Tennessee Insurance Coverage Decision

 In Cleveland Custom Stone v. Acuity Mutual Insurance Company, No. E2013-02132-COA-R3-CV (June 10, 2014), the Tennessee Court of Appeals considered a myriad of issues in a case concerning an insurance company’s failure to pay insurance proceeds to the Plaintiffs for a building destroyed by fire. 

The business that owned the building sought to add insurance coverage for the building to the business’s existing insurance policy with Acuity when it purchased the building in 2007.  The business used USIG, an agent of Acuity, to procure the coverage.  USIG provided a certificate of insurance form at the closing of the sale of the building to the business.

Following the fire, Acuity denied payment and notified the business that it never had successfully added coverage for the building.  Acuity also alleged that the business owners intentionally set the fire. 

Following a jury trial, the jury found that USIG was Acuity’s agent, that the business had procured insurance coverage from Acuity, and that the business owners did not intentionally set the fire.  The jury awarded compensatory damages, but denied punitive damages despite finding that Acuity had violated the Tennessee Consumer Protection Act (TCPA). 

On appeal, the court considered several issues, with the two most interesting being (1) whether the trial court erred in denying Acuity’s motion for directed verdict and (2) whether the trial court erred in instructing the jury.

With regard to issue (1), Acuity asserted that it should have been granted directed verdict because USIG acted outside of its agency relationship with Acuity when it issued the certificate of insurance.  Acuity also argued that the business was barred from recovering because it failed to read the policy of insurance, and that the business failed to prove that it procured insurance coverage for the building.  Under the standard for directed verdict, the trial court must take the strongest legitimate view of the evidence in favor of the nonmoving party, allow all reasonable inferences in favor of that party, and discard all countervailing evidence and deny the motion if the party with the burden of proof has presented sufficient evidence to create a fact issue for the jury to decide.  Under this standard, the court of appeals upheld the trial court’s denial of directed verdict to Acuity pointing to testimony that plaintiffs desired to add coverage for the building and that plaintiffs believed they had procured such insurance.  The court also noted that under Allstate Ins. Co. v. Tarrant, 363 S.W.3d 508, 522 (Tenn. 2012), insureds are not required to search their policies in an effort to discover errors.  Lastly, the court found that the plaintiffs provided alibis for their whereabouts at the time of the fire and offered an explanation for the suspicious nature of the fire that a former employee may have caused it in retaliation for his termination.

With regard to issue (2), the trial court instructed the jury on Tenn. Code Ann. § 55-6-115(b), which provides, in relevant part, that:

An insurance producer who solicits or negotiates an application for insurance shall be regarded, in any controversy arising from the application for insurance or any policy issued in connection with the application between the insured or the insured’s beneficiary and the insurer, as the agent of the insurer and not the insured or insured’s beneficiary.

Acuity complained that the trial court instructed the jury on this statute because the case involved misrepresentations made in a certificate of insurance and not an erroneous application for insurance.  The court of appeals found that Acuity was mistaken in its position finding the case involved mistakes in each renewed policy following the business’s request for insurance coverage for the building. 

The court likened the case to Tarrant in which the insured instructed his insurance agent to place his business vans under his commercial insurance policy but instead the insurance agent mistakenly added the business vans to the insured’s personal policy.  After an accident involving one of the business vans, the insurance carrier refused to pay the claim under the commercial policy.  The Tennessee Supreme Court held that the insurance carrier was estopped to deny coverage under the commercial policy because the insurance carrier should bear the consequences of the agent’s mistake.  The Supreme Court cited Tenn. Code Ann. § 56-6-115(b) in reaching its holding and found that the insured had not ratified the agent’s mistake when the agent was acting for the insurance carrier and not for the insured. 

In the present case, the court of appeals found that the business owners relied on USIG to provide the coverage requested and that as a result of USIG’s mistake, the coverage was not provided.  Thus, the court found that the jury instruction was relevant and applicable.

Remember that the Tennessee Code was amended in the tort reform legislation of 2011 and no longer allows TCPA claims to be brought for actions involving insurance policies.