Legal News

• Tennessee Adopts Tort Reform
• Tennessee Legislature Restricts Application of Consumer Protection Act, Overruling Myint v. Allstate
• Comparative Fault Between General Contractor and Subcontractor
• Mortgagee Denied Recovery for Failing to Comply with Policy Conditions
• Standard Imposing Liability Upon Insurance Companies For Alleged Bad Faith Refusal To Settle
• Defense Counsel Can No Longer Have Ex Parte Communications With Plaintiff's Treating Physicians
• Last Day Worked is Date of Loss for Gradual Injuries
• 2007 Workers' Compensation Legislative Changes

TENNESSEE ADOPTS TORT REFORM

On June 16, 2011 Governor Bill Haslam signed House Bill 2008, the “Tennessee Civil Justice Act 2011,” which will serve to place a cap on damages in certain cases. The passage of this legislation produces several changes to Tennessee state law, including the following highlights:

• Recovery of non-economic damages for personal injury is limited to $750,000 per plaintiff. Any recovery from related claims (such as loss of consortium) brought by a child or spouse must also fall within these limits;
• Limits are placed on venues where corporations and other business entities may be sued. Such entities may now only be sued in the county where (1) the tortious event occurred; (2) where the entity’s principle office is located; (3) if an unorganized entity, the county in which the registered agent is located; or (4) if the entity has no registered agent in Tennessee, the county in which the entity’s designated agent for service is located.
• Bonds necessary to stay execution during appeals may not exceed the lesser of (1) twenty-five million dollars; or (2) one hundred twenty-five percent of the judgment amount.
• Limitations are placed upon a consumer’s ability to sue under the Tennessee Consumer Protection Act. For instance, a consumer is restricted in his/her ability to recover punitive damages, including such damages against a seller of a product who is not also the manufacturer of said product, and products marketed and labeled in accordance with the Federal Food, Drug, and Cosmetic Act.

The Act takes effect on October 1, 2011, and applies to all actions which accrue on or after this date. Generally speaking, a cause of action accrues when the claimant discovers or should have discovered his/her injury as a result of the defendant’s action.

TENESSEE LEGISLATURE RESTRICTS APPLICATOIN OF CONSUMER PROTECTION ACT, OVERRULING MYINT V. ALLSTATE

On April 29, 2011, the Tennessee legislature adopted House Bill 1189 was enacted into law and signed by Governor Haslam. Public Chapter No. 130 will be codified in Tennessee Code Annotated, Title 56, Chapter 8, Part 1.

The law amends Title 56 related to insurance business acts and practices. It provides that Titles 50 and Title 56 shall provide the sole and exclusive statutory remedies and sanctions available for the “alleged breach of, or for alleged unfair or deceptive acts and practices in connection with a contract of insurance.” The law essentially overrules the case of Myint v. Allstate Ins. Co., 970 S.W.2d 920, 927 (Tenn.1998), which had allowed recovery under the Tennessee Consumer Protection Act for unfair or deceptive acts or practices in the handling of an insurance claim, obviously after the consumer transaction which created the relationship between the insured and insurer. This brought with it exposure for attorney fees and the potential for trebled damages.

Prior to Myint, it had long been the rule that statutes such as T.C.A. § 56-7-105, provided for the sole and exclusive remedies available to insureds for a carrier’s failure to handle a claim in good faith. It appears this is now the case once again.

MORTGAGEE DENIED RECOVERY FOR FAILING TO COMPLY WITH POLICY CONDITIONS

In US Bank NA as servicer for the Tennessee Housing Development Agency vs. Tennessee Farmers’ Mutual Insurance Company, 2007 Tenn. App. LEXIS 788 (Tenn. Ct. App. 2007), the Tennessee Court of appeals held that the commencement of a foreclosure proceeding constituted an “increase in hazard” under the standard mortgage clause in the insurance policy and that the failure of the mortgage company to notify the insurer of this increase in hazard prior to a loss prohibited the mortgage company for recovering insurance benefits. Also, in an interesting comment, the Court noted that its holding “pretermits” the remaining issues of whether there is any extra-contractual exposure under the bad faith statute and the Tennessee Consumer Protection Act, as there was no recovery under the insurance policy.

COMPARATIVE FAULT BETWEEN GENERAL CONTRACTOR AND SUBCONTRACTOR

The Supreme Court recently confirmed a third party defendant may not argue the comparative fault of a principal contractor who is an employer for purposes of the Workers’ Compensation law, even if the principal contractor does not have a subrogation interest in the recovery of the plaintiff. Nevertheless, the third party defendant may argue the principal contractor was the sole “cause in fact” of the plaintiff’s injuries. This holding was rendered in Troup v. Fischer Steel Corp., No. W2005-00913-SC-R11-CV (Tenn. Aug. 31, 2007), where the plaintiff, an employee of subcontractor Jolly, was injured while on-the-job when he fell through a hole cut by another subcontractor, Fischer Steel. Both subcontractors were hired by principal contractor, Belz. Applying its decision to the facts, the Court concluded Fischer was not entitled to assert the comparative fault of Belz or Jolly, but was entitled to argue that Belz and Jolly were the sole cause in fact of Troup’s injuries.

MORTGAGEE DENIED RECOVERY FOR FAILING TO COMPLY WITH POLICY CONDITIONS

In US Bank NA as servicer for the Tennessee Housing Development Agency vs. Tennessee Farmers’ Mutual Insurance Company, 2007 Tenn. App. LEXIS 788 (Tenn. Ct. App. 2007), the Tennessee Court of appeals held that the commencement of a foreclosure proceeding constituted an “increase in hazard” under the standard mortgage clause in the insurance policy and that the failure of the mortgage company to notify the insurer of this increase in hazard prior to a loss prohibited the mortgage company for recovering insurance benefits. Also, in an interesting comment, the Court noted that its holding “pretermits” the remaining issues of whether there is any extra-contractual exposure under the bad faith statute and the Tennessee Consumer Protection Act, as there was no recovery under the insurance policy.

STANDARD IMPOSING LIABILITY UPON INSURANCE COMPANIES FOR ALLEGED BAD FAITH REFUSAL TO SETTLE

On August 28, 2006, the Tennessee Supreme Court has issued its ruling in the Johnson v. Tennessee Farmers Mutual case, which clarified the standard for imposing liability upon an insurer for alleged bad faith refusal to settle claims

and suits under Tennessee law. The opinion characterized bad faith refusal to settle as being, in part, an insurer's disregard or demonstrable indifference toward the interests of its insured, which may of course proven 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 any intentional disregard of the financial interests of the plaintiff in the hope of escaping full liability imposed upon it by its policy." The Court noted that, whenever a claim exceeds the policy limits, the insurer's conduct is subject to close scrutiny because there is a potential conflict of interest present. In order to comply with its duty to act in good faith, an insurer must exercise ordinary care and diligence in investigating the claim and the extent of damage for which the insured may be held liable. Ordinary care and diligence in investigation require the insurer to investigate the claim to such an extent that it can exercise an honest judgment regarding whether the claim should be settled. The Court ruled that mere negligence is not sufficient to impose liability for failure to settle, nor is an insurer's mistaken judgment if it was made honestly and followed an investigation performed with ordinary care and diligence. The Opinion goes on to make it clear that certain elements of proof are not necessary in order for an insured to establish liability on the part of the carrier for bad faith refusal to settle. Specifically, the Supreme Court stated that it is not necessary for an insured to prove "dishonest purpose, moral obliquity, conscious wrongdoing, breach of a known duty through some ulterior motive or ill will 'partaking of the nature of fraud,' or an actual intent to mislead or deceive another to obtain judgment for bad faith refusal to settle. The Supreme Court also found that Tennessee law does not require evidence that the insurer acted "with dishonesty, ill will, or deceit." Basically the Court concludes that the question of an insurance company's bad faith: Is for the jury if from all of the evidence it appears that there is a reasonable basis for disagreement among reasonable minds as to the bad faith of the insurance company in the handling of the claim.

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DEFENSE COUNSEL CAN NO LONGER HAVE EX PARTE COMMUNCIATIONS WITH PLAINTIFF'S TREATING PHYSICIANS

In Alsip v. Johnson City Medical Center, 20000 Tenn.LEXIS 557 (Tenn.2006) the Tennessee Supreme Court held that defense counsel can no longer have ex parte communication with non-party treating physicians. The Court found that when a patient sees a physician for treatment, a covenant of confidentiality is created between the patient and physician. If defense counsel has ex parte communication with the physician, the covenant of confidentiality is violated even if the trial court orders that the communication is allowed. The Court found it is against public policy to void this covenant of confidentiality, which is essentially a contract, simply because a lawsuit has been filed. The Court ignored the defendant's contention that this would impede adequately defending its client. The Court found this argument was invalid because the defendant can resort to the rules of civil procedure to discover the information from the treating physician. Under the Tennessee Rules of Civil Procedure the defendant can do the following to accomplish the same goal: take the discovery deposition of the physician, obtain all the medical records of the plaintiff, take the physician's deposition by written question, and send requests for admission or written discovery. As a practical matter, this decision will increase the defense costs in cases involving injuries. The defendant is forced to take formal discovery steps to obtain information that could previously be obtained by simply talking to the treating physician before her deposition.

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LAST DAY WORKED IS DATE OF LOSS FOR GRADUAL INJURIES

In 2004, the Tennessee Supreme Court issued an important opinion in Bone v. Saturn Corp., 148 S.W.3d 69 (Tenn.2004) where the Court held that the date an employee gave notice of a gradually occurring injury would be considered the date of injury. Subsequent Tennessee Supreme Court decisions applied this ruling to situations where employers and insurance companies were disputing which was liable for the employee’s workers compensation injury.

In Building Materials Corporation v. Melvin Britt, 211 S.W. 3d 706 (Tenn. 2007), the Tennessee Supreme Court reversed the Bone decision. In this new decision, the Tennessee Supreme Court held that "an employee’s gradually occurring injury should be determined using the last day worked rule." As a result, it is now the law in Tennessee that the date of injury for a gradually occurring injury is the last day worked by the employee.

This decision is very important for employers and insurance companies due to the fact that this decision will often determines who is responsible for workers compensation benefits. If an employer switches insurance carriers after an employee reports a carpal tunnel injury, but he did not miss work during the first insurance company’s policy, then the first insurance company will not be responsible for the payment of benefits. Instead, the insurance company whose policy period is in effect at the time the employee last works will be found to be the insurance company responsible for the payment of all workers’ compensation benefits to the employee .

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2007 WORKERS' COMPENSATION LEGISLATIVE CHANGES

This last year brought several noteworthy changes to the Workers’ Compensation laws. These include clarifying that Social Security offset is not applicable to debt benefits, repayment of unemployment compensation benefits when employee is drawing temporary total disability benefits, requiring all parties to mediate in good faith at benefit review conferences, with a possible penalty of up to $5,000, and authorizing the Department of Labor to order appropriate Workers’ Compensation benefits to be paid on an equal basis in cases where the employer changes insurance carriers, etc., when there is a dispute as to which entity is responsible.

For more complete details as to these legislative changes, click here.
Link: http://www.state.tn.us/labor-wfd/wc_2007legislation.pdf

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