father) who was divorced from the children’s mother prior to his (the insured father’s) death. The divorce decree between the father of the children and their mother required the father to maintain a policy of life insurance upon his life with the children designated as beneficiaries. Specifically, the marital dissolution agreement in that case stated:

“That the Defendant [the father] is required to maintain a $20,000.00 life insurance policy upon his life and with the minor children of the marriage designated as the beneficiaries of said policy.”

Joint Bank Account With Right Of Survivorship Case: Tennessee Court Of Appeals Lays Ground Rules

Published on: July 31, 2012 | by J. Ross Pepper

In our practice, we are pretty frequently involved in cases (usually undue influence cases) where parties, usually relatives, are at odds over who should receive funds owned by a deceased relative in a bank account, or certificate of deposit. A recent case from the Tennessee Court of Appeals, Guess v. Finlay, not only provides a very useful analysis of Tennessee law regarding joint accounts with rights of survivorship, but also, reverses some prior Tennessee law regarding joint accounts.

Here are the facts:

• At the time of his death, Deceased had accounts at SunTrust Bank worth nearly $250,000.00, consisting of a checking account, a money market account, and CDs

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