Insurance Bad Faith Demand Letter - Tennessee

INSURANCE BAD FAITH DEMAND LETTER

State of Tennessee

[LAW FIRM LETTERHEAD]

PRIVILEGED AND CONFIDENTIAL
SETTLEMENT COMMUNICATION — FOR COMPROMISE PURPOSES ONLY
PROTECTED UNDER TENN. R. EVID. 408 AND FED. R. EVID. 408
FORMAL DEMAND UNDER TENN. CODE ANN. § 56-7-105
TIME-LIMITED — 60-DAY STATUTORY PERIOD RUNNING

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [ADJUSTER_EMAIL]

Date: [__/__/____]

[INSURANCE_COMPANY_NAME]
[CLAIMS_DEPARTMENT_ADDRESS]
[CITY], [STATE] [ZIP]

Attention: [ADJUSTER_NAME], [ADJUSTER_TITLE]
Cc: [CLAIMS_MANAGER_NAME], Claims Manager
Cc: General Counsel, [INSURANCE_COMPANY_NAME]

Re: FORMAL BAD-FAITH DEMAND — TENNESSEE LAW
Insured: [________________________________]
Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
County of Loss: [________________________________], Tennessee
Policy Limits: $[________________________________]
Bad-Faith Demand Amount: $[________________________________]
Response Deadline: [__/__/____] (60 days per Tenn. Code Ann. § 56-7-105)

Dear [ADJUSTER_NAME]:

I. INTRODUCTION AND FORMAL DEMAND

This firm represents [CLIENT_NAME] ("our client" or "the Insured") in connection with the above-referenced insurance claim arising under a policy of insurance issued in Tennessee and governed by Tennessee law. This letter constitutes the formal written demand required under Tenn. Code Ann. § 56-7-105 and places [INSURANCE_COMPANY_NAME] (the "Company") on notice of its bad-faith conduct in the handling of this claim.

Tennessee's statutory bad-faith remedy imposes strict procedural prerequisites on a policyholder before the statutory penalty becomes available:

1. The policy must have become due and payable;
2. A formal demand for payment must have been made (this letter);
3. The insured must wait sixty (60) days after making the demand before filing suit, unless the Company refuses to pay within the 60-day period; and
4. The refusal to pay must not have been in good faith.

The 60-day statutory clock begins on the Company's receipt of this letter. If the Company fails to tender $[DEMAND_AMOUNT] within that period, our client will file suit in [COUNTY] County, Tennessee, and seek the 25% statutory penalty, attorney's fees, prejudgment interest, common-law punitive damages, and consequential damages — together with a formal complaint to the Tennessee Department of Commerce and Insurance.

II. THE TENNESSEE BAD-FAITH FRAMEWORK

A. Tenn. Code Ann. § 56-7-105 — The Statutory Penalty

Tennessee's bad-faith statute, Tenn. Code Ann. § 56-7-105, provides:

"The insurance companies of this state . . . in all cases when a loss occurs and they refuse to pay the loss within sixty (60) days after a demand has been made by the holder of the policy or fidelity bond on which the loss occurred, shall be liable to pay the holder of the policy or fidelity bond, in addition to the loss and interest on the loss, a sum not exceeding twenty-five percent (25%) on the liability for the loss; provided, that it is made to appear to the court or jury trying the case that the refusal to pay the loss was not in good faith, and that the failure to pay inflicted additional expense, loss, or injury including attorney fees upon the holder of the policy or fidelity bond . . . ."

The penalty is up to 25% of the liability, plus attorney's fees and consequential losses. Tennessee's statutory bad-faith remedy is generally considered less robust than Texas, Florida, or California in the maximum recovery available, but it is a real and important remedy when properly invoked. The plaintiff bears the burden of proving bad faith, and whether the refusal was "in good faith" is a jury question. See Gaston v. Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815, 821 (Tenn. 2003).

B. Common-Law Bad Faith — Third-Party Failure to Settle

Separate from the statutory penalty, Tennessee recognizes a common-law bad-faith cause of action against a liability insurer that refuses to settle a claim within policy limits when liability is clear and damages will exceed the limits. See Johnson v. Tenn. Farmers Mut. Ins. Co., 205 S.W.3d 365 (Tenn. 2006), in which the Tennessee Supreme Court reinstated a $279,430.92 jury verdict against Tennessee Farmers for bad-faith failure to settle within policy limits.

The Johnson standard requires a showing that the insurer:

1. Had the opportunity to settle within policy limits;
2. Received a reasonable settlement demand;
3. Rejected the demand in bad faith (with regard to its insured's interests); and
4. Exposed the insured to a judgment in excess of the policy limits.

Common-law bad faith is not subject to the 25% cap and may support full compensatory damages, including the excess judgment, consequential damages, and — upon clear and convincing evidence — punitive damages.

C. Unfair Trade Practices and Unfair Claims Settlement Act — Tenn. Code Ann. §§ 56-8-101 to 56-8-114

The Unfair Trade Practices and Unfair Claims Settlement Act of 2009, codified at Tenn. Code Ann. §§ 56-8-101 through 56-8-114, prohibits a comprehensive list of unfair claims-handling practices under § 56-8-104. Enforcement is reserved exclusively to the Commissioner of Commerce and Insurance under § 56-8-108 — there is no private right of action. Nevertheless, violations constitute competent evidence of bad faith for purposes of both the § 56-7-105 statutory penalty and common-law claims.

D. TCPA Legislatively Excluded — Tenn. Code Ann. § 56-8-113

Effective July 1, 2011, Tenn. Code Ann. § 56-8-113 made Title 56 the "sole and exclusive statutory remedy" for alleged unfair or deceptive acts by an insurer in connection with a contract of insurance. This statute legislatively abrogated the Tennessee Supreme Court's decision in Myint v. Allstate Ins. Co., 970 S.W.2d 920 (Tenn. 1998), which had previously allowed TCPA claims against insurers in some circumstances. Our client therefore does not and cannot bring a TCPA claim, but is entitled to full remedies under Title 56 and common law.

E. Punitive Damages — Hodges Standard and § 29-39-104 Cap

Tennessee common-law punitive damages require proof by clear and convincing evidence of intentional, fraudulent, malicious, or reckless conduct. See Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992).

Tenn. Code Ann. § 29-39-104 caps punitive damages at the greater of two (2) times compensatory damages or $500,000. The cap does not apply when:

• The defendant had specific intent to inflict serious physical injury; or
• The defendant intentionally falsified, destroyed, or concealed records to evade liability in the case at issue.

In Lindenberg v. Jackson National Life Insurance Co., 912 F.3d 348 (6th Cir. 2018), the Sixth Circuit held that Tennessee's punitive damages cap violates the Tennessee Constitution (right to trial by jury). Although Tennessee state appellate courts have not squarely ruled on this issue, the Sixth Circuit's decision remains influential in federal diversity cases and signals uncertainty in state court as well.

F. Noneconomic Damages Cap — McClay

Tennessee's noneconomic damages cap of $750,000 (or $1,000,000 for catastrophic injuries) under Tenn. Code Ann. § 29-39-102 was held unconstitutional as applied to personal-injury cases in McClay v. Airport Management Services, LLC, 596 S.W.3d 686 (Tenn. 2020) by the Tennessee Supreme Court answering certified questions from the Sixth Circuit. Counsel should evaluate the scope of this ruling in light of the specific claim.

G. Attorney's Fees Under § 56-7-105

Attorney's fees are expressly recoverable under Tenn. Code Ann. § 56-7-105 upon proof of bad-faith refusal. Tennessee generally follows the American Rule, making this a meaningful fee-shifting provision for policyholders.

H. Prejudgment Interest — § 47-14-123

Tennessee allows prejudgment interest in equity, within the court's discretion, at a rate not exceeding the prevailing rate set by the Tennessee Secretary of State semi-annually (currently approximately 9–10% as of [CURRENT_PERIOD]). See Tenn. Code Ann. § 47-14-123.

III. POLICY INFORMATION AND COVERAGE

A. Policy Details

B. Coverage Is Clear

The claim clearly falls within the policy's insuring agreement:

1. The loss occurred during the policy period
2. The cause of loss is a covered peril/event
3. All conditions precedent have been satisfied:
   - ☐ Prompt notice provided
   - ☐ Proof of loss (or equivalent) submitted
   - ☐ Examinations under oath completed (if requested)
   - ☐ Documentation provided upon request
4. No exclusion applies

[CARRIER_SHORT_NAME] has acknowledged coverage by [DESCRIBE_COVERAGE_ACKNOWLEDGMENT]. Having accepted coverage, the Company owes duties of good faith and fair dealing under Tennessee law.

IV. FACTUAL BACKGROUND AND CLAIM HISTORY

A. The Underlying Loss

On [__/__/____], in [COUNTY] County, Tennessee, [DESCRIBE_LOSS_EVENT_IN_DETAIL].

[ADDITIONAL_LOSS_DETAILS]

B. Claim Submission and Initial Response

Our client submitted a timely claim on [__/__/____]. [DESCRIBE_CLAIM_SUBMISSION].

C. Chronological Timeline of Bad-Faith Conduct

V. SPECIFIC BAD-FAITH CONDUCT

[CARRIER_SHORT_NAME]'s handling of this claim violates the express and implied duties of good faith and fair dealing recognized under Tennessee law, specifically:

A. Unreasonable Delay

Tennessee claims-handling rules (Tenn. Comp. R. & Regs. 0780-01-05) require insurers to:

• Acknowledge communications within fifteen (15) working days
• Complete investigation within thirty (30) working days after notice
• Accept or deny a claim within fifteen (15) working days after receipt of a proof of loss

[CARRIER_SHORT_NAME] has failed to comply with these requirements:

• [SPECIFIC_DELAY_1]
• [SPECIFIC_DELAY_2]
• [SPECIFIC_DELAY_3]

B. Inadequate Investigation

Tennessee law requires a "reasonable investigation" under § 56-8-104(8)(D). The Company's investigation was deficient in the following respects:

• [INVESTIGATION_FAILURE_1]
• [INVESTIGATION_FAILURE_2]
• [INVESTIGATION_FAILURE_3]

C. Lowball and Unreasonable Settlement Offers

Offering substantially less than the amount ultimately owed — thereby compelling the insured to hire counsel and litigate — is a per-se unfair trade practice under § 56-8-104(8)(G).

D. Misrepresentation of Policy Provisions

[CARRIER_SHORT_NAME] has misrepresented material policy provisions in the following respects:

• [MISREPRESENTATION_1]
• [MISREPRESENTATION_2]
• [MISREPRESENTATION_3]

Misrepresenting pertinent facts or policy provisions is prohibited by § 56-8-104(8)(A).

E. Failure to Communicate / Explain Denial

The Company failed to promptly and reasonably explain the basis in the policy for the denial/offer, in violation of § 56-8-104(8)(N):

• [COMMUNICATION_FAILURE_1]
• [COMMUNICATION_FAILURE_2]

F. Compelling Litigation

The Company's conduct has compelled our client to engage counsel and threaten litigation — conduct specifically prohibited by § 56-8-104(8)(G). Tennessee courts treat this as strong evidence of bad faith. See Johnson, 205 S.W.3d at 370 (evaluating insurer's litigation conduct).

VI. STATUTORY VIOLATIONS — TENN. CODE ANN. § 56-8-104

[CARRIER_SHORT_NAME]'s conduct violates the following provisions of the Unfair Trade Practices and Unfair Claims Settlement Act:

Although § 56-8-104 does not create a private cause of action, these violations are admissible as evidence of bad faith under § 56-7-105 and common-law theories, and may be reported to the Tennessee Department of Commerce and Insurance for administrative enforcement.

VII. DAMAGES

A. Contract Damages (Policy Benefits)

B. Statutory Penalty Under § 56-7-105

Up to 25% of the liability for the loss:

C. Consequential Damages

Tennessee permits consequential damages caused by the delay/refusal beyond the four corners of the policy, such as:

D. Attorney's Fees

Attorney's fees are expressly recoverable under Tenn. Code Ann. § 56-7-105 upon proof of bad faith. Estimated fees through trial: $[ESTIMATED_FEES]

E. Prejudgment Interest — Tenn. Code Ann. § 47-14-123

Prejudgment interest at the rate set semi-annually by the Tennessee Secretary of State. Accrued interest to date: $[PREJUDGMENT_INTEREST]

F. Punitive Damages (Common Law — Hodges)

Upon clear and convincing evidence of intentional, fraudulent, malicious, or reckless conduct, punitive damages are available. Cap: greater of 2× compensatory or $500,000 (subject to Lindenberg constitutional challenge).

Punitive Demand: $[PUNITIVE_DEMAND]

G. Total Demand

VIII. SETTLEMENT DEMAND AND TERMS

A. Monetary Demand

Our client demands payment of $[TOTAL_DEMAND_AMOUNT] within sixty (60) days of receipt of this letter.

B. Non-Monetary Terms

• Full and complete release upon payment
• Correction of any adverse information reported to industry databases (CLUE, A-PLUS, MIB)
• Withdrawal of any reservation of rights letters
• Confidentiality (mutual, at our client's option)
• Written acknowledgment that the claim is closed with no further reservation

IX. TIME-LIMITED NATURE OF THIS DEMAND

THIS DEMAND EXPIRES AT 5:00 P.M. CENTRAL TIME ON [__/__/____] — SIXTY (60) DAYS FROM COMPANY'S RECEIPT.

The 60-day period is not arbitrary — it is the statutory waiting period imposed by Tenn. Code Ann. § 56-7-105 before the statutory penalty and attorney's fees become available.

Consequences of Non-Payment

If [CARRIER_SHORT_NAME] fails to accept this demand by the deadline:

1. Suit will be filed in the Circuit or Chancery Court for [COUNTY] County, Tennessee, seeking:
   - Full policy benefits plus prejudgment interest under Tenn. Code Ann. § 47-14-123
   - The 25% statutory penalty under Tenn. Code Ann. § 56-7-105
   - Consequential and emotional distress damages
   - Common-law punitive damages under Hodges standard
   - Attorney's fees under § 56-7-105
   - Costs

2. Regulatory complaint will be filed with:
   - Tennessee Department of Commerce and Insurance
   Consumer Insurance Services
   500 James Robertson Parkway
   Nashville, TN 37243
   Phone: (615) 741-2218 / (800) 342-4029
   Email: [email protected]
   Website: https://www.tn.gov/commerce/insurance.html

• The Tennessee Insurance Commissioner has express authority under § 56-8-108 to investigate, issue cease-and-desist orders, impose civil penalties, and suspend or revoke licenses.

3. The Company's refusal will be preserved as evidence of bad faith for the jury on the § 56-7-105 penalty and for the Hodges punitive damages standard.

4. NAIC complaint filed, which will appear on the Company's NAIC Complaint Index and Tennessee market conduct examination.

X. DOCUMENT PRESERVATION NOTICE

This letter serves as formal notice to preserve all documents and electronically stored information (ESI) related to this claim, including but not limited to:

• The complete claim file, including all versions, drafts, and revisions
• All internal communications (emails, Teams/Slack messages, text messages, voicemails)
• All reserves information, reserve changes, and reserve committee notes
• Adjuster activity logs, diaries, and notes (all levels)
• Supervisor notes, approvals, and escalation documentation
• Round-table and claim committee discussions
• Communications with the insured/claimant and counsel
• All photographs, videos, drone footage, and inspection reports
• All expert reports, estimates, and evaluations (plaintiff and defense side)
• Claim handling guidelines, manuals, and procedures applicable in Tennessee
• Training materials for adjusters handling Tennessee claims
• Reinsurance information and reinsurer communications
• Quality assurance, audit, and market conduct exam reports
• Financial/actuarial data reflecting reserves on this claim
• All documents relating to any systemic claims practices affecting the handling of this claim
• Metadata for all electronic documents

Spoliation will be pursued as an independent basis for sanctions and adverse inference under Tennessee law and Rule 37 of the Tennessee Rules of Civil Procedure.

XI. CONCLUSION

[CARRIER_SHORT_NAME]'s handling of this claim is precisely the kind of conduct that Tenn. Code Ann. § 56-7-105, the Unfair Trade Practices Act, and Tennessee common-law bad faith doctrine were enacted to prevent. The Company has 60 days to do the right thing: pay the policy benefits owed, plus the consequential costs imposed on our client, and avoid the statutory penalty, punitive damages, and regulatory action that will follow a continued refusal.

We sincerely encourage the Company to use this opportunity to resolve this claim fairly. All communications should be directed to the undersigned.

Respectfully submitted,

[LAW_FIRM_NAME]

By: _______________________________
[ATTORNEY_NAME], BPR No. [BAR_NUMBER]
[ADDRESS]
[CITY], TN [ZIP]
[PHONE]
[FAX]
[EMAIL]

Counsel for [CLIENT_NAME]

ENCLOSURES:

• Policy declarations page
• Relevant policy provisions
• Claim correspondence chronology
• Proof of loss
• Damage documentation (photographs, estimates, reports)
• Expert reports (if applicable)
• Medical records (if applicable)
• HIPAA authorization (if applicable)

CC:

• [CLIENT_NAME]
• General Counsel, [INSURANCE_COMPANY_NAME]
• Tennessee Department of Commerce and Insurance, 500 James Robertson Parkway, Nashville, TN 37243 (for complaint filing upon expiration of 60-day period)

TENNESSEE BAD-FAITH LAW QUICK REFERENCE

SOURCES AND REFERENCES

Statutes:

• Tenn. Code Ann. § 56-7-105 — Bad-faith failure to pay (25% penalty + attorney's fees)
• Tenn. Code Ann. §§ 56-8-101 to 56-8-114 — Unfair Trade Practices and Unfair Claims Settlement Act of 2009
• Tenn. Code Ann. § 56-8-104 — Unfair trade practices defined
• Tenn. Code Ann. § 56-8-108 — Commissioner enforcement authority
• Tenn. Code Ann. § 56-8-113 — Title 56 as sole remedy (TCPA preemption)
• Tenn. Code Ann. § 29-39-102 — Noneconomic damages cap
• Tenn. Code Ann. § 29-39-104 — Punitive damages cap
• Tenn. Code Ann. § 47-14-123 — Prejudgment interest
• Tenn. Code Ann. § 28-3-109 — Six-year statute of limitations

Regulations:

• Tenn. Comp. R. & Regs. 0780-01-05 — Unfair claims settlement practices rules

Case Law:

• Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992) — Punitive damages standard
• McIntyre v. Balentine, 833 S.W.2d 52 (Tenn. 1992) — Modified comparative fault
• Myint v. Allstate Ins. Co., 970 S.W.2d 920 (Tenn. 1998) — Superseded by § 56-8-113
• Gaston v. Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815 (Tenn. 2003) — § 56-7-105 burden of proof
• Johnson v. Tenn. Farmers Mut. Ins. Co., 205 S.W.3d 365 (Tenn. 2006) — Common-law bad faith; excess judgment
• Tennessee Farmers Mut. Ins. Co. v. Rader, 410 S.W.3d 795 (Tenn. 2013) — Appraisal scope
• Lindenberg v. Jackson National Life Ins. Co., 912 F.3d 348 (6th Cir. 2018) — Constitutionality of punitive cap
• McClay v. Airport Management Services, LLC, 596 S.W.3d 686 (Tenn. 2020) — Noneconomic cap constitutionality

Regulatory Resources:

• Tennessee Department of Commerce and Insurance: https://www.tn.gov/commerce/insurance.html
• Consumer Complaint Portal: https://www.tn.gov/commerce/insurance/consumer-resources.html
• Tennessee Insurance Division Phone: (615) 741-2218 / (800) 342-4029