Elements of a Bad Faith Cause of Action in Tennessee

If you are a daily reader of our blog, you know that we discuss many of the latest developments in first party bad faith actions from jurisdictions across the nation. Today, I will discuss the requirements for asserting a successful claim for breach of the covenant of good faith and fair dealing in Tennessee.

The Supreme Court of Tennessee, in Johnson v. Tennessee Farmers Mut. Insurance Company,¹ explained that “bad faith in the insurance context is defined in part, as an insurer’s disregard or demonstrable indifference toward the interests of its insured.” This indifference may be proved circumstantially by facts that tend to show a willingness on the part of the insurer to gamble with the insured’s money in an attempt to save its own money, or by any intentional disregard of the financial interests of the insured in the hope of escaping full liability imposed upon it by the policy.

There are four essential elements to pleading an insurance bad faith cause of action under Tennessee law:²

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.

For the second element above, the demand must inform the insurance company that, if the disputed claim is not paid, the insured intends to assert a bad faith claim.³ The elements for a “formal demand” include:

• insurance company has opportunity to investigate insured’s claim of loss;
• insurance company is aware or has notice from insured of insured’s intent to assert bad-faith claim, if disputed claim is not paid; and
• 60 days expires after insured gives such notice before filing suit.⁴

It is important to note that the statute does not require a written demand, however, it is in the best interest of the policyholder to make the demand in writing because he or she may need to later prove that the formal demand was made 60 days before filing suit.⁵

¹ Johnson v. Tennessee Farmers Mut. Ins. Co., 205 S.W.3d 365, 370 (Tenn. 2006), (citing State Auto Ins. Co. of Columbus, Ohio v. Rowland, 221 Tenn. 421, 427 S.W.2d 30, 33 (1968)).
² Tenn. Code Ann. § 56-7-105, Bad faith refusal to pay.
³ Forrest Const., Inc. v. Cincinnati Ins. Co., 728 F. Supp. 2d 955 (M.D. Tenn. 2010).
⁴ Hampton v. Allstate Ins. Co., 48 F. Supp. 2d 739 (M.D. Tenn. 1999).
⁵ Hampton, supra.