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What Is The Time for Responding to a Defense Tender?

Insurers must acknowledge and act reasonably promptly upon notice of claim, Tenn. Code Ann. § 56-8-104(8)(ii), but there are no regulations, statutes or case law defining “reasonably promptly.”

Insurers must affirm or deny coverage of claims within a reasonable time after proof of loss. Tenn. Code Ann. § 56-8-104(8)(iii), but there are no regulations, statutes or case law defining “reasonable time.”

Does Reserving Rights Create a Conflict of Interest?

No. The retention of counsel by insurer to represent insured does not impress upon counsel any duty or loyalty to insurer that could impair attorney-client relationship between counsel and insured. Tyson v. Equity Title & Escrow Co., 282 F. Supp. 2d 829, 832 (W.D. Tenn. 2003).

Insurer who retains attorney to defend insured possesses no right to control defense. Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 394 (Tenn. 2002).

Does a Reservation of Rights Create Additional Duties?

None found.

What Must Be Done If A Conflict of Interest Exists?

Not applicable, since insurer does not control litigation. Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.2d 383, 394 (Tenn. 2002).

Who Is Responsible for Fees of Independent Counsel?

No independent counsel, since attorney retained my insurer owes loyalty to insured and acts as an independent contractor vis a vis the insured. Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.2d 383, 394 (Tenn. 2002).

What Are Independent Counsel’s Obligations?

Not applicable.

What Settlement Duties Exist?

Not applicable, since insurer does not control defense.

What Actions May Result in a Claim for Bad Faith?

Statute: Tennessee’s bad faith statute, Tenn. Code Ann., § 56-7-105 provides for a claim for a bad faith denial of insurance coverage if an insured demonstrates: (1) that the insurance policy, by its terms, became due and payable; (2) that a formal demand for payment was made; (3) that the insured waited sixty days after making demand before filing suit; and (4) that the insurer’s refusal to pay was not in good faith. Williamson v. Aetna Life Ins. Co., 481 F. 3d 369 (6th Cir 2007). This statute has no application to a third party claims. Medley v. Cimmaron Ins. Co., 514 S.W.2d 426, 428 (Tenn. 1974).

Individual (non commercial) insureds may also pursue claim for unfair claims handling against insurer under the Tennessee Consumer Protection Act. Gaston v. Tennessee Farmers Mutual Insurance Company, 120 S.W.3d 815, 822 (Tenn. 2003).

Tennessee law does not recognize a general common law tort for bad faith by an insurer brought by an insured – the exclusive remedy for such conduct is statutory. Cracker Barrel Old Country Store, Inc. v. Cincinnati Ins. Co., 590 F. Supp. 2d (M.D. Tenn. 2008).

Are Attorney’s Fees Recoverable in Insurer-Insured Dispute?

Yes, under Tenn. Code Ann., § 56-7-105 allows a court to impose a penalty of up to twenty-five percent of an insurance company’s liability for loss to the holder of an insurance policy or fidelity bond if payment has not been made within sixty days after demand, the refusal to pay was not in good faith, and the failure to pay inflicted additional expense or injury upon the holder, including attorney’s fees. Tenn. Code Ann., Section 56-7-105; Ginn v. American Heritage Life Ins. Co., 173 S.W.3d 433, 442-443 (Tenn. Ct. App. 2004).

Yes, under the Tennessee Consumer Protection Act, if a court finds an insurer used or employed unfair or deceptive acts or practices in willful or knowing violation Act, the court may design an award of up to 300 percent of the claimant’s actual damages and also provides that the court may award such other relief as the court considers necessary and proper, most frequently attorneys’ fees. Tenn. Code Ann. §§. 47-18-101-125.

Are Punitive Damages Recoverable in Insurer-Insured Dispute?

Yes, under Tenn. Code Ann. § 56-7-105(a) but statute is penal in nature and must be strictly construed. Minton v. Tennessee Farmers Mut. Ins. Co., 832 S.W.2d 35, 38 (Tenn. App. 1992).

Yes, under the Tennessee Consumer Protection Act which allows of damages for purely punitive purposes. Tenn. Code Ann. § 47-18-109(a)(3 and 4). Smith Corona Corp. v. Pelikan, Inc. 784 F. Supp. 452 (M.D. Tenn. 1992).

Alternative Coverage Options

Insurer defending under reservation of rights not allowed to intervene for purpose of submitting special interrogatories to jury in order to resolve coverage issues, as it would create conflict of interest.  Frank Betz Associates, Inc. v. J.O. Clark Construction, L.L.C., 2010 U.S. Dist. LEXIS 55193 (M.D. Tenn. June 4, 2010).

Insurer may use declaratory action to determine its duty to defend, indemnify and all other coverage issues. Almany v. Nationwide Ins., 1987 WL 4745 (Tenn. App. 1987).

Relevant Statutes

Declaratory Judgment – Tenn. Code Ann. § 29-14-102.

“Courts of record, within their respective jurisdictions, shall have power to declare rights, status, and other legal relations, whether or not further relief is or could be claimed.  No action or proceeding shall be open to objection on the ground that a declaratory judgment or decree is prayed for relief. The declaration may be either affirmative or negative in form and effect; and such declarations shall have the force and effect of a final judgment or decree.”

Tennessee Consumer Protection Act – Tenn. Code Ann. § 47-18-109(a)(3) (see above).

Tennessee bad faith refusal penalty statute – Tenn. Code Ann., § 56-7-105 (see above).

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