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Tennessee Court of Appeals Affirms Bad Faith Penalty Against Insurance Company, Modifies $127,500 Award Upward by $4,000 to Reflect Policy Limits on Loss of Residence

Sometimes, it’s hard to understand why insurance companies do the things they do; other times, it’s just plain impossible. For example, why would an insurance company refuse to pay more than $2,000 to a family who lost their home and all of their possessions when they were insured for over $100,000?

The trial court in a recent case asked that same question. Not being satisfied with the insurance company’s answer, the court ordered the insurance company to pay not only the amount due under the policy but also interest and a bad faith penalty.

Facts of the Case

In a recent case, the plaintiffs were homeowners who filed suit against the defendant insurance company, seeking to recover proceeds under a mobile homeowner’s insurance policy following a fire that burned their mobile home to the ground and destroyed all of their personal property except a single basket of laundry. The defendant advanced $2,000 on the personal property claim so that the plaintiffs could purchase school clothes for their five children but otherwise failed to pay anything to the plaintiffs under the policy or explain its refusal to do so.

Almost a year after the fire, the plaintiffs filed suit in the Circuit Court for Grundy County, seeking to recover $69,000 for the “face amount” of the policy coverage for the residence, $34,500 as the limit on coverage for personal property (minus $2,000 for the advanced payment for school clothing), and $13,800 for additional living expenses. They also sought prejudgment interest, attorney’s fees, and a “bad faith penalty” as set forth at Tennessee Code Annotated § 56-7-105.

The trial court ruled in the plaintiffs’ favor and awarded them $127,500, which included $65,000 for their residence, $34,500 for their personal property, $500 for additional living expenses, 10% prejudgment interest, and a 15% bad faith penalty.

The Court of Appeals’ Decision

The appellate court modified the circuit court’s decision to award the plaintiffs an additional $4,000 for the loss of their residence but otherwise affirmed the trial court’s order. With regard to the value of the plaintiffs’ loss of residence claim, the court held that it should be increased to the full value of their coverage for such a loss – $69,000; in so holding, the court noted that not only did all of the witnesses place the claim above the value ordered by the court, but also even the tax records indicated that the home was worth in excess of $84,000.

As to the bad faith penalty, the court noted that an insurance company’s failure to pay a claim does not always result in a penalty, but a penalty was warranted in this case due to the insurance company’s bad faith in refusing to pay what was owed to the plaintiffs for the loss of their home and other property. The court declined to increase the penalty to the statutory maximum of 25%, observing that the 15% penalty was very close to the amount the plaintiffs had expended in attorney fees in the case.

An Experienced Knoxville Injury Attorney Here to Help

Is an insurance company giving you the run-around instead of offering a fair settlement of your case? Knowledgeable Knoxville fire accident attorney Mark Hartsoe at the Hartsoe Law Firm, P.C. can help you demand the justice you deserve. For a free consultation, call us at 865-524-5657. We serve all of east Tennessee, including Oak Ridge, Maryville, and Sevierville.

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