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Littleton v. TIS Insurance Services, Inc.

Court of Appeals of Tennessee, Knoxville

February 3, 2015

JOY LITTLETON, ET AL.
v.
TIS INSURANCE SERVICES, INC.

Session Date October 28, 2014

Appeal from the Circuit Court for Knox County No. C-11-034211 Deborah Stevens, Judge

Robert B. Littleton, Nashville, Tennessee, and Robert R. Kurtz, Knoxville, Tennessee, for the appellants, Joy Littleton, Grayling Littleton, and Will Allen Hildreth, as assignees of Merit Construction, Inc.

Barry L. Howard, Nashville, Tennessee, for the appellee, TIS Insurance Services, Inc.

John W. McClarty, J., delivered the opinion of the Court, in which Thomas R. Frierson, II, J., and Norma McGee Ogle, Sp. J., joined.

OPINION

JOHN W. McCLARTY, JUDGE

I. BACKGROUND

The plaintiffs, Joy Littleton, Grayling Littleton, and Will Allen Hildreth ("the Assignees") were assigned a judgment and settlement order obtained by JAG Properties, LLC ("JAG") against Merit Construction, Inc. ("Merit"). The current action arises as a result of a prior lawsuit, JAG Properties, LLC v. Merit Construction, Inc., d/b/a Merit Construction, et al., No. 10296, Chancery Court of Loudon County, Tennessee ("the Merit Litigation"). The Merit Litigation arose out of a contract between JAG and Merit for the construction of a Holiday Inn Express hotel in Loudon, Tennessee. The litigation concerned claims by JAG of property damage to the hotel as a result of the negligent acts or omissions of Merit, the project architect, various subcontractors, and others in the construction of the hotel. A settlement agreement was entered into on October 19, 2004, by JAG and Merit for $3.9 million dollars. As a result of the settlement agreement, Merit consented to the entry of a judgment against it for $3.9 million and assigned to JAG all rights, causes of action, and other claims that Merit had or might have against Merit's insurers, Merit's broker, and Merit's agents arising from or in connection with the dispute between Merit and its insurers, broker, or agent. The judgment was entered on November 1, 2004.

The exact language of the covenant not to execute on the judgment is as follows:

6. Upon entry of the consent judgment, JAG agrees not to execute against any assets (other than applicable insurance) of Merit or its successors and/or assigns in exchange for the assignment of all rights, claims, causes of action and demands that Merit has or might have against insurers that have provided policies of insurance that may provide coverage for the damages claimed in this action, as well as all other rights, causes of action and other claims that Merit has or might have against Highlands, AH, and Broker, their agents and representatives, and any other parties including those employed or hired by, acting in concert with or under the direction of Highlands, AH, and Broker, arising from or in connection with the Dispute and/or Litigation ("Merit Action") including but not limited to claims for the wrongful denial of coverage, violation of the Tennessee Consumer Protection Act, bad faith statute, common law bad faith, breach of contract, together with any other legal, equitable or contractual rights that Merit possesses or may possess against such parties arising from or in connection with the Merit Action. To the best of its knowledge, Merit was not presented with, and has not executed, any written acknowledgment or disclosure from Broker regarding the financial condition of Highlands and/or the risk associated with same at the time Broker placed Merit's primary and excess liability coverage with Highlands.

The settlement agreement further provides as follows:

11. It is expressly understood and agreed by all parties to this consent judgment that the terms and provisions outlined herein shall not release or in any way be deemed or interpreted to release Merit, Highlands, AH, Broker and/or any other insurer that has issued a policy of insurance that may provide coverage for damages claimed in this action.

The final judgment references the settlement agreement between JAG and Merit and the covenant not to execute on the judgment as follows:

Whereas, Merit and JAG seek to conclude the Litigation and have entered into a settlement dated October 19 [handwritten in original], 2004 (the "Settlement Agreement") pursuant to which Merit has consented to the entry of a judgment against it and JAG has agreed to ...

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