Shane Smith – June 21, 2014
If you are a daily reader of our blog, you know that we discuss many of the latest developments in first party bad faith actions from jurisdictions across the nation. Today, I will discuss the requirements for asserting a successful claim for breach of the covenant of good faith and fair dealing in Tennessee.
The Supreme Court of Tennessee, in Johnson v. Tennessee Farmers Mut. Insurance Company,1 explained that “bad faith in the insurance context is defined in part, as an insurer’s disregard or demonstrable indifference toward the interests of its insured.” This indifference may be proved 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 by any intentional disregard of the financial interests of the insured in the hope of escaping full liability imposed upon it by the policy.
There are four essential elements to pleading an insurance bad faith cause of action under Tennessee law:2
The policy of insurance must, by its terms, have become due and payable;
A formal demand for payment must have been made;
The insured must have waited 60 days after making demand before filing suit, unless there was a refusal to pay prior to the expiration of the 60 days; and
The refusal to pay must not have been in good faith.
For the second element above, the demand must inform the insurance company that, if the disputed claim is not paid, the insured intends to assert a bad faith claim.3 The elements for a “formal demand” include:
insurance company has opportunity to investigate insured’s claim of loss;
insurance company is aware or has notice from insured of insured’s intent to assert bad-faith claim, if disputed claim is not paid; and
60 days expires after insured gives such notice before filing suit.4
It is important to note that the statute does not require a written demand, however, it is in the best interest of the policyholder to make the demand in writing because he or she may need to later prove that the formal demand was made 60 days before filing suit.5
1 Johnson v. Tennessee Farmers Mut. Ins. Co., 205 S.W.3d 365, 370 (Tenn. 2006), (citing State Auto Ins. Co. of Columbus, Ohio v. Rowland, 221 Tenn. 421, 427 S.W.2d 30, 33 (1968)).
2 Tenn. Code Ann. § 56-7-105, Bad faith refusal to pay.
3 Forrest Const., Inc. v. Cincinnati Ins. Co., 728 F. Supp. 2d 955 (M.D. Tenn. 2010).
4 Hampton v. Allstate Ins. Co., 48 F. Supp. 2d 739 (M.D. Tenn. 1999).
5 Hampton, supra.
Jason L. Cagle – June 6, 2014
In a case involving foundation repairs to a residence, the Texas Supreme Court addressed the question of whether the implied warranty for good and workmanlike repair of tangible goods or property can be disclaimed or superseded. The Court held that the implied warranty cannot be disclaimed, but it can be superseded by the parties. Gonzalez v. Southwest Olshan Foundation Repair Company, LLC, 400 S.W. 3d 52 (Tex. 2013).
In Gonzalez, a homeowner (“Gonzalez”) hired Olshan Foundation Repair Co., LLC (“Olshan”) to repair the foundation of their home. The repair contract (the “Contract”) included two warranty provisions. First, the Contract stated Olshan would use the Cable Lock system of foundation repair and would adjust the foundation for the life of the home. Second, it required Olshan to perform all of the necessary work in a good and workmanlike manner. Olshan repaired the foundation, but Gonzalez continued to experience foundation problems.
Gonzalez ultimately sued Olshan for, among other things, breach of express warranty, breach of the common law warranty of good and workmanlike repair, and DTPA violations. The jury found that Olshan did breach the implied warranty of good and workmanlike repair and committed DTPA violations, but did not breach any express warranty. The Court of Appeals reversed this holding on the grounds that the implied-warranty and DTPA claims were barred by the two-year statute of limitations. The case then proceeded to the Texas Supreme Court.
Olshan argued that its express warranty superseded any implied warranty of good and workmanlike repair. Therefore, because the jury held Olshan did not breach any express warranty, liability was precluded on Gonzalez’s implied-warranty claims. The Texas Supreme Court agreed. The Court stated that Texas law recognizes an implied warranty to repair or modify existing tangible goods or property in a good and workmanlike manner, and that such implied warranty cannot be disclaimed or waived. The Court then analogized this implied warranty with the implied warranty of good workmanship related to new home construction. See Melody Home Manufacturing Co. v. Barnes, 741 S.W.2d 349, 354 (Tex. 1984). The Court held that the implied warranty of good and workmanlike repair may be superseded if the parties’ agreement sufficiently describes the manner, performance or quality of the services to be provided.
In the case at bar, the Court found the Contract sufficient to supersede the implied warranty. The Contract specified the manner, performance or quality of the services by stating that Olshan would perform the work in a good and workmanlike manner and would use the Cable Lock foundation repair system and would adjust the foundation for the life of the home. Accordingly, because the implied warranty was superseded, the jury’s finding that there was no breach of an express warranty was conclusive on Gonzalez’s claims.
Kenneth Kan – June 4, 2014
This blog may appeal to fans (I being one of them) of the almost ubiquitous Sriracha hot sauce. Sriracha has been in the news as of late and is in the center of a controversy over spicy odors emanating from its factory in Irwindale, California where the condiment is produced. The City of Irwindale has taken legal action to curb the further production of the hot sauce contending that fumes generated by roasting chili peppers for the sauce are causing residents headaches and eye/throat irritation. Although on this blog we write mostly about property insurance issues, touching on concerns of homeowners and business owners, I momentarily digress. Following this Sriracha story has prompted me to wonder whether the company would be covered under its general liability policy if nuisance claims are made by the city or its residents.
Most comprehensive general liability (CGL) policies contain pollution exclusions, where if applicable, would allow insurers to deny coverage. In Cold Creek Compost, Inc. v. State Farm Fire and Casualty Company,1 a California appellate court answered the question as to whether offensive odors can be deemed a pollutant. In Cold Creek Compost, the insured operated a composting facility and was sued by nearby property owners under nuisance claims based on “foul and noxious odors.” The court affirmed that the claims based on odors emanating from the facility came within the pollution exclusion in the CGL policy and therefore, the insurer did not owe a duty to defend and indemnify the insured. In reaching its decision, the court held that a substance need not be toxic or particularly harmful to be considered a “pollutant” under the pollution exclusion. Moreover, under California law, “air pollutants” include “fumes, gases [and] odors” discharged into the environment.2
So, applying Cold Creek Compost to Sriracha, and assuming the standard pollution exclusion exists, it would be logical that claims made against the maker of Sriracha based on spicy odors would necessarily trigger pollution exclusion. Nonetheless, I hope the parties in the controversy can resolve their differences.
1 Cold Creek Compost, Inc. v. State Farm Fire and Casualty Co. (2007) 156 Cal. App. 4th 1469.
2 Id. at 1483 (citing Cal. Health & Safety Code section 39013).