# FILED

Au gust 1, 1997 Cecil W. Crowson Ap pellate Cou rt Clerk IN THE COU RT OF A PPEA LS OF TENN ESSEE WESTERN SECTION AT NA SHVILLE
DAVID WA

YNE GURIEN, ) ) Plaintiff/Appellee, ) Davidson Chancery No. 95-20-I ) VS. ) A ppeal No. 01A 01-9610-CH- 00459 ) ALLSTATE INSURANCE COMPANY, ) ) Defendant/Appellant. )
APPEAL FROM THE CH ANCERY COU RT OF D AVIDSO N COU NTY

AT NASHVILLE, TENN ESSEE THE HONORABLE IRVIN H. K ILCREASE, JR ., CHANCEL LOR

MICHAEL P. MILLS MICHELE E. COOPER BREWER, KRAUSE, BROOKS & MILLS Nashvil le, Tennessee Attorneys for Appellant
KARY N C. BRYA NT JOHN D. VAUGHN BOULT, CUMMINGS, CONNERS & BERRY Nashvil le, Tennessee Attorneys for Appellee

REVERSED

ALAN E. HIGHERS , J.

CONCUR: W. FRA NK CRA

WFORD, P.J., W.S. HOLLY K IRBY LIL LA RD, J.2

In this breach of contract case, David Wayne Gurien (“Plaint iff”) filed suit against All state Insurance Company (“ Defendant”) for Defendant’s fa ilure to c ompen satehim for t he th eft of his automobile pursuant to theterms of the insurance contract that he h ad with the Defendant. The trial co urt awar ded Plaintiff $18,300.00 i n compensatory damages and $4,575.00 for the Defenda nt’s bad fait h refusal to pay under the terms of the insurance contract. A motion to alt er or amend resulted in an adjustment of compensatory

damages to $17,300.00 to account for the deductible. The issues on appeal relate only to the award of t he ba d fa ith p ena lty.

FACTS

On the evening of January 10, 1994, Plaintiff and his wife arri ved home a t approximately 10:00 p.m. after goingout for dinner and a movie. After parking their car in its designated parking space near their condominium, Plain tiff and his wife we nt inside and went to sl eep.

The n ext morning, Sunday, January 11, 1994, Plaintif f arose aro und 9:00 a.m. , walked outside and all egedly di scovered t hat his car h ad been sto len. Pla inti ff immediately reported the theft to the poli ce and then we nt about the area qu estioning his neighbors inquiri ng as to w hether they h ad seen anythi ng suspici ous the night before.

After receivi ng a claim nu mber from the polic e, Plaintiff call ed a nd noti fied the Defendant that his v

ehicle had been stolen.

The following Monday, January 12, 1994, the poli ce recover ed Plaintiff’s car . The recovered car was charred and bur ned.

On January 13, 1994, Plaintiff and hi s wife com pleted an d returned a sworn statement in proof of lo ss to the Defendant.3

Shortly t hereafter, Plaint iff received a letter dated July 19, 1994 from Defe ndant’s atto rney, Mills ( “Mills ”), req uesting that Plaintiff schedule a date for him and his wife to visit Mill s’ office for an examinat ion under oath co ncerning th e events sur rounding thetheft

. Upon arriv ing at Mi lls’ office for theexamination under oath, Pla inti ff and hiswi fe carried with them copies of cance led checks for payments on thevehicle a nd copies of their federal income tax r

eturns from the past

two y ears as req uested by Mil ls. Pla inti ff and his wi fe were separ

ated and examined at differenttimes during the examination under oath.
During the c ours e of Defe nda nt’s inve sti gation of Plain tiff’s claim, Pl aintiff visi ted Defendant’s office three timesinquiri ng as to thestatus of his c laim. On Aug ust 15, 1994, Plaintiff’s third vi sit to Defendant’s office, Defendant ver bally deni ed Plaintiff’s cl aim. In a letter dated August 24, 1994, Defen dant confirmed its verbal denia l of Plaintiff’s claim in writi ng stating that:

It is the opinion of our Claim Departm ent that this loss wa s not “accidental” from your st andpoint. Further, i t is our opinion that you breached the followi ng clause of the policy : Fraud. We do not provide coverage for a ny “in sured” w ho has made fraudulentstatements or eng aged in fraudu len t conduct in connec t ion with any accident or loss for which coverage is soughtunde r this polic y. Therefore, Allstate has no choice but to deny your claim for i nsurance proce eds.

Defendant’s investi gation of Plain tiff’s claim rev ealed that Plai ntiff’s car, w hich had been burned, was

left totally

intact. Noneof the automobile’s component parts had been
re moved. Based upon the opin ion of the Defen dant’s expert witness, a forensic reconstructi onist, neither the vehicle’s l ock assembly system nor

the vehicl e’ s ignitio n system had been defeated in any way, and nothing other than a key of the proper

type had been used to unlock the doors of the vehicle or to operate the vehicle. All keys for thecar were in the hands of the Pl aintiff. Defendant’s i nvestig ation also revealed that P laintiff had many debts in comparison to hi s income.

In a letter dated October 21, 1994, Defendant canceled Pl aintiff’s autom obil e insurance policy as of December 7, 1994 citing Pl aintiff’s misrepr esentation of loss for his July 10, 199 4 claim as the reason for the canc ellation.4

Plai ntiff argued that heand his w ife did nothave the only key to Plaintiff’s automobile

. Pl aintiff claimed that Crencor Auto Sales (“C rencor”), the company from w hom he bo ught th e car, had a key to the car as well. Although Plai ntiff testified that C rencor never supplied him w ith a second key to the car at the time he purcha sed the car and t hat Crencor retained an ex

tra key t o the car, Defendant t estif ied that it was Crencor’s policy to give al l keys t o cars sold to the purchaser at the time of purchase. Plaintiff also testified that he had supplied Crencor wi th a key to the car three months before the theft occ urred when Plaintiff had Crencor repa ir the car, yet Plaintiff admitted that Crencor returned the key to him after working on the car.

Plain ti ff filed suit on J anuary 3, 1995 seeking compens atory damag es and a sum equal to twenty-five perc ent of his compens atory damages for Defendant’ s bad faith refusal to pay purs uant to the terms of the insurance contract.

LAW

The issue s bef ore t his Co urt a re as foll ow: 1) Whether the trial court er red in denyingDefendant’s motion for a directed verdict
as to Plaintiff’s c laim of the Defendan t’s bad faith refusal to pay under the t erms of the insurance cont ract; 2) Whether the trial court er red in permitti ng the issueof the Defendant’s bad faith denial of insuran ce coverag e to be submitted t o the jury ; and 3) W heth er th e tria l cou rt err ed in denyi ng De fendant’s motion for a new trial or judgment notw ithstanding the verdic t on the issue of the Defendant’s bad faith refusal to pay pursuant to the terms of the i nsurance contr act.

When decidin g a motion for direc ted verdic

t, both the tri al judge and t he review ing court on appeal must loo k to all of the evidence, t ake the strong est legiti mate view of the evidence in favor of the oppone nt of the motion , and allow all reasonable inference s in favor of that party. Beske v. Opryland USA, Inc. , 923 S.W.2d 544, 545 (Tenn. Ct. App.5

1996); Dobson v. Short , 929 S.W.2d 347, 349-50 ( Ten n. Ct. App. 1996) ; W adli ngto n v. Miles, Inc. , 922 S.W.2d 520, 522 (Tenn. Ct. App. 1995); Hurle y v. Tennessee Farmers Mut. Ins. Co. , 922 S. W.2d 887, 891 (Te nn. Ct. App . 1995); Bills v . Lindsay , 909 S.W.2d 434, 438 (Tenn. Ct. App. 1993); Daniels v . White Consolidated Indus., Inc. , 692 S.W.2d 422, 424 (Tenn. Ct. App. 1985). The court must discard all countervailing evidence, and if there is then any dis pute as to any mate rial fact, or any doubt as to the c oncl usio ns to be dr awn from th e whole ev idence, the motion must be denied. W hart on v. T rans port Corp. v. Bridges , 606 S.W.2d 521, 525 (Tenn. 1980); Crosslin v. Alsup , 594 S. W .2d 379, 380 (Tenn. 1980); Holmes v. Wilson , 551 S.W .2d 682, 685 (Tenn . 1977) Beske , 923 S.W.2d at 545; Dobson , 929 S.W.2d at 349-50; Hurley , 922 S.W.2d at 891; Bills , 909 S.W.2d at 438; Flynn v. Shoney’s, Inc. , 850 S.W.2d 458, 459-50 (Tenn. Ct. App. 1992); Tennessee Farmers Mut. Ins. C o. v. Hi nson , 651 S.W.2d 235 (Tenn. Ct. App. 1983). A directed verdict cannot be sustained if there is any material ev idence in the record whi ch would s upport a verdict for the plainti ff under any of the theor ies plainti ff has advanced. Wharton Transport Corp. v. Bridges , 606 S.W.2d 521 (Tenn. 1980); Hurley , 922 S.W.2d at 891.
T.C.A. § 56-7-105(a) provides as fo llows: The insurance companies of this state, and foreign insurance companies and other perso ns or corpor ations doing an insurance or fidelity

bonding business in this state, in all cases when a loss occur

s and they refuse to

pay the los s withi n sixty (60) days after a d emand has been made by the holder ofthe policyor fidelity

bond o n which th e loss occur red, shall be liable to pay the holde r of the policy or fidelity

bond, in addition to the loss and i nterest thereon, a sum notexceeding twent yfive percent (25%) on the liability for the loss; provided, that it is made to appear to the court or jury try ing the casethat the refusal to pay the l oss was not in good faith, and th at suc h failure inflicted addit ional expens e, loss, or injury upon the holder of the policy or fidelity bond; and provid ed further, that such additional liability, within the limit prescribed, shall, in the discretion of the court or j ury try ing the case , be measured by the additional e xpense, los s, and injury thus entailed. The foregoing statute is penal in nature and must be strictly construed. St. Paul Fire and Mar ine Ins. Co. v. Kirkpatrick , 164 S.W. 1186 (Tenn. 1914); Hurley , 922 S.W.2d at 894 ; Walker v. Tennessee Farmer s Mut. Ins. C o. , 568 S.W.2d 103 (Tenn. Ct. App. 1977).

In Palmer v. N ationwide Mut. Fire Ins. Co. , 723 S.W .2d 124 (Tenn. Ct. App . 1986),6

this Court stated:

Under the holding of our courts, before there can be a recovery of penalty under

T.C.A. § 56-7-105, (1) the policy of insurance must, by its t erms, have become due and payable , (2) a formal demand for payment must h ave been made, ( 3) the insure d must ha ve w

aite d 60 d aysafter

maki ng h is d emand befo r e filing suit (unles s there was a refusal to pay prior to the expirati on of the 60 days) , and (4) the refusal to pay must not have been in g ood faith. 723 S.W .2d at 126 (citations omitte d).

In assessing the four

re quirements necessary for Plaintiff to recov er a bad faith penalty against the Defendant, w e note that there i s no evidenc e in the recor d indicating that Pla inti ff madea for mal d emand fo r payment after the Def endant denied Plaint iff’s claim in writing in a letter dated August 24, 1994. Although Plaintiff initially complete d all of the f o rms requi red by the D efendant and cooperated full y in answering q uestions regarding the theft, this does not meet the statutory

requirement

that a formal demand for paymentmust be made. See Kirkpatrick , 164 S.W. at 1189-1190; Walker , 568 S.W.2d at 10 6. T.C.A. § 56-7- 105 is penal i n nature and must be strictly construed; the refore, it i s incumbentupon Plaintiff to show compliance therewith. Thus, because there is no pr oof in the record indicating that Plaintiff com plied with the statutory requirements contained in T.C.A. § 56-7-105, the trial court should have direc ted a verdic

t in favor of the Defendant
on Plaintiff’s bad fait h penalty claim. We, therefore, reverse the jur y’s verdict of $4,575.00 for the Defendant’s bad faith.

The judgm ent of the trial court is hereby reversed as to Plaintif f’s award o f $4,575.00 forthe Defendant’s bad fai th refusal to pay under the terms of the insurance contract. Costs of appeal are asses sed against the Appel lee for whi ch execution may issue if
nece ssary.7 HIGHERS, J.

CONCUR:

CRAWFORD, P.J., W.S.

LILLARD, J.