IN THE COURT OF APPEALS OF TENNESSEE

AT JACKSON

APRIL 19, 2004 Session

DELORES M. KING v. TENNESSEE FARMERS INSURANCE COMPANY,

ET AL.

Direct Appeal from the Chancery Court for Henderson County

No. 14420 Joe C. Morris, Chancellor

No. W2003-00168-COA-R3-CV - Filed July 15, 2004

This case involves payment of an insurance claim demanded by Appellee from Appellant after

Appellee’s belongings were destroyed in a fire. Appellant refused payment on the basis that

Appellee failed to notify Appellant of an address change. After a hearing, the trial court awarded

Appellee $32,000, representing her claim under the insurance policy, and $8,000 as a 25% bad faith

penalty. For the following reasons, we affirm in part and vacate the award representing a bad faith

penalty.

Tenn. R. App. P. 3; Appeal as of Right; Judgment of the Chancery Court Affirmed in Part

and Vacated in Part

ALAN E. HIGHERS,J., delivered the opinion of the court, in which DAVID R.FARMER,J., and HOLLY

M. KIRBY, J., joined.

Carthel L. Smith, Jr., Lexington, TN for Appellants

James R. Krenis, Jackson, TN, for Appellee

OPINION

Facts and Procedural History

Delores King (“Appellee”) held a policy insuring the contents of a mobile home in the

amount of $32,000 with Tennessee Farmers Insurance Company (“Appellant”). The period of

insurance for the policy was from March 18, 1999, to March 18, 2000, and lists the insured’s address

as 1243 Whitehall Street, Lot 10, Jackson, Tennessee 38301. However, at the end of July 1999,

Appellee and her son moved the mobile home and its contents to a new address at 777 Mills Darden

Road, Lexington, Tennessee. Although unsure of the exact date, Appellee testified that she was

certain she telephoned Appellant in September 1999 to notify Appellant of the address change.

Appellee stated that she spoke with a female receptionist on the phone and asked to speak with her
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insurance agent. In addition, Appellee testified that, after notifying the receptionist of her policy and

the address change, the receptionist informed her that her agent was out of the office but said “I’ll

take care of this and give this to your agent.” Appellee’s son, Jason King, further corroborated this

testimony and stated that he was present when Appellee called Appellant’s office to notify Appellant

of the address change. Appellee received no further correspondence from Appellant confirming the

address change on the policy. 

On January 4, 2000, an electrical shortage in the bedroom of the mobile home resulted in a

fire, which destroyed the contents therein. An employee for Appellant, Jeff Hall (“Hall”),

investigated the fire and found that the address was not the same as the address found on the policy.

After noticing this discrepancy, Hall checked the company’s records and interviewed the office

employees to determine if Appellee called and notified Appellant that her address changed. After

his investigation, Hall found no evidence, other than Appellee’s statement, that Appellee gave notice

of the address change. Based on Hall’s recommendation, Appellant, upon receiving Appellee’s

formal demand for payment under the terms of the policy on January 7, 2000, denied Appellee’s

claim. As a result, Appellee filed a complaint on October 12, 2000, for the recovery of the insurance

proceeds in the amount of $32,000 and a bad faith penalty pursuant to Tenn. Code Ann. § 56-7-105

(2000) in the amount of $8,000. Appellant answered and claimed that Appellee never notified

Appellant of the address change as required by the insurance policy. After a hearing on the matter

in September 2002, the trial court rendered a judgment in favor of Appellee and awarded Appellee

$32,000 as proceeds under the insurance policy and an additional $8,000 as a bad faith penalty. The

parties present the following issues, as we perceive them, for our review:

I. Whether the trial court erred when it found that Appellee complied with the

provisions of the insurance policy, including the notice provision regarding a change

of address; and

II. Whether the record supports the trial court’s imposition of a bad faith penalty on

Appellant pursuant to Tenn. Code Ann. § 56-7-105 (2000).

For the following reasons, we affirm in part and vacate the award of a bad faith penalty.

Standard of Review

“[R]eview of findings of fact by the trial court in civil actions shall be de novo upon the

record of the trial court, accompanied by a presumption of the correctness of the finding, unless the

preponderance of the evidence is otherwise.” Tenn. R. App. P. 13(d); see also McColgan v. AutoOwners Ins. Co., No. W2002-00114-COA-R3-CV, 2002 Tenn. App. LEXIS 720, at *8 (Tenn. Ct.

App. Oct. 11, 2002). Conclusions of law of the trial court receive de novo review by this Court and

are afforded no such presumption of correctness. Union Carbide Corp. v. Huddleston, 854 S.W.2d

87, 91 (Tenn. 1993) (citing Estate of Adkins v. White Consol. Indus. Inc., 788 S.W.2d 815, 817

(Tenn. Ct. App. 1989)). 
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Compliance with Policy and Change of Address

In its brief, Appellant contends that Appellee did not comply with the notice provision of the

insurance policy, requiring that notice be given to Appellant whenever Appellee changed her

address. Appellant further argues that the policy was not in full force and effect because Appellee

failed to comply with the provisions of the policy concerning occupancy, concealment, and

misrepresentation. We begin by noting that, after our review of the entire record, this second

argument, concerning the occupancy, concealment, and misrepresentation provisions, was not raised

at trial and has been first raised on appeal. Appellant does not appear to raise noncompliance with

these provisions in the pleadings or at the hearing. Indeed, we note that in Appellant’s answer to

Appellee’s complaint, Appellant “den[ies] the policy was in full force and effect because the

[Appellee] had moved the [mobile home] to another location without notifying the [Appellant] and

obtaining [Appellant’s] consent thereto . . . .” Additionally, the trial court found that Appellant

denied payment of Appellee’s claim only on the basis that she did not properly give Appellant notice

of the change of address. Therefore, we decline to address this second issue that Appellee failed to

comply with the occupancy, concealment, and misrepresentation provisions of the insurance policy

on the basis that such issue was first raised by Appellant on appeal to this Court. See Smithwick v.

Young, 623 S.W.2d 284, 292-93 (Tenn. Ct. App. 1981). 

For Appellant’s first argument, it challenges the sufficiency of the evidence supporting the

trial court’s finding that Appellee did give Appellant notice of the address change in September

1999. In this case, the trial court heard the testimony of Appellee and Appellee’s son and both stated

that at some point in September 1999, Appellee telephoned Appellant’s office and notified a

receptionist that the address for the mobile home holding Appellee’s possessions had changed. In

addition, in one of the Appellant’s log books, there was a notation that Appellant’s office received

a phone call in September 1999 regarding the renting of a mobile home and the trial court found that

this further corroborated Appellee’s testimony. Appellant contends that, because there is a lack of

any record of a phone call by Appellee, she must not have telephoned to notify Appellant of the

address change. When resolving issues that necessarily hinge on an evaluation of witness credibility,

this Court has stated the following:

Unlike appellate courts, trial courts are able to observe witnesses as they

testify and to assess their demeanor, which best situates trial judges to evaluate

witness credibility. See State v. Pruett, 788 S.W.2d 559, 561 (Tenn. 1990); Bowman

v. Bowman, 836 S.W.2d 563, 566 (Tenn. Ct. App. 1991). Thus, trial courts are in the

most favorable position to resolve factual disputes hinging on credibility

determinations. See Tenn-Tex Properties v. Brownell-Electro, Inc., 778 S.W.2d 423,

425-26 (Tenn. 1989); Mitchell v. Archibald, 971 S.W.2d 25, 29 (Tenn. Ct. App.

1998). Accordingly, appellate courts will not re-evaluate a trial judge’s assessment

of witness credibility absent clear and convincing evidence to the contrary. See

Humphrey v. David Witherspoon, Inc., 734 S.W.2d 315, 315-16 (Tenn. 1987);

Bingham v. Dyersburg Fabrics Co., Inc., 567 S.W.2d 169, 170 (Tenn. 1978).
Appellant argues that the circumstances of this case are analogous to the facts of American Justice

1

Insurance Reciprocal v. Hutchison, 15 S.W.3d 811 (Tenn. 2000). That case concerned the assistance of the Knox

County Sheriff and two deputies with Scott County law enforcement in removal of Max Carpenter from his trailer home.

Hutchison, 15 S.W.3d at 813. Carpenter died as a result of the confrontation and, subsequently, his estate filed a

wrongful death lawsuit against the law enforcement officials involved in the siege. Id. After three years from the time

they were served the complaint, the Knox County Sheriff and the two deputies demanded the liability insurance carrier

for Scott County law enforcement, American Justice Insurance Reciprocal, provide them benefits under the policy with

regard to their potential liability in the Carpenter lawsuit. Id. at 813-14. American Justice challenged this demand on

the basis that the Knox County Sheriff and two deputies did not give timely notice of the incident or the lawsuit arising

from the incident. Id. at 814. Such insurance policy held a provision which stated “[The insured] must see to it that

[American Justice Insurance Reciprocal is] notified in writing as soon as practicable of any occurrence which may result

in a claim.” Id. at 815. The Hutchison court noted that Tennessee adopted the approach of “once it is shown that the

insured has breached the notice provision, a rebuttable presumption exists that the insurer has been prejudiced by the

delay . . . .” Id. at 817 (quoting Alcazar v. Hayes, 982 S.W.2d 845, 853 (Tenn. 1998)). Appellant argues that, in this

case, such rebuttable presumption applies because of Appellee’s failure to give notice of the address change, causing

Appellant prejudice. Because we hold that the evidence does not preponderate against the trial court’s finding that

Appellee gave Appellant notice, we need not address whether the rule of Alcazar applies to a notice provision for a

change of address.

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Wells v. Tenn. Bd. of Regents, 9 S.W.3d 779, 783 (Tenn. 1999). Implicit in the trial court’s finding,

that Appellee gave notice of the address change to Appellant, is a determination that Appellee and

her son were credible witnesses. As such, we cannot say, after our review of the record, that there

is clear and convincing evidence to suggest the contrary. Therefore, after reviewing the evidence

in the record, we hold that the evidence does not preponderate against the trial court’s finding of fact

that the Appellee gave Appellant notice of the address change of the mobile home. For this reason, 1

we affirm the trial court’s award of $32,000 to Appellee.

Bad Faith

The second issue Appellant raises is whether the evidence supports a determination that

Appellant’s denial of Appellee’s claim was in bad faith. Specifically, Tenn. Code Ann. § 56-7-

105(a) states the following:

(a) The insurance companies of this state, and foreign insurance companies and other

persons or corporations doing an insurance or fidelity bonding business in 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 thereon, 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 such

failure to pay inflicted additional expense, loss, or injury including attorney fees upon

the holder of the policy or fidelity bond; and provided further, that such additional

liability, within the limit prescribed, shall, in the discretion of the court or jury trying

the case, be measured by the additional expense, loss, and injury including attorney

fees thus entailed.
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Tenn. Code Ann. § 56-7-105(a) (2000). 

This statute is penal in nature and must be strictly construed. Before there can be a

recovery of the penalty, (1) the policy of insurance must, by its terms, have become

due and payable, (2) a formal demand for payment must have been made, (3) 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 (4) the refusal

to pay must not have been in good faith. Palmer v. Nationwide Mutual Fire

Insurance Co., 723 S.W.2d 124, 126 (Tenn. App. 1986).

Minton v. Tenn. Farmers Mut. Ins. Co., 832 S.W.2d 35, 38 (Tenn. Ct. App. 1992). As the Tennessee

Supreme Court has noted, the words “not in good faith” “imply a lack of good or moral intent as the

motive for the refusal to pay a loss.” Silliman v. Int’l Life Ins. Co., 188 S.W. 273, 273 (Tenn. 1915).

An award under this statute must be based upon some misconduct by the insurer. See Sisk v. Valley

Forge Ins. Co., 640 S.W.2d 844, 852 (Tenn. Ct. App. 1982). 

In this case, when a fire destroyed the contents of the mobile home, the policy became due

and payable. It is undisputed that Appellee made a formal demand for payment on January 7, 2000.

Appellant denied Appellee’s demand for payment and on October 12, 2000, Appellee filed her

complaint to recover the amount due under the policy. Therefore, the only question before us is

whether Appellant’s refusal to pay was not in good faith. After our review of the record, we hold

that such refusal was in good faith. Appellant promptly assigned one of its employees, Hall, to

investigate Appellee’s claim. Upon finding that Appellee’s address in Lexington did not match the

address listed on the policy, Hall searched the company’s records, checked the file for Appellee’s

policy, and interviewed numerous people to determine if Appellee had, in fact, given Appellant

notice of the change of address. The only person in Hall’s investigation that asserted such notice was

given was Appellee. Subsequently, Appellant, based on Hall’s recommendation, denied payment

under the policy. Under such circumstances, we cannot say Appellant’s refusal to pay was not in

good faith, warranting a penalty under Tenn. Code Ann. § 56-7-105. Therefore, we vacate this

award.

Conclusion

Based on the foregoing reasons, we affirm the award of $32,000 as the loss covered by the

policy and vacate the bad faith penalty of $8,000. Costs of this appeal are taxed equally to Appellee,

Delores King, and Appellant, Tennessee Farmers Insurance Company, and its surety for which

execution may issue if necessary.

___________________________________ 

ALAN E. HIGHERS, JUDGE