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Burge v. Farmers Mutual of Tennessee

Court of Appeals of Tennessee, Nashville

April 13, 2017


          Session March 22, 2017

         Direct Appeal from the Circuit Court for Grundy County No. 8650 Justin C. Angel, Judge

         This appeal involves an insurer's refusal to pay a claim for a fire loss. The trial court granted summary judgment in favor of the plaintiffs on the issue of liability and held a bench trial on the issue of damages only. The trial court ultimately awarded the plaintiffs $127, 500 for their covered losses, prejudgment interest, and a statutory penalty because the insurer's refusal to pay the claim was not in good faith. On appeal, the insurer argues that the plaintiffs are not entitled to any recovery because they failed to sufficiently prove their damages. The insurer also contends that it did not act in bad faith because it had substantial legal grounds for denying the claim. The plaintiffs argue that the trial court should have awarded additional damages. We conclude that the trial court should have awarded $4, 000 in additional damages for the loss of the residence but otherwise affirm the trial court's judgment as modified.

         Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed as Modified and Remanded

          Christopher Dunn Heagerty, Knoxville, Tennessee, for the appellant, Farmers Mutual of Tennessee.

          Russell Anne Swafford, Dunlap, Tennessee, for the appellees, Brandi Burge, Daniel Layne, and Sharon Layne.

          Brandon O. Gibson, J., delivered the opinion of the court, in which J. Steven Stafford, P.J., W.S., and Kenny Armstrong, J., joined.



         I. Facts & Procedural History

         Brandi Burge resided in a mobile home in Grundy County with her husband and five children. Mrs. Burge's parents purchased the mobile home from a mobile home dealer in 2008, when it was newly manufactured, and sited the home on their family farm for Mrs. Burge and her family. On July 10, 2013, the mobile home caught fire. The local fire department responded and attempted to extinguish the fire, but it reignited and eventually burned the home to the ground. No walls remained standing, and nothing was salvageable. The only thing saved during the fire was one basket of laundry.

         Mrs. Burge maintained a mobile homeowner's insurance policy with Farmers Mutual of Tennessee ("Insurer"). The policy provided coverage for direct physical loss or damage to the mobile home and her personal property because of fire. As co-owners of the mobile home, Mrs. Burge's parents, Sharon and Daniel Layne, were listed as additional insureds on the policy.

         The day after the fire, Sharon Layne contacted their local insurance agency to report the fire. Mrs. Burge and Mrs. Layne maintained contact with their local agency and Insurer over the next few months, submitting numerous documents and participating in an examination under oath as requested by Insurer. Mrs. Burge and her family could not afford to rent another home while continuing to pay the promissory note on their burned mobile home. As a result, the Burge family moved into the home of Mr. and Mrs. Layne, intending to stay until the matter was settled.

         In August 2013, Insurer granted Mrs. Layne's request for a $2, 000 "advance" on the personal property claim in order to purchase school clothing for the children. Aside from that payment, however, Insurer failed to meet the demands for payment under the policy without any response or explanation as to why it failed or refused to pay.

         On July 7, 2014, almost one year after the fire occurred, Mrs. Burge and Mr. and Mrs. Layne (collectively "Plaintiffs") jointly filed this lawsuit against Insurer. They sought to recover $69, 000 for the "face amount" of the policy coverage for the residence, $34, 500 as the limit on coverage for personal property (minus $2, 000 for the advanced payment for school clothing), and $13, 800 for additional living expenses, in addition to prejudgment interest, attorney's fees, and the statutory "bad faith penalty" set forth at Tennessee Code Annotated section 56-7-105.

         In its answer, Insurer admitted that Plaintiffs sustained a fire loss to their mobile home and its contents on July 10, 2013. It admitted that the home and contents were covered by a casualty insurance policy provided by Insurer. It also acknowledged receiving Plaintiffs' demand for payment pursuant to the policy. However, Insurer claimed that it had "significant legal grounds for failing to pay" the claim. Specifically, Insurer asserted that "Plaintiffs made material misrepresentations in their application for insurance" in 2008. Insurer did not specify what type of misrepresentation was allegedly made but suggested that the policy was subject to being declared void ab initio and that Plaintiffs were not entitled to any recovery under the policy.

         The circuit court judge retired shortly after Insurer's answer was filed, effective September 1, 2014, and the case was transferred to a new circuit judge in July 2015. In the meantime, in November 2014, Plaintiffs propounded discovery requests to Insurer, and Insurer failed to respond to the discovery for a period of six months. After a motion to compel and subsequent order were filed with the court, Insurer finally responded in May 2015. At that time, it disclosed, for the first time, that it denied the existence of coverage for Plaintiffs' claim based on an alleged failure to disclose on the application for insurance the existence of "multiple mortgages on the property."

         In August 2015, Plaintiffs filed a motion for summary judgment, asserting that no genuine issue of material fact existed with regard to Insurer's defense regarding the existence of multiple mortgages. Plaintiffs submitted affidavits and exhibits in an attempt to demonstrate that the mobile home was only encumbered by one mortgage. Insurer filed a response and asked the court to enter summary judgment in its favor. Insurer insisted that "the insured property was encumbered by two (2) mortgages at the time the application for insurance was submitted" and that "Plaintiffs did not disclose both mortgages to [Insurer] in their application."

         On April 18, 2016, the trial court entered an order granting summary judgment to Plaintiffs and denying Insurer's request for summary judgment. The trial court found that there was only one lien holder on the mobile home and that the bank that held that lien was specifically listed on the Plaintiffs' insurance application. Therefore, the court held, "there was no misrepresentation or failure to disclose by Plaintiff[s] to Defendant" in the application for insurance.

         On May 19, 2016, a bench trial was held on the issue of damages. The only witnesses to testify were Plaintiffs (Mrs. Burge and Mr. and Mrs. Layne) and their real estate valuation expert. Insurer cross-examined three of Plaintiffs' witnesses but presented no witnesses of its own. The trial court found that Plaintiffs and their expert were all credible witnesses. It found that Plaintiffs had cooperated with Insurer "throughout this process" and fulfilled all of their obligations. Ultimately, the trial court awarded Plaintiffs $65, 000 for the value of the residence at the time of the fire, which was less than the coverage limit of $69, 000 that Plaintiffs sought to recover. The trial court awarded Plaintiffs $34, 500 for the loss of personal property, which was the policy limit they requested. The court awarded $2, 500 for additional living expenses (minus the $2, 000 advance already paid), which was also less than the policy limit of $13, 800 that Plaintiffs sought to recover for additional living expenses. The trial court awarded prejudgment interest at the rate of ten percent and imposed a statutory bad faith penalty of fifteen percent, noting Insurer's delays, its failure to pursue its claimed defense in an efficient manner, and the "harsh and rude treatment" Plaintiffs received from Insurer's adjuster and company representative when they sought information from him. All things considered, Plaintiffs were awarded a total judgment of $127, 500. Insurer timely filed a notice of appeal.

         II. Issues Presented

         Insurer presents the following issues for review, as slightly reworded, on appeal:

1. Whether the trial court erred in entering judgment for Plaintiffs for the loss sustained to the mobile home when there was no competent proof to support such an award.
2. Whether the trial court erred in entering judgment for Plaintiffs on their personal property claim when there was no actual proof of the amount and value of their personal property loss.
3. Whether the trial court erred in granting Plaintiffs recovery under Tennessee Code Annotated section 56-7-105, when there were substantial legal reasons supporting Insurer's decision to dispute liability for the claim.

         In their posture as appellees, Plaintiffs present the following additional issues, as slightly reworded, for review:

4. Whether the trial court should have awarded the policy limit of $69, 000 for loss of the mobile home, rather than $65, 000.
5. Whether the trial court should have awarded the policy limit of $13, 800 for additional living expenses, rather than the net award of $500.
6. Whether the trial court should have awarded the statutory maximum of twenty-five percent for the statutory bad faith penalty, rather than fifteen percent.

         For the following reasons, we affirm the decision of the circuit court as modified and remand for further proceedings.

         III. Standard of Review

         A trial court's findings of fact from a bench trial are presumed to be correct, and we will not overturn those factual findings unless the evidence preponderates against them. Tenn. R. App. P. 13(d); In re Estate of Ledford, 419 S.W.3d 269, 277 (Tenn. Ct. App. 2013). "For the evidence to preponderate against a trial court's finding of fact, it must support another finding of fact with greater convincing effect." Watson v. Watson, 196 S.W.3d 695, 701 (Tenn. Ct. App. 2005) (citation omitted). Appellate courts afford trial courts considerable deference when reviewing issues that hinge on the credibility of the witnesses because trial courts are uniquely positioned to observe the witnesses' ...

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