Changes to Discovery Rules in Federal Court

On December 1, 2015, several new amendments to the Federal Rules of Civil Procedure became effective.  Among those amendments were notable changes to Federal Rule of Civil Procedure 26.  For example, Rule 26(b)(1) now reads:

Unless otherwise limited by court order, the scope of discovery is as follows: Parties may obtain discovery regarding any nonprivileged matter that is relevant to any party’s claim or defense and proportional to the needs of the case, considering the importance of the issues  at stake in the action, the amount in controversy, the parties’ relative access to relevant information, the parties’ resources, the importance of discovery in resolving the issues, and whether the burden or expense of the proposed discovery outweighs its likely benefit.  Information within this scope of discovery need not be admissible in evidence to be discoverable.

In other words, information is discoverable if it is relevant to any party’s claim or defense and it is proportional to the needs of the case, which will be determined by consideration of the following  six proportionality factors: 1) the importance of the issues at stake, 2) the amount in controversy, 3) the parties’ relative access to relevant information, 4) the parties’ resources, 5) the importance of discovery in resolving the issues, and 6) whether the burden or expense of the proposed discovery outweighs its likely benefit.

While it is unclear whether these factors are listed in order of importance or merely listed as considerations, the committee notes to the changes explained that “the change does not place on the party seeking discovery the burden of addressing all proportionality considerations.”  Rather, “parties may begin discovery without a full appreciation of the factors that bear on proportionality.”  However, regardless of whether all the factors must be considered or not, it appears the amended Federal Rule of Civil Procedure 26(b)(1) requires consideration of at least some of the proportionality factors in determining whether the discovery requested is proportional to the needs of the case.

Importantly, the addition of the proportionality factors should not change the existing responsibilities of the court and parties to consider proportionality; rather, the addition merely clarifies and brings together the specific set of factors the court is to consider in determining proportionality.

Mold Claims in Tennessee – Policy Language Proves Important

Many insurance policies exclude damages caused by mold and fungi. Whether or not a loss caused by mold is covered under a policy will have to be made on a case-by-case basis.  The wording of the policy and the specific facts of the loss will control this determination.

Most policies generally provide coverage for direct physical loss and then specifically exclude coverage for mold.  Although the exclusion expressly mentions mold, a court could be persuaded to interpret these exclusions collectively.  In other words, if the mold is the result of an otherwise covered loss, this exclusion may not bar coverage.

Part of the “problem” in Tennessee arises out of the doctrine of “concurrent causation.”  Here, there will be coverage in a situation where a non-excluded cause is a substantial factor in producing the damage or injury, even though an excluded cause may have contributed in some form to the ultimate result and, standing alone, would have properly invoked the exclusion contained in the policy.  Davidson Hotel Company v. St. Paul Fire and Marine Insurance Company, 136 F. Supp. 2d 109 (W.D. Tenn. 2001); Allstate Insurance Company v. Watts, 811 S.W.2d 883 (Tenn. 1991). Thus, damage caused by mold and fungi may still be covered by the policy if the mold is the result of a “covered loss” such as a burst pipe.

As a result, many carriers have changed the language of their mold exclusion to preclude coverage for losses caused by mold or fungi regardless whether said loss was direct, indirect, or concurrent.  The United States District Court for the Eastern District of Tennessee examined such an exclusion in Pennsylvania Nat. Mut. Cas. Ins. Co. v. HVAC, Inc., 679 F. Supp. 2d 863 (E.D. Tenn. 2009).  It held the exclusion explicitly, unambiguously, and clearly excluded coverage for a loss due to mold.  Id. at 874-75.

Some policies provide limited coverage for mold or fungi.  For instance, in State Auto. Mut. Ins. Co. v. R.H.L., Inc., 07-1197, 2010 WL 909073 (W.D. Tenn. Mar. 12, 2010), the Court examined a policy which provided coverage where fungi was “the result of a ‘specified cause of loss’ other than fire or lightning.”  There, the only potentially applicable “specified caused” of loss was “water damage” caused by leaks in or around the property’s laundry room occurring within the policy period.  The insured could not prove “water damage” occurred within the policy period and therefore there was no coverage for the fungi.

Many policies today utilize “anti-concurrent” causation lead in language for certain exclusions to defeat the concurrent causation doctrine.  Such language typically excludes losses caused “directly or indirectly” by the excluded peril and applies whether or not any other cause “contributes concurrently or in any sequence” to cause the loss, making it clear that if the excluded peril contributes, there is no coverage.  The additional coverage for mold can be very specific and can include and limit coverage for a variety of mold related concerns, including mold testing.  Thus, it is important to specifically reference the policy language itself in evaluating coverage for a mold or fungi claim.

Agent and Insurer Liability Post Procurement of Policy in Tennessee

The Court of Appeals recently had an opportunity to revisit the issue of agent negligence when procuring the wrong coverage for an insured.  In Steven Barrick and Janice Barrick v. State Farm Automobile Insurance Company and Thomas Harry Jones No. M2013-01773-COA-R3-CV, (Tenn. Ct. App. 2014), the Barricks initially obtained automobile insurance through State Farm with Thomas Jones as their agent from 1985 until 2009.  Id.  The Barricks’ lawsuit alleged both State Farm and Jones had a duty of care to advise the Barricks of their need for increased coverage after the initial procurement of the policy.

While operating an insured vehicle, Mr. Barrick struck a motorcyclist who died at the scene of the collision.  The motorcyclist’s survivors filed a complaint against him which subsequently settled for $200,000.00.  However, the Barricks’ policy with State Farm had limits of $100,000.00 per person and $300,000.00 per occurrence.  Thus, the Barricks paid $100,000.00 more than their coverage allowed out of their own pocket.  Id.

The Barricks claimed State Farm and Jones were negligent.  A second amended complaint alleged Jones (the agent) was negligent because he had a special relationship with the Barricks where he not only recommended but also selected liability coverage and limits for the Barricks’ policies.  The Barricks claimed this created additional duties beyond those of the ordinary insurance agent.  The Barricks also argued State Farm was vicariously liable for Mr. Jones’ negligence.

The trial court granted summary judgment for the defendants and found both State Farm and Mr. Jones affirmatively negated the element of duty within the Barricks’ claim or that the established element of duty could not be proved at trial.  Further, the trial court specifically found Mr. Jones’ duty to the Barricks ended once he obtained the initial insurance coverage, and owed no further duty to the Barricks to select appropriate coverages or limits thereafter.

This particular case was governed by the summary judgment standard referenced in Hannan, et al v. Alltel Publishing Company, 270 S.W.3d 1, 8 (Tenn. 2008).  Under Hannan, it is not enough for a moving party to challenge another party to “put up or shut up”.  The Barricks alleged Mr. Jones’ assumed duties beyond those of an ordinary insurance agent.  Relying upon Bennett v. Trevecca Nazarene Univ., 216 S.W.3d 293 (Tenn. 2007), the court decided it can apply the principle of assumption of duty to this case.  In other words, if Jones regularly recommended and selected coverage for the Barricks, he had a duty to do so with reasonable care.  The court determined that under the Hannan standard, summary judgment was not appropriate because there could be facts to establish in assumption of duty.  Further, the court determined that State Farm could not be granted summary judgment for the same reasons in that he could still be found vicariously liable for its agent’s acts.

This case reiterates that neither an agent nor the insurance carrier has a duty to the insureds after the initial policy or coverages had been procured.  However, such a duty might exist if the agent continues to select or recommend coverages for the insured after the initial procurement of the policy.  The insurance carrier can be found vicariously liable for an agent’s breach of duty under both situations.

Time Limit Settlement Demands – What is the Insurance Company’s Responsibility?

We are sometimes asked by insurance company representatives about how to respond to a plaintiff’s time limit settlement demand.  There are no direct Tennessee cases on point on this issue, though Tennessee does have certain requirements in considering settlement demands against an insured.  In Tennessee, insurance carriers who have exclusive control over investigation and settlement of a claim may be liable for more than the policy limit when it fails, in bad faith, to settle within policy limits.  Clark v. Hartford Acc. & Indem. Co., 61 Tenn. App. 596, 457 S.W.2d 35 (Ct. App. 1970).  Such a recovery sounds in tort, as opposed to under the contract, and is based upon a theory of the breach of the duty of “good faith and diligence in protecting the interests of the insured.”  Id.  This is also the rule in the vast majority of jurisdictions.   State Auto. Ins. Co. of Columbus, Ohio v. Rowland, 427 S.W.2d 30, 33 (1968).  As one court pointed out, things to be considered include:

the strength of the injured claimant’s case on the issues of liability and damages; attempts by the insurer to induce the insured to contribute to a settlement; failure of the insurer to properly investigate the circumstances so as to ascertain the evidence against the insured; the insurer’s rejection of advice of its own attorney or agent; failure of the insurer to inform the insured of a compromise offer; the amount of financial risk to which each party is exposed in the event of a refusal to settle; the fault of the insured in inducing the insurer’s rejection of the compromise offer by misleading it as to the facts; and any other factors tending to establish or negate bad faith on the part of the insurer. Id.

Other states have examined time limit settlement demands, but in a limited fashion.  A Georgia court explained that “an insurance company does not act in bad faith solely because it fails to accept a settlement offer within the deadline set by the injured person’s attorney” but whether “the insurer acted unreasonably in declining to accept a time-limited settlement offer.”  S. Gen. Ins. Co. v. Wellstar Health Sys., Inc., 726 S.E.2d 488, 491-92 (2012)(emphasis added).  New York courts hold that failure to respond to a time limit demand when the insured’s liability was still under investigation is not enough to establish a case for bad faith.  Pavia v. State Farm Mut. Auto. Ins. Co., 626 N.E.2d 24 (1993).  However, Florida courts hold that failing to “ensure payment of the policy limits within the time demands” is included in the consideration for bad faith.  Berges v. Infinity Ins. Co., 896 So. 2d 665, 672 (Fla. 2004).

Thus, the failure to accept a time limit demand is but one consideration courts allow to be made in examining whether a carrier has acted in bad faith.  Thus, it is important to be actively engaged in investigation, consider all settlement demands, communicate all settlement demands with the insured, and otherwise consider the interests of the insured.  While there appears to be no per se rule about responding to time limited demands, it is in the best interest to respond within the time period, if possible, even if it is to simply let the claimant know the reasons why a response cannot be made within the time constraints of the demand.

Riad Decision Sheds Light on Tennessee Statutory Bad-Faith Claims

I recently wrote about a recent Court of Appeals decision on an insurance contract claim concerning several issues that come up in first-party bad faith claims against insurers, including the admissibility of evidence that would ordinarily amount to hearsay and excluded from introduction at trial.  See John Riad v. Erie Insurance Exchange, E2013-00288-COA-R3CV, (Tenn. Ct. App. Oct. 31, 2013).  The Court also examined whether the trial court erred in allowing the jury to consider the plaintiff’s claim for bad faith pursuant to T.C.A. §56-7-105 for failure to give the required 60 day notice.

In order to maintain a statutory bad faith claim against an insurer on a first party claim, T.C.A. §56-7-105 and case law require a formal demand for payment to be made, and that the insured must wait 60 days after making the demand before filing suit.  In Riad, several e-mails were sent from the insurance agent to Erie concerning the plaintiff’s desire to sue both the insurance agency and Erie, including for bad faith, if the claim was not paid.  The Riad court admitted precedence on this issue was conflicting as some cases have held “that a simple form of demand for payment is required, while others provide that an explicit threat of litigation is required.”  Id.  See also Heil v. Evanston Co., 690 F.3d 722, (6th Cir. 2012).  However, the Court of Appeals recognized the plaintiff provided some form of notice to the insurance agent he intended to file a civil suit that would likely raise bad faith claims, and accordingly, the Court of Appeals found that applying either rationale, the plaintiff provided a formal demand as required by statute.  Id.

After the Court found plaintiff could seek the bad-faith penalty, Erie asserted that the Plaintiff’s recovery was limited to the insured loss under the policy’s coverage and the statutory 25% bad-faith penalty.  The Riad Court disagreed and found the bad faith statute could be used as an additional form of recovery for an insured and was not a limitation of recovery. Id.  The Riad Court explained the purpose of assessing damages in breach of contract suit is to place the plaintiff in the same position he would be if the contract had been performed.  Id.  Here, because of Erie’s alleged non-performance of the policy, the insured lost rental income but his policy contained no coverage for lost rents.  Id.  The Court discussed the bad-faith statute and allowed recovery of the loss rents, though it may be argued such damages would be more likely constitute consequential damages as opposed to bad-faith damages.  Id.  An application for appeal to the Tennessee Supreme Court has been filed.

Tennessee Legislature Repairs the Sinkhole Problem

The Tennessee Legislature recently amended T.C.A. § 56-7-130, the statute requiring insurance carriers offering homeowner’s insurance in the state to “make available” sinkhole coverage to their insureds.  The new statute clarifies sinkhole coverage is optional and available upon request by the insured.  This is important because while the prior statute required insurance companies to “make available” sinkhole coverage, disputes arose over whether carriers were required to affirmatively “offer” sinkhole coverage to their insureds.  The statute now makes it clear sinkhole coverage is not mandated to be included in homeowner property insurance policies – only that such coverage be available for optional purchase on request by policyholders.

The new statute also adds several helpful definitions such as “building stabilization or foundation repairs”, “covered building”, “homeowner property insurance”, “land stabilization”, “primary structural member”, “primary structural system”, and “structural damage” helpful in interpreting the law.  According to the new statute, “sinkhole loss” is further clarified to require coverage for “structural damage” and does not include land stabilization.  Without “structural damage”, as defined by the statute, any other cracking, shrinking, and/or expansion damage would not be covered even if actually caused by a sinkhole unless otherwise covered under the terms of the policy.

The statute requires insurers to follow the statute’s investigation standards only if the insured’s policy contained the sinkhole coverage, something that was less than clear in the previous version of the law.  If sinkhole coverage is provided, upon a claim for sinkhole loss, the carrier must inspect the property.  If structural damage possibly caused by sinkhole activity is present, before a sinkhole claim may be denied, written certification must still be obtained from an engineer or other qualified professional that sinkhole activity did not cause the observed structural damage.

If a loss is covered and determined to be the result of sinkhole activity, the statute speaks directly to how the claim is to be paid.  The carriers, through the terms of their policies, may limit recovery to the Actual Cash Value of the loss, excluding the costs for building stabilization or foundation repair, until the insured actually enters a contract for such building stabilization or foundation repair.  To receive payment in excess of the aforementioned Actual Cash Value:

– The insured must actually repair the damage in accordance with a repair plan approved by the insurer;  and
– The policyholder is required to enter into a contract for foundation and building stabilization repairs within ninety (90) days after the insurer confirms coverage for the loss.

The carrier is required to pay the amounts necessary to begin the repairs and may not require the insured to advance payment for the necessary repairs.  Such repairs are required to be completed within twelve (12) months unless there is mutual agreement; the matter is in litigation, appraisal or litigation; or circumstances beyond the control of the insured.

 The new law takes effect July 1, 2014.  It is a substantial improvement over the previous statute as it provides much needed clarity as to the requirements of insurers in making the coverage available as well as the specific steps required in the event of a covered sinkhole loss.

LOOK OUT! Those Cars with the Pink Mustache May Not Have Insurance Coverage

Have you seen those cars around town with a pink mustache?  The drivers of those cars are apparently associated with companies such as Lyft, Uber, and/or others.  Through the use of a mobile app installed on a smartphone, rides may be provided to those who might otherwise have called for a taxi or have taken a bus.  Such services are believed to have been intended as a “peer-to-peer ride share” program allowing those who need a ride to request a ride from a driver nearby in his or her own car.  Lyft drivers claim not to charge a fare but, instead, receive a “donation” from the passenger – though it seems some payment is required.

To request these types of services, you have to have the appropriate company’s app installed on your smart phone.  The app contains a map displaying the location of the nearest available driver, allowing the user to request a ride.  Those offering a ride are typically individuals using their own private automobiles.  The question becomes whether insurance coverage is available in the event the passenger is injured in an auto accident while using such services as many any private automobile policies include exclusions similar to the following:

COVERAGE EXCLUSIONS

This coverage does not apply to:

1.  Use of any motor vehicle:

a)  to carry persons or property for a fee; or

* * *

The plain language of the exclusion demonstrates coverage does not apply while the insured is carrying a person for a fee.

In Jackson v. Old Colony Ins. Co., 216 S.W.2d 354 (Tenn. Ct. App. 1948), an insured started using a private automobile as a taxi.  The policy had an exclusion that the policy did not apply when the automobile was “used as a public or livery conveyance” unless declared.  Id.  The trial court found that, “If he was engaged in using his automobile generally for carrying persons for a charge . . . he had no coverage during the period of such operation.”  Id. at 427.  Thus, during the specific use of private automobiles carrying persons for a charge, the exclusion would apply and there would be no coverage for a passenger’s injury.

In the case of Smith v. Service Fire Ins. Co., 197 S.W.2d 233 (Tenn. 1946), the insured quit his job and started using his private car as a taxi without telling the insurer.  The insured took a man and his son to a place near the airport but on the return, an accident occurred.  The court held a similar exclusion barred coverage even though he had dropped his fare and the accident occurred during the return trip.  Id.  Applying this rationale, coverage may be unavailable to insureds under private automobile polices while on their way to pick up a passenger, while carrying the passenger, or returning from dropping off a passenger.

The Tennessee Department of Commerce and Insurance issued a memorandum citing similar concerns.  Because of this very issue, companies like Uber and Lyft are reportedly taking steps to offer coverage for accidents that occur while their drivers are logged onto the systems and available to accept riders. (See The Tennessean, March 14, 2014 and The Seattle Times, March 14, 2014).   Whether you are a rider or a driver, it is worthwhile to check and see whether you are covered in the case of an accident.

“Reverse” Bad Faith – Insurers Can Actually Recover for an Insured’s Bad Faith in Bringing a Lawsuit

Those who have worked in the insurance industry are familiar with threats of lawsuits alleging bad faith, and many have actually been involved in such lawsuits seeking bad faith penalties.  What may be less-known is a provision in the Tennessee Code that actually allows insurance carriers to bring suit against the insured for bad faith.  That statute provides as follows:

In the event it is made to appear to the court or jury trying the cause that the action of the policyholder in bringing the suit was not in good faith, and recovery under the policy is not had, the policyholder shall be liable to the insurance company, corporation, firm, or person in a sum not exceeding twenty-five percent (25%) of the amount of the loss claimed under the policy; provided, that the liability, within the limits prescribed, shall, in the discretion of the court or jury trying the cause, be measured by the additional expense, loss, or injury inflicted upon the defendant by reason of the suit.

Tenn. Code Ann. § 56-7-106.  Based upon the plain language of the statute, if an insured brings an action against the carrier, deemed not to be in good faith, and the insured does not recover under the policy, the insured is instead liable to the insurance company.  Up to 25% of the amount of loss claimed by the insured may be recovered, but the amount is in the discretion of the court or jury.  Id.  Any award is measured by the additional expenses, loss or injury caused to the insurance company because of the suit.  Id.

The case of Harrison v. National Life & Accident Ins. Co., 145 S.W.2d 1023 (1940), makes it clear the insurer’s rights under T.C.A. § 56-7-106 are vested at the time of the insured’s action, and becomes an actual part of the controversy.  Id. at 1024.  No independent action by the insurance company is required.  Id.  Even if an insured’s claim is determined by a court to void, such a determination does not prevent the carrier from seeking the penalty, because the carrier’s right is vested at the moment the insured files his complaint.  Adams v. Tennessee Farmers Mut. Ins. Co., 898 S.W.2d 216, 219 (Tenn. Ct. App. 1994).

An example of conduct amounting to insured bad-faith can be found in the Harrison case noted above.  In that case, the insured:

at the time he instituted this suit knew that [insurance company] was not in any wise indebted to him; that he had some months previously been paid every cent that was due him upon any and all policies in which the plaintiff may have had an interest, and had no reasonable basis for expecting the obtaining of a judgment in his favor.

Harrison at 1025.  At least one court, however, found that officers of a corporation did not act in bad faith when acting on advice of counsel to bring suit.  World Secret Serv. Ass’n v. Travelers Indem. Co., 396 S.W.2d 848, 854 (Tenn. Ct. App. 1965). 

Awarding this “reverse” bad faith penalty is completely up to the judge or jury hearing the case.  The few cases where the penalty was discussed demonstrate the key to making the award is based upon the insured’s instituting an action with knowledge that there is no basis to recover under the policy.  While recovery is unavailable for an “honest” dispute, the penalty is a tool that can be used by insurers when faced with frivolous legal actions by insureds where there is absolutely no basis for an insured’s claim and results in the carrier incurring costs and expenses.  Because the carrier has no “reverse” bad faith claim until the insured actually files suit, this remedy is not available simply where the insured makes a frivolous claim under a policy of insurance.

Polar Vortex Affects Tennessee – What to do About these Freezing Claims

If you read the news recently, a polar vortex is apparently responsible for the recent extreme cold temperatures throughout the nation.  Here in Middle Tennessee, temperatures have been falling into the single digits, with some temperatures near zero.  As you might imagine, this extreme temperature has resulted in what is certain to amount to thousands of freezing and water claims.  That begs the question – what should be done in handling such claims?

The most frequent scenario involves an insured’s water pipe which freezes, and the insured is only later to learn the pipe has burst and has caused resulting water damage.  With respect to both the pipe and resultant water damage, a direct physical loss has occurred as required to initially trigger coverage in most policies.  However, many policies have exclusions, limitations or other conditions related to “freezing” that should be considered in evaluating these claims.

After the insured meets his burden of establishing a direct physical loss, it is the insurance company’s burden to prove that the loss is actually due to an exclusion for “freezing.”  If the carrier meets this burden, even though there has been a direct physical loss, the exclusion applies and coverage is barred.  See  Farmers Bank & Trust Co. of Winchester v. Transamerica Ins. Co., 674 F.2d 548, 550 (6th Cir.), cert. denied, 459 U.S. 943, 103 S.Ct. 257, 74 L.Ed.2d 200 (1982); Blaine Const. Corp. v. Ins. Co. of N. Am., 171 F.3d 343, 349 (6th Cir. 1999). However, typical freezing exclusions include an exception to the freezing exclusion when the insured used reasonable care or “best efforts” to maintain the heat in the building or shut off the water supply and drain all systems.  If the carrier proves freezing is the cause of loss, it is the insured’s burden to prove the “best efforts” exception applies.  See Standard Fire Ins. Co. v. Chester O’Donley & Associates, Inc., 972 S.W.2d 1, 8 (Tenn. Ct. App. 1998).  Please note the policy refers to such “freezing” issues in the policy conditions as opposed to policy exclusions, a different analysis will apply.

It is usually quite obvious whether the plumbing systems have been drained.  Thus, as you might imagine, most cases deal with maintaining heat at the property.  These issues come up routinely with vacant properties.  A good tip is to inquire with the insured to find out what specific actions were taken to maintain heat in the building.  Did the insured set the thermostat at a certain temperature?  Did the insured have a specific procedure for personnel to consider in evaluating the property?  Did the insured make regular inspections of the property to make sure that the heating system was working properly?  These are the types of questions an insurance carrier will want to ask to in order to fully consider and evaluate whether the insured used reasonable care or used his “best efforts” to maintain heat in the building.  Thus, though it’s the insured’s burden to prove that an exception to the exclusion applies, it’s a good practice to investigate the insured’s efforts to maintain heat in the building or otherwise prevent the property from freezing.

Statements Showing Insurer State of Mind Are Non-Hearsay and Relevant to Bad Faith Claims

A recent Court of Appeals decision on an insurance contract claim brought to light several issues that come up in first-party bad faith claims against insurers.  The Court of Appeals recently affirmed a trial court decision of an insurance case in John Riad v. Erie Insurance Exchange, E2013-00288-COA-R3CV, (Tenn. Ct. App. Oct. 31, 2013).  Though it affirmed the decision of the trial court, it included a few interesting tidbits related to first-party bad faith claims.  One such issue concerned the admissibility of evidence that would ordinarily amount to hearsay and excluded from introduction at trial.

In this case, the trial court excluded testimony offered by Erie Insurance Exchange (“Erie”) concerning denial of the insured’s claim.  Erie sought to admit statements made by others along with a letter and attached photographs from a realtor.  Both the statements and the letter Erie sought to introduce at trial concerned the property’s condition and were excluded by the trial court as hearsay.  Id.

Erie, however, argued the “statements were admissible as non-hearsay statements because they were not offered to establish the truth of the matter asserted but were offered to provide reasoning as to why Erie denied the claim.”  Id.  The Court of Appeals agreed and noted “[t]he offered evidence should not have been excluded because it was relevant and admissible to establish Erie’s good faith reasoning for denying the claim” though the Court declined to grant a new trial.  Id.  The evidence to be admitted centered upon Erie’s inability to determine when the damage occurred – an important issue in determining coverage under the policy.

Though the Court of Appeals in Riad did not grant Erie a new trial on the improper exclusion of the statements, it did point out the relevance in a first-party bad faith case of what would ordinarily be excluded as hearsay.  In a first-party bad faith case such as in Riad, a plaintiff would necessarily need to demonstrate the insurer’s state of mind at the time of the denial.  See  Phillips v. N. River Ins. Co., 14 Tenn. App. 356, 365 (Ct. App. 1931); Independent. Life Ins. Co. v. Knight, 2 Tenn. App. 259, 265-66 (Ct. App. 1926);  Tennessee Farmers Mut. Ins. Co. v. Hammond, 43 Tenn. App. 62, 121-22, 306 S.W.2d 13, 38-39 (Ct. App. 1957).  The Riad case points out that statements are non-hearsay and relevant when provided to demonstrate why the insurer denied the claim as opposed to the truth of the matter asserted, and courts should admit such statements for that purpose in a bad-faith claim against insurance companies.