Opinion ID: 1587175
Heading Depth: 1
Heading Rank: 6

Heading: Breach of Insurance Contract and Waiver

Text: The defendant, Tennessee Farmers, argues that it was not required to pay its policy benefits because the plaintiff, Peggy Gaston, breached the policy terms, which stated that there was no coverage [i]f that person or entity or the legal representative of that person settles the bodily injury or property damage claim without our written consent. Gaston, however, contends that Tennessee Farmers' claims adjuster, David Brown, had discussed Tennessee Farmers' under-insured motorist coverage with them and knew that she had requested payment from CNL, i.e., Tim Wise's insurance carrier, but that he did not contact her or warn her of the consequences of such a settlement. She argues that Tennessee Farmers therefore waived the policy's terms and that she was entitled to her Tennessee Farmers' policy benefits. We begin our review by examining the basic principles of waiver, including the long-standing rule in Tennessee that any contractual provision of a policy of insurance, whether part of an insuring, exclusionary, or forfeiture clause, may be waived by the acts, representations, or knowledge of the insurer's agent. Bill Brown Constr. Co. v. Glens Falls Ins. Co., 818 S.W.2d 1, 13 (Tenn.1991) (emphasis in original); see also Rutherford v. Tennessee Farmers Mut. Ins. Co., 608 S.W.2d 843, 846 (Tenn.1980). Indeed, this Court has specifically stated that [a] waiver is a voluntary relinquishment by a party of a known right.... [I]t may be proved by express declaration; or by acts and declarations manifesting an intent and purpose not to claim the supposed advantage; or by a course of acts and conduct.... Chattem, Inc. v. Provident Life & Accident Ins. Co., 676 S.W.2d 953, 955 (Tenn.1984) (quoting Baird v. Fidelity-Phenix Fire Ins. Co., 178 Tenn. 653, 162 S.W.2d 384, 389 (1942)). The burden of proof to establish waiver rests with the insured, Bill Brown Constr. Co., 818 S.W.2d at 13, and is a question of fact for the jury, see Carolyn B. Beasley Cotton Co. v. Ralph, 59 S.W.3d 110, 113 (Tenn.Ct.App.2000), perm. app. denied, (Tenn.2001) (quoting Koontz v. Fleming, 17 Tenn.App. 1, 65 S.W.2d 821, 824 (1933)). These familiar waiver principles were applied by this Court in Rutherford to facts very similar to the present case. The defendant, Tennessee Farmers, knew that its insured in Rutherford was negotiating a settlement with an under-insured motorist's insurance company, yet it did not intervene or warn the insured, who was represented by counsel, that her settlement would result in losing under-insured motorist coverage if she did not obtain Tennessee Farmers' written consent to settle the claim. Rutherford, 608 S.W.2d at 844-45. After the insured settled the claim with the other party's insurance company, the defendant denied coverage of the claim on the basis of a provision that prohibited the insured from settling without the written permission of the insurer. Id. at 845. We concluded that an insurer with knowledge that an insured is seeking a settlement with another insurance carrier may not fail to act and then seek to enforce exclusionary terms of a policy. Id. at 846. We also emphasized that an insurer could not decline to pay a claim based upon a policy exclusion in a case where the insurer's reliance on that policy provision appeared to be an afterthought. Id. In our view, these principles are fully applicable in this case. The plaintiff, Peggy Gaston, established that a copy of the letter written to CNL on August 19, 1996, was sent to David Brown, an agent of Tennessee Farmers. The letter expressly asked a CNL claims adjuster, Please let us know, as soon as possible ... when we might expect payment of your clients [sic] $25,000.00 insurance coverage. David Brown acknowledged that he received the letter and that he understood the consequences of Peggy Gaston settling the claim directly with CNL. After having earlier discussed the under-insured coverage with the Gastons, and knowing that Peggy Gaston had substantial medical bills and serious injuries for which Tennessee Farmers had exposure on its coverage, Brown simply decided to wait to see what developed rather than inform Mrs. Gaston that she risked losing the coverage she had been paying for if she carried out her course of action. Neither Brown nor anyone else at Tennessee Farmers ever contacted the Gastons. Accordingly, we believe that the evidence was sufficient for a reasonable jury to find that Tennessee Farmers waived its policy provision requiring written consent before its policyholder could settle with a third party. Although the Court of Appeals addressed the issue of prejudice along with waiver, its discussion of prejudice was based upon American Justice Insurance Reciprocal v. Hutchison, 15 S.W.3d 811 (Tenn.2000). In that case, the question was the adequacy of an insured's notice of a claim to the insurer. Id. at 815. Since notice is not at issue in the case at bar, we do not find American Justice or the analysis of prejudice relevant. In any event, we agree with the Court of Appeals' conclusion that the trial court erred in granting a directed verdict.