Westfield Insurance Company v. RLP Partners, LLC et al

Filing 40

MEMORANDUM. Signed by District Judge Kevin H. Sharp on 5/30/13. (DOCKET TEXT SUMMARY ONLY-ATTORNEYS MUST OPEN THE PDF AND READ THE ORDER.)(dt)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION
WESTFIELD INSURANCE COMPANY,

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Plaintiff,
v.
RLP PARTNERS, LLC and FIRSTCITIZENS BANK & TRUST COMPANY
d/b/a FIRST CITIZENS,
Defendants.

No. 3:13-00106
Judge Sharp

MEMORANDUM
For almost thirty years, the law in Tennessee has been that there does not exist a common
law cause of action against an insurer for bad faith, and neither recent enactments by the state
legislature, nor persuasive rulings by the courts have changed that law. Accordingly, Plaintiff
Westfield Insurance Company’s Motion to Dismiss (Docket No. 26) Defendant RLP Partners, LLC’s
counterclaims for common law bad faith, punitive damages and consequential and incidental
damages will be granted.
I.
According to the allegations in the pleadings, RLP Partners operated a Quality Inn and
Suites located on Brick Church Pike in Nashville, Tennessee that was insured by Westfield. On
March 2, 2012, the roof of the hotel began leaking, allegedly causing extensive damage. On March
21, 2012, Westfield issued RLP Partners a conditional advance payment of $50,000 towards the loss.
Subsequently, Westfield allegedly determined that the loss was a result of the intentional cutting and
tearing of a roof membrane by a member of RLP Partners and/or at the direction of one of its

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members, so as to defraud Westfield. As a consequence, Westfield filed suit in this Court seeking
to recoup the $50,000 paid, and a declaration that it is not required to pay any more on the loss.
RLP Partners denies the allegations in the Complaint and claims that the loss was attributable
to a “severe weather event” that included “severe winds, large hail, and heavy rainfall” that damaged
the hotel. It has filed counterclaims for breach of contract and common law bad faith. (Docket No.
21 at 6 ¶ 9). With regard to bad faith, RLP alleges, among other things, that Westfield failed to pay
or refused to pay within a reasonable time after the claim was submitted; failed to attempt in good
faith to promptly and equitably settle the claim when liability was clear; failed to reasonably
investigate the claim; failed to provide an accurate explanation for denial of the claim, and engaged
“in acts and practices toward RLP Partners that amount to acts of baseness, vileness, and/or
depravity that are contrary to the good faith duties owed to RLP Partners.” (Id. at 10 ¶ 31). RLP
Partners seeks compensatory damages of not more than $2.7 million, and punitive damages of nine
times that amount, or not more than $24.7 million.
II.
In Chandler v. Prudential Ins. Co., 715 S.W.2d 615 (Tenn. App. 1986), the Tennessee Court
of Appeals was presented with the then-novel question of whether “the tort of bad faith exists in
Tennessee insofar as an action between an insured and its insurer is concerned.” Id. at 619.
Acknowledging that the law varied in other states, the court held that there was no such cause of
action under Tennessee law. In doing so, the court observed that “the insurance industry is one of
the most highly regulated industries in this state,” with “one entire volume of Tennessee Code
Annotated . . . devoted to the topic ‘Insurance,’” including “what has come to be known as ‘the ‘bad
faith penalty statute’” which provides “that in all cases, when a loss occurs and demand is properly

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made by the policyholder, if an insurance company refuses to pay, it shall be liable not only for the
amount of the loss, but also for a sum not exceeding twenty-five percent thereof.” Id. at 619 & 622
(italics in original) (quoting, Tenn. Code Ann. § 56-7-105). According to the court, “the phrases ‘in
all cases’ and ‘exclusive remedy’ denote the same degree of exclusiveness,” and, as a consequence,
there is no basis for concluding that a common law bad faith action against an insurer also exists.
Id. at 622.
In the 27 years since Chandler was decided, neither the Tennessee Court of Appeals “nor the
Tennessee Supreme Court has overruled or even questioned the continuing validity of Chandler,”
nor has either court “explicitly recognized a tort based upon an insurer’s bad faith in situations
covered by the bad faith penalty statute.” Leverette v. Tennessee Farmers Mut. Ins. Co., 2013 WL
817230 at *18 (Tenn. Ct. App. Mar. 4, 2013). Quite the contrary, the Tennessee Court of Appeals
has repeatedly confirmed Chandler’s holding, just recently in Leverette, and also in cases like Warty
v. Allstate Prop. & Caus. Ins. Co., 2011 WL 691802 at *4 (Tenn. Ct. App. Dec. 28, 2011), and Fred
Simmons Trucking, Inc. v. U.S. Fidelity & Guar. Co., 2004 WL 2709262 at *3 (Tenn. Ct. App. Nov.
29, 2004). Federal courts applying Tennessee law, too, have confirmed that Chandler is the law in
this state, including the Sixth Circuit in Persian Galleries, Inc. v. Transcon. Ins. Co., 38 F.3d 253,
259 (6th Cir. 1994), the Eastern District of Tennessee in Bowery v. Berkshire Life Ins. Co., 2013 WL
1497339 at *8 (E.D. Tenn. April 11, 2013), and this District in Cracker Barrel Old Country Store,
Inc. v. Cincinnati Ins. Co., 590 F. Supp. 2d 970, 973 (M.D. Tenn. 2008).
Notwithstanding this authority, RPL Partners argues that there is a plausible bad faith claim
under Tennessee common law because such “a cause of action was recognized by the Tennessee
legislature in 2011 and by the Tennessee Court of Appeals in 2012.” (Docket No. 28 at 4). RPL

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Partners is mistaken.
With regard to the legislative enactment in 2011, RPL Partners relies upon Tenn. Code Ann.
§ 56-8-113 which it claims “makes crystal clear that common law remedies are available to a
consumer in addition to the statutory bad faith penalty[.]” (Id. at 6). That subsection is a part of
Title 56 – the “Unfair Trade Practice and Unfair Claims Settlement Act” – and does not provide for
a private cause of action, but gives the Insurance Commissioner certain authority “to regulate trade
and claims settlement practice in the business of insurance.” Tenn. Code Ann. § 56-8-101(b). The
Title concludes with the following:
Notwithstanding any other law, title 50 and this title shall provide the sole and
exclusive statutory remedies and sanctions applicable to an insurer, person, or entity
licensed, permitted, or authorized to do business under this title for alleged breach
of, or for alleged unfair or deceptive acts or practices in connection with, a contract
of insurance as such term is defined in § 56-7-101(a). Nothing in this section shall
be construed to eliminate or otherwise affect any:
(1) Remedy, cause of action, right to relief or sanction available
under common law;
(2) Right to declaratory, injunctive or equitable relief, whether
provided under title 29 or the Tennessee Rules of Civil Procedure; or
(3) Statutory remedy, cause of action, right to relief or sanction
referenced in title 50 or this title.
Tenn. Code Ann. § 56-8-113.
Latching onto the language about the Act not barring any remedy or cause of action under
common law, RPL Partners insist this must mean that the intention of the legislature was to allow
a common law cause of action for bad faith. That can hardly be gleaned from the statute because
it only says that “available” state common law remedies are not limited, and a bad faith cause of
action against an insurer for failure to pay has not been an available cause of action in this state for

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more than a quarter of a century. Common law causes of action against an insurer (such as breach
of contract) may exist, but bad faith is not among them.
Like desperados under the eaves, RPL Partners overreaches when it claims that the
Tennessee Supreme Court in Myint v. Allstate, 970 F.2d 920 (Tenn. 1998) “rejected the argument
that the bad faith statute was a policyholder's exclusive remedy,” (Docket No. 28 at 6), and
extrapolates from that language the proposition that an insured may bring a bad faith claim under
the common law based upon the insurer’s refusal to pay. A common law bad faith claim was not
even addressed in Myint. Rather, all that was at issue in Myint was the interplay between statutory
remedies, and, particularly, whether an insured could bring a claim under the Tennessee Consumer
Protection Act, with the Tennessee Supreme Court holding:
Therefore, the mere existence of comprehensive insurance regulations does
not prevent the Consumer Protection Act from also applying to the acts or practices
of an insurance company. In this context, the legislature has enacted a trilogy of
statutes which, on their faces, apply to unfair and deceptive insurance trade acts and
practices. We consider the Insurance Trade Practices Act, the bad faith statute, and
the Consumer Protection Act as complementary legislation that accomplishes
different purposes, and we conclude, accordingly, that the acts and practices of
insurance companies are generally subject to the application of all three.
Myint, 970 S.W.2d at 926. Myint no more acknowledges or endorses a common law bad faith cause
of action than Tenn. Code Ann. 56-8-113 does.
Moreover, RPL Partners fails to even acknowledge that Myint has been superceded by
statute, to wit, Tenn Code Ann. § 56-8-113. See, Davidoff v. Progressive Hawaii Ins. Co., 2013 WL
124353 at *1 (M.D. Tenn. Jan. 9, 2013) (Myint “was effectively overruled on April 29, 2011 with
the enactment of Tenn. Code § 56-8-113"). And it fails to recognize that cases like Leverette,
Bowery, Cracker Barrel, Warty, and Fred Simmons Trucking were all decided after Myint.
RPL Partners also relies upon U.S. Bank v. Tennessee Farmers Mut. Ins. Co., 2012 WL
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5985097 (Tenn. Ct. App. Nov. 29, 2012) which at least obliquely supports its position because the
court framed one of the issues as being “[w]hether the trial court erred by concluding that Tennessee
recognizes a common law cause of action for bad faith in failing to settle a claim within the limits
of the insurance policy[.]’” Id. at *4. While the trial court found that the plaintiff had established
such a claim by a preponderance of the evidence, the appellate court “respectfully disagree[d] with
the trial court’s conclusion that [the insurer’s] interpretation of the policy throughout the litigation
amounted to bad faith and an unfair act or practice under the TCPA.” Id. at *8. This is hardly a clear
holding that a common law bad faith claim exists, and cases both pre- and post- U.S. Bank explicitly
and directly hold otherwise.
RPL Partners concedes that if there is no common law claim for bad faith, then punitive
damages would not be available on that claim, but argues that it can recover punitive damages under
its breach of contract claim. However, where the bad faith penalty statute applies punitive damages
are not available. See, Heil Co. v. Evanston Ins. Co., 690 F.3d 722, 728 (6th Cir. 2012) (internal
citation omitted) (“Tennessee does permit a plaintiff to recover punitive damages for breach of
contract, when he or she shows ‘fraud, malice, gross negligence, or oppression,’ . . . [b]ut Tenn.
Code Ann. § 56–7–105 precludes punitive damages here because it provides the exclusive
extracontractual remedy for an insurer's bad faith refusal to pay on a policy”); Davidoff, 2013 WL
124353 at *2 (insured could not recover punitive damages under a breach of contract theory because
such a request “is barred by Tenn. Code Ann. § 56–7–105”); Fred Simmons Trucking, 2004 WL
2709262 at *5 (“Punitive damages are inappropriate in a case such as this because the statutory
penalty is applicable, and also because such damages are not generally awarded in cases of breach
of contract”).

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Finally, with regard to consequential and incidental damages, RPL Partners’ only argument
opposing dismissal is that the cases relied upon by Westfield, Persian Galleries and Rice v. Van
Wagoner Companies, Inc., 738 F. Supp. 252 (M.D. Tenn. 1990) “are pre-Myint cases.” (Docket No.
28 at 10). As already explained, however, Myint has been abrogated by statute and, in any event,
does not stand for the proposition that an insured can bring a common law bad faith claim against
an insurer, let alone recover incidental and consequential damages through such a common law
claim.
III. CONCLUSION
Based upon the foregoing, RLP Partners, LLC’s counterclaims for common law bad faith,
punitive damages, and consequential and incidental damages will be dismissed.
An appropriate Order will be entered.

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KEVIN H. SHARP
UNITED STATES DISTRICT JUDGE

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