Judge Rules that Failure to Provide Notice to Insurers of Bank Means No Coverage

By Clint Scott | August 1, 2017

Judge Rules that Failure to Provide Notice to Insurers of Bank Means No CoverageIf you ever wanted to see an illustration of the how the vagaries of insurance terminology can be used against even large companies, look no further than a recent ruling against First Tennessee Bank. In order to understand why that ruling matters to policyholders, we need to look at the original case against the bank.

It began 2012, when the US Department of Housing and Urban Development initiated an investigation into First Tennessee Bank’s lending practices under the Fair Housing Act. This exploration proceeded for a year, and in 2013 it became clear that First Tennessee Bank was in violation, and liable for up to $1.19 billion in damages. During this period, the bank had its own Errors and Omissions insurance policies in place, as well as no fewer than seven redundant policies for the same coverage.

By 2014, the US Department of Justice made First Tennessee Bank an oral settlement offer of $610 million, later confirmed via email. Through counter offers and various proposals, in 2015, First Tennessee reached a settlement agreement for $212.5 million. At this point, the insurers who covered First Tennessee Bank’s Errors and Omissions policy would be expected to pay the full amount.

However, during the period when it became clear that damages would need to be paid, First Tennessee Bank informed its insurers only in vague terms. The insurers, having not been officially or fully notified in a timely fashion of the potential claim, declined to pay the damages First Tennessee Bank now owed, leading to the present suit.

The results all come down to paperwork and timing

The case at hand thus hinged on what a “claim” actually was, whether the First Tennessee Bank’s notice met that definition, and whether that notice or the future claim met the time requirements set out in the Errors and Omissions policy in order to assure payment. The judge ruled that while First Tennessee Bank did send a notification, it was too vague to constitute actual notice of an impending or current claim and thus the bank’s insurers did not have to pay on the policy.

While these types of disputes may be more familiar between insurance companies and individual policyholders, seeing how the same factors play out on a corporate scale can help consumers better understand their rights and responsibilities as policyholders. (Or, at the very least, let you know that you are not alone when it comes to being denied a claim.) The takeaway lesson is that timeliness of notification of insurance claims is a potential issue, no matter if the client is an individual or a large business. However, when a policyholder has properly submitted a claim and faces rejection or lack of payment, legal assistance may be needed.

McWherter Scott & Bobbitt provides counsel to families who have been denied or had their insurance claims unnecessarily delayed. To speak with an experienced Tennessee insurance lawyer such as Clint Scott, Brandon McWherter or Jonathan Bobbitt, please call 731-664-1340, or fill out our contact form. We maintain offices in Nashville, Chattanooga, Memphis, Jackson and Knoxville.

Posted in Insurance Disputes