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What are your legal options if your insurance company isn't doing its job?
Your insurance policy is a contract between you (the "insured") and your insurance company (the "insurer"). Both of you receive a benefit from the contract. Your insurance company receives a premium and you receive payment for losses covered under the policy.
But what happens if your insurance company fails to hold up its end of the bargain?
In Tennessee, it may be appropriate for you to file a statutory bad faith claim or breach of contract claim.
What is a statutory bad faith claim?
Insurance companies in Tennessee have a legal obligation, under Tennessee Code § 56-7-105, to act in good faith. In essence, this means the insurer is required to accept valid claims so that the insured can receive the benefit provided by their contract.
If the insurance company, in bad faith, denies a valid claim, the insured can file a bad-faith lawsuit.
Proving a statutory bad faith claim in Tennessee
Just because your insurance company denies your claim doesn't mean you can sue them for bad faith. To establish a bad faith claim against your insurance company, you need to prove 3 elements:
- You must have a valid claim,
- You must make a formal demand (i.e., file an insurance claim), and
- The insured's refusal to pay (or failure to respond within 60 days) must have been in bad faith.
The hardest element to prove is the last element. Denying a claim doesn't constitute bad faith if there's a genuine dispute as to coverage—even if the insurance company turns out to be wrong.
As the Sixth Circuit Court of Appeals explained:
A plaintiff [in a statutory bad faith case] must generally demonstrate that there were no legitimate grounds for disagreement about the coverage of the insurance policy.
At trial, Nationwide admitted that the Palmers had a fire insurance policy at the time of the fire. However, Nationwide denied the claim because their investigation showed that the Palmers set the fire themselves, in violation of the policy.
The court reviewed the evidence and found that, even if the Palmers had not in fact set the fire, there was sufficient evidence for Nationwide to deny the claim on that basis. This evidence included statements from every firefighter at the scene who stated that they extinguished a minor fire next door to the Palmers and that this fire did not spread to the Palmers.
Additionally, the fire chief found a number of disconnected fires in the Palmers' house where piles of clothing had been set ablaze, indicating that the Palmers themselves set the fire.
What damages can I recover in a Tennessee statutory bad faith lawsuit?
In a Tennessee statutory bad faith lawsuit, you can recover the amount due under the insurance policy up to the policy limits. For example, if your insurance company improperly denied your claim for $100,000, you can recover the full $100,000 (assuming the amount is under the policy limits).
What's more, you can recover an amount of up to 25% of the underlying claim. This amount is a penalty intended to deter insurance companies from wrongfully denying claims.
Breach of contract claims
In Tennessee, all insurance contracts have an "implied covenant of good faith and fair dealing." This simply means that your insurance company is required to deal with you honestly, fairly, and in good faith so that you can receive the benefits of the contract. If your insurance company breaches this implied covenant of good faith and fair dealing, you can sue them for breach of contract.
A breach of contract claim is broader than a statutory bad faith claim. Examples of potential actions that breach the implied covenant of good faith and fair dealing include those listed in the Tennessee Unfair Claims Settlement Act discussed below.
Tennessee Unfair Claims Settlement Act
The Tennessee Unfair Claims Settlement Act contains a list of acts that constitute unfair competition or deceptive acts in the insurance business. The list is intended as a guide to help courts determine whether the insurance company committed bad faith.
However, the act doesn't provide a private right of action.
In other words, you can't sue the insurance company simply because it violated the Tennessee Unfair Claims Settlement Act. Rather, the insurance commissioner can use the act to penalize an insurance company.
Let's take a look at some of the actions listed in the Tennessee Unfair Claims Settlement Act, keeping in mind that you may be able to file a breach of contract claim if your insurer engaged in any of these acts:
- Knowingly misrepresenting relevant facts or policy provisions relating to the coverage at issue
- Failing to acknowledge with reasonable promptness pertinent communications with the insured
- Refusing to pay claims without conducting a reasonable investigation
- Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed
- Attempting to settle or settling claims for less than the amount that a reasonable person would believe the insured or beneficiary was entitled to
- Unreasonably delaying the investigation or payment of claims by requiring both a formal proof of loss form and subsequent verification that would result in duplication of information
- In response to a request for claims forms, failing to provide forms necessary to present claims within 15 calendar days of such a request
Steps to take if you suspect your insurance company is acting in bad faith
Here are the steps you should take if you believe your insurance company is acting in bad faith:
- Review your insurance contract. Request a copy of your full insurance policy and review it closely to make sure the issue you're having isn't addressed in the policy.
- Maintain a record of every correspondence. Keep all correspondence between you and your insurance company in a safe place. Additionally, keep a log of each telephone call (date and time, nature of the conversation, name of the person you talked to).
- Appeal a claim. If you believe you received a wrongful denial, you can request a review. Although the chances that the outcome will change are relatively small, it's possible you'll be able to avoid costly litigation by making this simple request.
- Make a demand. If your insurance company is still acting in bad faith, send your insurance company a letter (certified with return receipt requested) explaining that you plan to take legal action if the issue isn't resolved immediately.
- Hire an attorney. Locate an experienced Tennessee attorney and schedule an initial consultation. An attorney can settle the matter or file a lawsuit if necessary.
Sample demand letter to your insurance company providing notice of future legal action
123 Blind Curve Boulevard
Nashville, TN 37011
April 1, 2022
Missouri Insurance Company
St. Louis, MO 63105
Re: Claim No.: 345-EFGH5678
Dear Mr. Insurer:
On January 10, 2022, I filed a claim for $10,000 regarding the car accident I was involved in on Blind Curve Boulevard. I have attached a copy of the proof of lost statements that I filed, along with an email I received in response acknowledging receipt of the statements.
As of April 1, 2022, I have not received a response indicating that my claim has been accepted or denied. What's more, despite numerous follow-up emails (also attached), I have not been given an explanation as to the delay.
At this point, it appears that Missouri Insurance Company is acting in bad faith. Accordingly, if I do not receive a response by April 8, 2022, I will be forced to take legal action.
Did you know that bad faith insurance law varies by state?
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