Making a Claim of Bad Faith against Your Insurer in Tennessee

Making a Claim of Bad Faith against Your Insurer in TennesseeWhen you purchase an insurance policy – homeowners, auto, commercial, etc. – you do so assuming that your insurance company will act in good faith and honor the claims you make, provided that claim is covered by the policies you have bought. When an insurer deliberately denies a claim for unjust reasons, you may be able to pursue a bad faith action.

We have discussed types of bad faith actions before, so now we would like to break down what the law says. You can read the statute in its entirety here, but this is what you need to know:

  1. The insurer has 60 days from when you, as the policyholder, have made a demand for payment on your covered loss to pay that claim. Unless the insurer refuses to pay the claim within that time, you cannot file a lawsuit for bad faith before that 60 days has passed.
  2. There must be a formal demand for payment. There has been a ton of litigation over the years concerning what constitutes “formal demand.” The best practice is to simply advise the insurer, in writing, of your intent to pursue a claim for bad faith if the claim is not appropriately and timely paid. Documenting this demand will help avoid future problems.
  3. The reason for the denial of payment must have occurred in bad faith. If your claim is denied because of a valid reason – like lack of coverage, for example – then you cannot pursue a bad faith action. However, an insurer’s unreasonable coverage denial can be bad faith if its interpretation of the policy is clearly flawed.

As insurance dispute lawyers, we handle bad faith actions regularly. We review claims weekly to help our clients determine if their claim has been denied or underpaid in bad faith. We also handle formal demands, to ensure that they are done correctly and in a timely fashion.

Compensation for a bad faith claim

Generally speaking, a successful bad faith action will allow a policyholder to recoup his or her losses, as well as compensation worth up to 25% “on the liability for the loss; provided, that it is made to appear to the court or jury trying the case that the refusal to pay the loss was not in good faith, and that the failure to pay inflicted additional expense, loss, or injury including attorney fees upon the holder of the policy or fidelity bond; and provided, further, that the additional liability, within the limit prescribed, shall, in the discretion of the court or jury trying the case, be measured by the additional expense, loss, and injury including attorney fees thus entailed.”

Policyholders in Tennessee may have additional recourse for punitive damages in some instances. Specifically, if an insurance company’s breach of its obligations under an insurance policy are “intentional, malicious, reckless, or malicious,” then the jury may award punitive damages. Importantly, punitive damages are not limited to 25% of the claim like the bad faith statute. See Carroll v. Nationwide Property & Casualty Company, 2015 U.S. Dist. LEXIS 73674 (W.D. Tenn. June 8, 2015).

If you are unsure whether your insurance company has acted in bad faith, it is time to turn to McWherter Scott & Bobbitt. Brandon McWherter and Clint Scott help Tennessee policyholders recover what is theirs when the insurance company unfairly denies their claims. To speak with a skilled insurance dispute attorney about your case, please call 731-664-1340 or fill out our contact form. We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville for the convenience of our clients throughout the state.