Insurance Bad Faith Demand Letter - Tennessee

INSURANCE BAD FAITH DEMAND LETTER

State of Tennessee

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION — FOR COMPROMISE PURPOSES ONLY
TENN. R. EVID. 408 / FED. R. EVID. 408 MAY LIMIT SPECIFIED USES OF DISPUTED-CLAIM NEGOTIATIONS; THEY DO NOT CREATE A GENERAL PRIVILEGE
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 may file suit in [COUNTY] County, Tennessee, seeking policy benefits, prejudgment interest, and the statutory addition of up to 25% if its conditions are met. Attorney fees and additional injury may inform that capped addition. Any other damages require an independently supported cause of action.

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 statutory addition is up to 25% of the liability. Additional expense, loss, or injury, including attorney's fees, measures the amount within that cap; § 56-7-105(a) does not award those items again on top of it. The plaintiff bears the burden of proving bad faith. 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. Insurance Regulatory Review

The claim-handling facts below may be submitted to the Tennessee Department of Commerce and Insurance for review. Counsel should confirm the current statutory provisions and available remedies before alleging a specific unfair-practice violation.

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

Upon becoming law in 2011, Tenn. Code Ann. § 56-8-113 made Titles 50 and 56 the sole and exclusive sources of statutory remedies 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 based on this insurance claim, but may seek remedies preserved by § 56-8-113.

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 UPHELD as constitutional by the Tennessee Supreme Court in McClay v. Airport Management Services, LLC, 596 S.W.3d 686 (Tenn. 2020) (answering certified questions from the U.S. District Court; the cap does not violate the right to trial by jury, separation of powers, or equal protection). The Court later held the cap is a single aggregate limit per plaintiff covering derivative consortium claims in Yebuah v. Center for Urological Treatment, PLC, 624 S.W.3d 481 (Tenn. 2021). Counsel should evaluate the scope of these rulings in light of the specific claim.

G. Attorney's Fees Under § 56-7-105

Attorney's fees incurred because of the refusal are evidence of additional injury used to measure the § 56-7-105(a) addition within its 25% cap. This subsection is not a separate fee-shifting award.

H. Prejudgment Interest — § 47-14-123

Request prejudgment interest as an equitable award under Tenn. Code Ann. § 47-14-123. Its general ceiling is 10% per year, subject to the contract-category rule in § 47-14-103. The Secretary of State's semiannual postjudgment rate does not set this rate.

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

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

Explain why each offer did not reflect the documented loss and identify the resulting expense or delay: [________________________________].

D. Misrepresentation of Policy Provisions

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

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

Identify the policy text and the Company statement that conflict: [________________________________].

E. Failure to Communicate / Explain Denial

The Company failed to explain the policy basis for the denial or offer in the following communications:

• [COMMUNICATION_FAILURE_1]
• [COMMUNICATION_FAILURE_2]

F. Compelling Litigation

The Company's conduct has caused our client to incur counsel fees and prepare for litigation. The relevant acts, dates, and resulting costs are: [________________________________].

VI. CLAIM-HANDLING FACTS FOR REGULATORY REVIEW

Summarize the conduct supported by the claim file, including communications, investigation steps, coverage decisions, and settlement offers: [________________________________]. Counsel should verify the current Tennessee Code before assigning a statutory citation or asserting a regulatory violation.

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

List additional loss caused by the refusal here as evidence bearing on the capped statutory addition. Include a separate damages demand only if another cause of action supports it:

D. Attorney's Fees

Estimated attorney's fees incurred because of the refusal: $[ESTIMATED_FEES]. Use this amount as evidence of additional injury within the capped § 56-7-105(a) addition, not as a separate statutory award.

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

Requested equitable prejudgment interest under § 47-14-123: $[PREJUDGMENT_INTEREST] (general maximum 10% per year; check any applicable contract-category limit).

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 the statutory waiting period before a § 56-7-105(a) addition may 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
   • Any damages independently supported by another cause of action
   • Common-law punitive damages under Hodges standard
   • Attorney's fees as evidence of injury within the capped § 56-7-105 addition
   • 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.

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

If evidence is discarded, destroyed, altered, or concealed, our client may seek appropriate sanctions under Tenn. R. Civ. P. 34A.02, which authorizes Rule 37 sanctions. Any adverse inference depends on the facts and the court’s ruling.

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 (addition capped at 25%, including fee-based injury)
• Tenn. Code Ann. §§ 56-8-101 to 56-8-114 — Unfair Trade Practices and Unfair Claims Settlement Act of 2009
• Tenn. Code Ann. § 56-8-108 — 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