Understanding Tennessee’s Bad Faith Statute: Protecting Policyholders Against Unfair Insurance Practices

Insurance policies are meant to provide security and peace of mind. But what happens when your insurance company denies a legitimate claim or delays payment unnecessarily? Tennessee has a legal safeguard to protect policyholders: the Bad Faith Statute, codified in Tennessee Code Annotated § 56-7-105. This statute ensures that insurance companies can be held accountable for unfair practices. Let’s explore how the statute works and what it means for you as a policyholder.

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What Is the Tennessee Bad Faith Statute?

The Tennessee Bad Faith Statute is designed to protect policyholders when their insurance company fails to act in good faith when handling claims. Under T.C.A. § 56-7-105, if an insurance company refuses to pay a valid claim within 60 days after a demand for payment has been made, the insured may recover additional damages if it is proven that the refusal was not made in good faith.

Specifically, the statute states:
> “The insurance company… shall be liable to pay the holder of the policy, in addition to the loss and interest thereon, a sum not exceeding 25% of 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.”

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Key Elements of a Bad Faith Claim in Tennessee

To successfully pursue a claim under T.C.A. § 56-7-105, the following elements must be established:

1. A Valid Insurance Policy Exists: The plaintiff must have an active and enforceable insurance policy with the defendant (the insurance company).
2. A Covered Loss Occurred: The claim must involve a loss that is covered under the terms of the policy.
3. Timely Demand Was Made: The policyholder must provide the insurance company with a formal, written demand for payment.
4. The Insurance Company Acted in Bad Faith: It must be proven that the insurer’s refusal to pay was more than a mere error or oversight. Bad faith implies an intentional or reckless disregard for the policyholder’s rights.
5. Failure to Pay Within 60 Days: The statute requires that the insurance company fail to pay the valid claim within 60 days of the demand for payment, unless there is a legitimate reason for the delay.

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What Is “Bad Faith” Under the Statute?

Bad faith occurs when an insurance company:

– Denies a claim without conducting a reasonable investigation.
– Refuses payment despite clear evidence of coverage.
– Delays payment as a tactic to pressure the policyholder into accepting less than they are owed.
– Provides no reasonable explanation for the denial or delay of the claim.

It is important to note that not all claim denials constitute bad faith. For example, an insurer may deny a claim based on an honest dispute over coverage or liability. However, if the denial is unreasonable or malicious, the statute allows the policyholder to seek additional damages.

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What Damages Are Recoverable Under T.C.A. § 56-7-105?

If a court or jury finds that an insurer acted in bad faith, the policyholder may recover up to 25% of the loss amount as a penalty in addition to the policy benefits owed. For example:

– If your covered loss is $100,000, and the insurer acted in bad faith, you could recover up to $25,000 in additional damages.
– The policyholder may also recover interest on the amount owed, along with court costs and attorney’s fees in some cases.

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Practical Tips for Pursuing a Bad Faith Claim

1. Document Everything: Keep a record of all correspondence with your insurer, including emails, letters, and phone call logs.
2. Make a Formal Demand: Submit a written demand for payment, clearly outlining the nature of your claim and the amount owed.
3. Understand Your Policy: Review your insurance policy to confirm coverage for the loss and ensure compliance with any requirements (e.g., deadlines for filing claims).
4. Consult an Attorney: Bad faith cases can be complex, and insurance companies have extensive legal resources. An experienced attorney can help you navigate the process and hold the insurer accountable.

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Why Choose Grimmett Law Firm, PLLC?

With nearly two decades of experience litigating bad faith and breach of contract cases against insurance companies, Grimmett Law Firm, PLLC, has a proven track record of helping policyholders secure the compensation they deserve. We understand the tactics insurers use to avoid paying claims, and we are relentless in fighting for justice on behalf of our clients.

If you believe your insurance company has acted in bad faith, don’t wait. Contact us today for a consultation to discuss your case.

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Contact Us
At Grimmett Law Firm, PLLC, we’re here to level the playing field against big insurance companies. Call us at (615) 933-8000 or visit us at our office in Franklin, TN, to schedule your consultation.