Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—MDTenn: Denial of insurance policy claims may violate Tennessee Consumer Protection Act, (Jun 25, 2013)

By Jody Coultas, J.D.

Homeowners stated a Tennessee Consumer Protection Act (CPA) claim against Federal Insurance Company (FIC) for allegedly denying the homeowners’ insurance policy claims, the federal district court in Nashville has held (Tannenbaum v. Federal Insurance Company, June 24, 2013, Nixon, J.).

FIC issued the homeowners an insurance policy that covered all risk of physical loss to the house unless otherwise stated or an exclusion applied. The policy specifically excluded losses due to earth movement, including landslides, mud flows, and the sinking, rising, or shifting of land. After a severe weather system caused damage to the house, the homeowners put in a claim with FIC. FIC denied the most of the claim as excluded as an earth movement event.

To state a CPA claim, the home owner needed to show that FIC engaged in an unfair or deceptive act or practice declared unlawful by the CPA and that FIC’s conduct caused an ascertainable loss of money or property. A deceptive act is a material representation, practice, or omission likely to mislead a reasonable consumer. An unfair act is one that causes or is likely to cause substantial injury to consumers which is not reasonably avoidable by consumers and not outweighed by countervailing benefits to consumers or to competition.

A reasonable jury could find that FIC violated the CPA in its handling of the homeowners’ claim by prematurely denying the homeowners’ claim and subsequently conducting a pretextual investigation, according to the court. FIC argued that the homeowners could not present any evidence of deception or misrepresentations made by the company. There was evidence that FIC prematurely determined the cause of loss on the claim and then focused its investigation on finding evidence to support its determination. FIC’s assertion that the homeowners’ believed in the theory does not make FIC’s denial of the claim a violation of the CPA was denied.

The court also held that a reasonable jury could find that FIC did not have legitimate grounds to deny the homeowners’ claim under the policy.

The case is No. 3:11-cv-01077.

Attorneys: Elizabeth O. Gonser (Riley, Warnock & Jacobson) for Jerome S. Tannenbaum. George Andrew Rowlett (Howell & Fisher) for Federal Insurance Company.

Companies: Federal Insurance Company

Cases: StateUnfairTradePractices TennesseeNews