The following section from Day on Torts Leading Cases in Tennessee Tort Law​​​ is out of date and should not be used. It remains a part of this site for historical purposes only. An updated version of the book is available by subscription at www.birddoglaw.com. (Additional information below.)

§10.1 Generally

The Case: Ginn v. American Heritage Life Ins. Co ., 173 S.W.3d 433 (Tenn. Ct. App. 2004), perm. appeal denied (Dec. 29, 2004).

The Basic Facts: Plaintiff bought a life insurance policy from a salesman who came to her work place, asking her only a few questions about Plaintiff’s and Plaintiff’s husband’s health before selling coverage. Plaintiff’s husband – who had a history of health problems – died shortly thereafter, and the insurance company refused to pay on the policy. Plaintiff then brought an action for breach of contract, bad faith refusal to pay, and Consumer Protection Act against insurer.

The Bottom Line:

  • “The statute upon which Plaintiff was awarded a 25% bad faith penalty is Tenn. Code Ann. § 56-7-105(a), which provides as follows:

    The insurance companies of this state ¼ in all cases when a loss occurs and they refuse to pay the loss within sixty (60) days after a demand has been made by the holder of the policy or fidelity bond on which the loss occurred, shall be liable to pay the holder of the policy or fidelity bond, in addition to the loss and interest thereon, a sum not exceeding twenty‑five percent (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 such 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 such 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.”

    173 S.W.3d at 442-43.
  • “Tenn. Code Ann. § 56-7-105(a) is penal in nature and must be strictly construed. See Stooksbury, 126 S.W.3d at 519 (citing Minton v. Tennessee Farmers Mut. Ins. Co., 832 S.W.2d 35, 38 (Tenn. Ct. App. 1992)). In order to recover bad faith penalties under this statute, a plaintiff must prove: ‘(1) the policy of insurance must, by its terms, have become due and payable, (2) a formal demand for payment must have been made, (3) the insured must have waited 60 days after making demand before filing suit (unless there was a refusal to pay prior to the expiration of the 60 days), and (4) the refusal to pay must not have been in good faith.’ Stooksbury, 126 S.W.3d at 519. The burden of proving that an insurance company acted in bad faith in refusing to pay a claim lies with Plaintiff herein. Id; see also Nelms v. Tennessee Farmers Mut. Ins. Co., 613 S.W.2d 481, 484 (Tenn. Ct. App. 1978). In Sisk v. Valley Forge Ins. Co., 640 S.W.2d 844 (Tenn. Ct. App. 1982), this Court explained that:

    The bad faith penalty is not recoverable in every refusal of an insurance company to pay a loss. An insurance company is entitled to rely upon available defenses and refuse payment if there is substantial legal grounds that the policy does not afford coverage for the alleged loss. If an insurance company unsuccessfully asserts a defense and the defense was made in good faith, the statute does not permit the (sic) imposing of the bad faith penalty.

    Sisk , 640 S.W.2d at 852 (emphasis in original) (quoting Nelms v. Tennessee Farmers Mutual Ins. Co., 613 S.W.2d 481, 484 (Tenn. Ct. App. 1978)).” Id. at 443.
  • “In our opinion, Defendants had substantial legal grounds supporting their position that Plaintiff materially misrepresented her husband to be in ‘basic good health’ when applying for the life insurance. This is readily apparent given Mr. Ginn’s troubled medical history. Defendants simply unsuccessfully asserted the misrepresentation defense. We find no material evidence whatsoever to support the jury’s conclusion that this defense was asserted in bad faith. Accordingly, we reverse the judgment of the Trial Court insofar as it awards Plaintiff a bad faith penalty of 25%. See Stooksbury, 126 S.W.3d at 519 (reversing a 25% bad faith penalty after concluding the defendant had substantial legal grounds supporting its position that the plaintiffs’ insurance coverage had been cancelled prior to the date of loss). See also Sisk v. Valley Forge Ins. Co., 640 S.W.2d 844, 852 (Tenn. Ct. App. 1982) (“There were substantial legal grounds, though not sustained, for the insurer to defend herein. Therefore, we believe the finding of bad faith must be overturned.”); Nelms v. Tennessee Farmers Mutual Ins. Co, 613 S.W.2d 481, 484 (Tenn. Ct. App. 1978) (reversing the jury’s award of a 25% bad faith penalty after concluding there were “valid reasons for the insurance company to question the loss. Further, we think the insurance company honestly and in good faith believed ¼ its policy was not liable for the loss. For the above reasons we think there is no material evidence to support a finding of bad faith and the invoking of the statutory penalty.”).” Id. at 443-44.

Other Sources of Note: Gaston v. Tennessee Farmers Mutual Insurance Company , 120 S.W.3d 815 (Tenn. 2003), reh’g denied, (Jan. 5, 2004) (concluding that policy holder may pursue cause of action against his/her insurance company under the Tennessee Consumer Protection Act for unfair or deceptive conduct).

Recent Cases:

PacTech, Inc. v. Auto-Owners Insurance Co. , 292 S.W.3d 1 (Tenn. Ct. App. Sept. 22, 2008), perm. appeal denied, (Apr. 27, 2009) (holding statutory bad faith penalty not recoverable absent a formal demand for payment).


After an accident, many injury victims and their families want more information on the accident and their legal rights. Consequently, many of them have found their way to these pages. While we are happy you are here, please understand Day on Torts: Leading Cases in Tennessee Tort Law was written to be a quick, invaluable reference for Tennessee tort lawyers. While the book provides the leading case for more than 300 tort law subjects and thousands of related case citations, it is not a substitute for personalized legal advice from a qualified lawyer.

Rather than researching these legal issues alone, we urge you to contact one of our award-winning lawyers who can sit down with you, review your case, answer your questions and clearly explain your rights and your options in a no-cost, no-obligation consultation. Our experienced attorneys handle all personal injury and wrongful death cases on a contingency basis, so we only get paid if we win. If for any reason you are unable to come to our office, we will gladly come to you.

To schedule an appointment, contact us online or call us at 615-742-4880 or toll-free at 866.812.8787.


The foregoing is an excerpt from Day on Torts: Leading Cases in Tennessee Tort Law, published by John A. Day, Civil Trial Specialist, Fellow in the American College of Trial Lawyers, recipient of Best Lawyers in America recognition, Martindale-Hubbell AV® Preeminent™ rated attorney, and Top 100 Tennessee Mid-South Super Lawyers designee. Read John’s full bio here.

The book is now available electronically by subscription at www.birddoglaw.com. The new format allows us to keep the book current as new opinions are released. BirdDog Law also has John's Tennessee Law of Civil Trial and Compendium of Tennessee Tort Reform Statutes available by subscription, as well as multiple free resources to help Tennessee lawyers serve their clients

Client Reviews

So let us start out with this - the few firms we contacted prior to John Days Office were not even willing to listen to the situation and circumstances surrounding the...

David H.

The Law Offices of John Day have been exceptional to work with on my case. I have worked primarily with Thomas Mihalezo and his para-legal, Natalie Primm, for the bulk of...

Deb D.

A year ago, I was involved in a car accident that was not my fault. The Law Office of John Day was referred to me by another attorney. Rachael Booker and Vada Newman were...

Jeffery B.

Other attorneys said my case was too difficult under Tennessee law. John Day's office had confidence and took the case. I received a significant settlement in ~ 6 months...

Jonny

From my initial call with Penny to my numerous communications with Rachel, the professionalism, efficiency, and compassionate way in which my case was handled was the...

Lisa C.

I love the law office of John Day. They treat you with respect, you feel like a family to them. They take time not only to listen to your case also they make you feel...

Reginald P.

I would give John Day Law ten stars if I could. They started working with me the very day they agreed to take my case and whether I was working with an attorney or one of...

Sandra C.

I definitely recommend the staff at The Law Offices of John Day! Not once did we have to call to inquire if they were working on our case. Alexandria and Natalie were...

Tracey J.

Everything was great. You guys are a great representative. I was satisfied with everything. Truly appreciate John Day and his hard-working staff.

Jamar Gibson

We thought that you did an excellent job in representing us in our lawsuit. We would recommend you to anyone.

Mitch Deese

The Law Offices of John Day, P.C. is, without a doubt, the best in Nashville! They treated me with the utmost respect and tended to my every need. No question went...

Anthony Santiago

I would definitely recommend to anyone to hire John Day's law firm because everyone was helpful, made everything clear and got the job done. I am satisfied with how my...

June Keomahavong

It's been a long battle but this firm has been very efficient and has done a remarkable job for me! I highly recommend them to anyone needing legal assistance. Everyone...

Linda Bush

I had a great experience with the Law Offices of John Day. The staff was very accommodating, and my phone calls/emails were always responded to in a timely manner. They...

Casey Hutchinson

The office stuffs of John Day law firm made my injury case with State Farm stress free. They were very professional and respectful. My attorney was accessible anytime I...

Margaret

Contact Us

Fill out the contact form or call us at 615-742-4880 or 615-867-9900 to schedule your free consultation.

Leave Us a Message