Court Opinion

ID: 1045796
Source: CourtListenerOpinion
Date Created: 2013-10-08 02:30:05.84795+00
Date Added: 2024-06-11T13:02:36.945963
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                             AT JACKSON
                                October 23, 2012 Session

    U.S. BANK, N.A., AS SERVICER FOR THE TENNESSEE HOUSING
     DEVELOPMENT AGENCY v. TENNESSEE FARMERS MUTUAL
                        INSURANCE COMPANY

               Direct Appeal from the Circuit Court for Gibson County
                       No. H3496     Clayburn Peeples, Judge

              No. W2012-00053-COA-R3-CV - Filed November 29, 2012

U.S. Bank, N.A. (“Bank”) had a mortgage on a residence which was insured against fire loss
by Tennessee Farmers Mutual Insurance Company (“Tennessee Farmers”). When the owner
of the residence failed to pay the mortgage, the Bank commenced foreclosure proceedings.
Thereafter, the owner filed for bankruptcy which stayed the foreclosure proceedings. After
the residence was destroyed in a fire, the Bank filed a claim to recover the insurance
proceeds. Tennessee Farmers refused to pay the claim. As a result, the Bank filed suit
against Tennessee Farmers alleging breach of contract, bad faith refusal to pay an insurance
claim, and unfair or deceptive practices under the Tennessee Consumer Protection Act
(“TCPA”). The trial court granted partial summary judgment to the Bank, concluding that
the Bank's failure to give Tennessee Farmers notice of the foreclosure proceedings did not
invalidate the insurance coverage. On appeal to this Court, we reversed, finding that the
Bank’s commencement of foreclosure proceedings amounted to an increase in hazard under
the policy and the Bank’s failure to provide notice precluded coverage. After granting the
Bank’s application for permission to appeal, the Supreme Court reversed the judgment of this
Court, and held that commencement of foreclosure proceedings did not constitute an increase
in hazard under the terms of the insurance policy or the applicable statutory provisions, and
therefore, the Bank was not required to give notice to Tennessee Farmers. U.S. Bank, N.A.
v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381 (Tenn. 2009). Subsequently, on remand
from the Supreme Court, the trial court entered a judgment in favor of the Bank for the
amount due on the mortgage plus accrued interest. The trial court further awarded the Bank
attorney’s fees and costs based on its finding that Tennessee Farmers’ interpretation of the
policy, that the Bank was required to provide them with notice of the commencement of
foreclosure proceedings, amounted to bad faith and an unfair act or practice under the TCPA.
After thoroughly reviewing the record, we reverse and remand.
Tenn. R. App. P. 3 appeal as of Right; Judgment of the Circuit Court Reversed and
                                    Remanded

D AVID R. F ARMER, J., delivered the opinion of the Court, in which H OLLY M. K IRBY, J., and
J. S TEVEN S TAFFORD, J., joined.

Charles L. Trotter, Jr., Huntingdon, Tennessee, for the appellant, Tennessee Farmers Mutual
Insurance Company.

Michael F. Rafferty, Memphis, Tennessee, for the appellee, U.S. Bank, N.A., as Servicer for
Tennessee Housing Development Agency.

                                        OPINION

                        I. Background and Procedural History

      The following summary is taken from the Tennessee Supreme Court’s previous
opinion issued in this case on January 29, 2009:

       This appeal arises out of a dispute between U.S. Bank, N.A. (“Bank”), and
       Tennessee Farmers Mutual Insurance Company (“Tennessee Farmers”),
       regarding insurance coverage on a residence which burned while insured
       against fire loss by Tennessee Farmers. The Bank had a mortgage on the
       property and had taken steps to foreclose on the property before the fire loss.
       The parties' dispute centers on whether the Bank was required to give notice,
       pursuant to the terms of the policy, to Tennessee Farmers of the
       commencement of foreclosure proceedings for coverage of the fire loss.

       On February 12, 1999, Jessica Robbins, who later married and was known as
       Jessica Hill (“the homeowner”), purchased a house in Humboldt, Tennessee.
       The Bank financed the home purchase and was designated as the mortgagee
       for purposes of insurance coverage. Tennessee Farmers issued the homeowner
       a personal fire and extended coverage insurance policy, which provided
       coverage for fire loss. The policy contained a standard mortgage clause, under
       which Tennessee Farmers agreed to protect the Bank’s interest in the property,
       and also agreed that the protection afforded the Bank under the policy would
       not be lost due to acts of the insured homeowner, breach of warranty, increase
       in hazard, change of ownership, or foreclosure if the Bank had no knowledge
       of these conditions. In turn, the Bank was required to notify Tennessee
       Farmers of “any increase in hazard” of which the Bank had knowledge. The

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policy did not specifically require notification of foreclosure proceedings.

Beginning in August 2000, the homeowner fell behind on her mortgage
payments to the Bank. On August 22, 2002, the Bank sent the homeowner a
letter notifying her that foreclosure on her residence had started and that this
fact had been reported to a credit agency. In a separate letter, also dated
August 22, 2002, the Bank informed her that “[d]ue to the status of [her]
account, it is necessary to initiate a foreclosure action. The account has been
referred to our attorney to begin legal proceedings immediately.” Thereafter,
on September 5, 2002, the Bank's foreclosure attorney notified the homeowner
by letter that her residence was soon to be foreclosed upon. The Bank's lawyer
also requested a local newspaper to publish a notice of foreclosure sale. On
September 26, 2002, the Bank notified the homeowner by letter that the
foreclosure sale was scheduled to take place on November 5, 2002. On
October 1, 2002, the homeowner and her husband filed for bankruptcy, which
automatically stayed the foreclosure process.

At no point did the Bank notify Tennessee Farmers of the foreclosure
proceedings. On April 12, 2003—eight months after the Bank notified the
homeowner that foreclosure proceedings were underway and over six months
after the foreclosure was stayed by the bankruptcy filing—the insured
residence was destroyed by a fire apparently caused by methamphetamine
production.

The Bank submitted a claim to Tennessee Farmers seeking to recover the
insurance proceeds on the house. Tennessee Farmers refused to pay the claim,
prompting the Bank to file suit against Tennessee Farmers on the grounds of
breach of contract, bad faith refusal to pay an insurance claim, and unfair or
deceptive practices under the Tennessee Consumer Protection Act. The Bank
asserted in its complaint that Tennessee Code Annotated section 56–7–804
prohibited Tennessee Farmers from refusing to pay the Bank's claim based on
the occurrence of a foreclosure. The Bank later filed a motion for partial
summary judgment, arguing that although section 56–7–804 required the Bank
to provide notice to Tennessee Farmers of any increase of hazard of which the
Bank became aware, the statute did not require the Bank to notify Tennessee
Farmers of the commencement of foreclosure proceedings. Tennessee Farmers
also filed a motion for summary judgment arguing that section 56–7–804 had
no application because its relationship with the Bank was governed by the
insurance policy, which required the Bank to notify Tennessee Farmers of
foreclosure proceedings as an increase in hazard. Tennessee Farmers

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        maintained that the Bank’s failure to provide such notice voided the Bank’s
        coverage under the policy. Tennessee Farmers also sought summary judgment
        on the Bank’s bad faith and consumer protection claims.

        The trial court denied Tennessee Farmers’ motion for summary judgment and
        granted the Bank’s motion for partial summary judgment, concluding that the
        Bank’s failure to give the insurer notice of the foreclosure proceedings did not
        invalidate the insurance coverage. The trial court’s order was certified as a
        final judgment pursuant to Rule 54.02 of the Tennessee Rules of Civil
        Procedure to enable Tennessee Farmers to appeal the notice issue. The Court
        of Appeals reversed the trial court, finding that the Bank’s initiation of
        foreclosure proceedings constituted an increase in hazard under both the policy
        and the applicable statute, section 56–7–804, and that the Bank’s failure to
        notify Tennessee Farmers of the foreclosure proceedings relieved Tennessee
        Farmers of its obligation to pay under the policy. We granted the Bank’s
        application for permission to appeal to decide whether the commencement of
        foreclosure proceedings constitutes an increase in hazard for notice purposes
        under the terms of a standard mortgage clause in an insurance policy. [W]e
        hold that the commencement of foreclosure proceedings does not constitute an
        increase in hazard for notice purposes under a standard mortgage clause in an
        insurance policy or for purposes of section 56–7–804, and therefore, the Bank
        was not required to give notice to Tennessee Farmers of the commencement
        of foreclosure proceedings.

U.S. Bank, N.A. v. Tenn. Farmers Mut. Ins. Co., 277 S.W.3d 381, 384-86 (Tenn. 2009). On
remand from the Supreme Court, the following issues remained: (1) the Bank’s breach of
contract claim; (2) the Bank’s bad faith claim under common law and Tennessee Code
Annotated section 65-7-105(a); (4) the Bank’s TCPA claims; and (5) Tennessee Farmers’
counterclaims against the Bank alleging violation of the TCPA, and policyholder bad faith
under Tennessee Code Annotated section 56-7-106.

        In October 2010, a trial was conducted in this matter. Thereafter, on May 24, 2011,
the trial court entered its findings of fact and conclusions of law. On June 22, 2011, the trial
court entered its final judgment in which it awarded the Bank a judgment in the amount of
$55,842.90,1 and attorney’s fees and costs in the amount of $342,368.00. Further, the trial
court dismissed Tennessee Farmers’ counterclaims against the Bank. On July 22, 2011,

        1
         On May 19, 2010, after receiving an order from the trial court, Tennessee Farmers paid $55,842.90,
representing the amount due on the mortgage and accrued interest, into the court to satisfy its obligation
under the insurance policy.

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Tennessee Farmers filed a lengthy post-trial motion entitled “Motion to Alter, Modify, or
Amend Findings of Fact and Conclusions of Law and to Alter or Amend the Judgment in a
Non-Jury Case, or Alternatively Motion for a New Trial,” in which it argued that the trial
court erred in most of its findings of fact and conclusions of law. On October 31, 2011, the
trial court denied Tennessee Farmers’ post-trial motion. Thereafter, Tennessee Farmers
timely filed a notice of appeal to this Court.

                                   II. Issues Presented

       Tennessee Farmers presents the following issues, as restated, for our review:

       (1)    Whether the trial court erred by concluding that the Bank was entitled
              to an award of attorney’s fees under the TCPA without any specific
              finding of a violation of the Act by Tennessee Farmers,

       (2)    Whether the trial court erred by concluding that the Bank could recover
              attorney’s fees from Tennessee Farmers based on equitable principles,
              and that it was entitled to recover attorney’s fees as consequential and
              incidental damages,

       (3)    Whether the trial court erred by concluding that the Bank’s breach of
              contract claim was inseparable from its claim under the TCPA,

       (4)    Whether the trial court erred by concluding that Tennessee recognizes
              a common law cause of action for bad faith in failing to settle a claim
              within the limits of an insurance policy, that such cause of action
              applied to the present case, and that Tennessee Farmers was liable
              under a common law claim for bad-faith failure to pay,

       (5)    Whether the trial court erred in excluding evidence showing that, prior
              to the Supreme Court’s decision in this case, both the insurance and
              banking industry considered the commencement of foreclosure an
              increase in moral hazard, increasing the risk of loss,

       (6)    Whether the trial court erred by concluding that there was no evidence
              or legal authority to support Tennessee Farmers’ position, prior to the
              Supreme Court’s decision, that a mortgagee’s commencement of
              foreclosure is an increase in hazard,

       (7)    Whether the trial court erred by finding that Tennessee Farmers

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              identified no facts to support its interpretation, prior to the Supreme
              Court’s decision, that a mortgagee’s commencement of foreclosure is
              an increase in hazard, and that it made a knowing and conscious
              decision not to inform its policyholders of its interpretation of that
              effect, and

       (8)    Whether the trial court erred in denying Tennessee Farmers’
              counterclaim against the Bank under the TCPA.

       In addition, the Bank presents the following issues, as restated, for our review:

       (1)    Whether this Court has jurisdiction because Tennessee Farmers’
              “Motion to Alter, Modify, or Amend Findings of Fact and
              Conclusions of Law and to Alter or Amend the Judgment in a
              Non-Jury Case, or Alternatively Motion for a New Trial” was
              not a proper motion under Rule 59, and therefore its notice of
              appeal was untimely, and

       (2)    Whether the Bank is entitled to an award of attorney’s fees
              incurred on appeal pursuant to the TCPA.

                                  III. Standard of Review

        We review the trial court’s findings of fact de novo on the record, with a presumption
of correctness unless the evidence preponderates otherwise. Tenn. R. App. P. 13(d). If the
trial court fails to make a specific finding of fact on a particular matter, we review the facts
in the record under a purely de novo standard to determine where the preponderance of the
evidence lies. In re Valentine, 79 S.W.3d 539, 546 (Tenn. 2002) (citing Fields v. State, 40
S.W.3d 450, 457 n. 5 (Tenn. 2001)). We afford great deference to the trial court’s
determinations on the credibility of witnesses. Hughes v. Metro. Gov’t of Nashville &
Davidson Co., 340 S.W.3d 352, 360 (Tenn. 2011); Estate of Walton v. Young, 950 S.W.2d
956, 959 (Tenn. 1997). We review the trial court’s conclusions on matters of law de novo,
with no presumption of correctness. Tenn. R. App. P. 13(d). Likewise, our review of the
trial court's application of the law to the facts is de novo, with no presumption of correctness.
State v. Ingram, 331 S.W.3d 746, 755 (Tenn. 2011).

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                                                6
                                        IV. Analysis

                       A. Tennessee Farmers’ Post-Trial Motion

       We begin by addressing the Bank’s argument that Tennessee Farmers’ post-trial
motion was not a proper motion under Rule 59 of the Tennessee Rules of Civil Procedure.
The Bank argues that, since Tennessee Farmers’ post-trial motion was improper, its notice
of appeal was untimely, and therefore this Court lacks subject matter jurisdiction.

        Subject matter jurisdiction involves a tribunal’s lawful authority to adjudicate the
controversy brought before it. Northland Ins. Co. v. State, 33 S.W.3d 727, 729 (Tenn. 2000);
First Am. Trust Co. v. Franklin-Murray Dev. Co., 59 S.W.3d 135, 140 (Tenn. Ct. App.
2001). This Court may consider subject matter jurisdiction sua sponte. Tenn. R. App. P.
13(b); Ruff v. State, 978 S.W.2d 95, 98 (Tenn. 1998). This Court lacks subject matter
jurisdiction to hear an appeal if the notice of appeal is not timely filed. First Nat'l Bank v.
Goss, 912 S.W.2d 147, 148 (Tenn. Ct. App. 1995). Pursuant to Rule 4 of the Tennessee
Rules of Appellate Procedure, a notice of appeal must be filed within thirty days after the
entry of the judgment appealed from. Tenn. R. App. P 4(a). If the Appellant timely files a
motion under Rule 59.01 of the Tennessee Rules of Civil Procedure, however, the time for
appeal runs from the entry of the order granting or denying such motion. Tenn. R. App. P.
4(b).

     As this Court recently explained in Carbone v. Blaeser,                               No.
W2012-00670-COA-R3CV, 2012 WL 5503862 (Tenn. Ct. App. Nov. 14, 2012):

       Tennessee Rule of Civil Procedure 59 expressly authorizes four categories of
       motions: “(1) under Rule 50.02 for judgment in accordance with a motion for
       a directed verdict; (2) under Rule 52.02 to amend or make additional findings
       of fact, whether or not an alteration of the judgment would be required if the
       motion is granted; (3) under Rule 59.07 for a new trial; or (4) under Rule 59.04
       to alter or amend the judgment.” Tenn. R. Civ. P. 59.01. Furthermore, the
       specified motions are the only means “for extending the time for taking steps
       in the regular appellate process.” Id.; see also Tenn. R. App. P. 4(b).

       Rule 59.02 provides that “[a] motion for new trial and all other motions
       permitted under this rule shall be filed and served within 30 days after
       judgment has been entered in accordance with Rule 58.” Tenn. R. Civ. P.
       59.02. “The purpose of Tenn. R. Civ. P. 59 motions is to prevent unnecessary
       appeals by providing the trial courts with an opportunity to correct errors
       before a judgment becomes final.” Bradley v. McLeod, 984 S.W.2d 929, 933

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                                               7
        (Tenn. Ct. App. 1998), overruled on other grounds by Harris v. Chern, 33
S.W.3d 741, 744 (Tenn. 2000). Thus, for thirty days after entry of a final
        judgment, motions for relief should be premised upon Rule 59.

Id. at *2.

        We emphasize that the propriety of the trial court’s decision denying Tennessee
Farmers’ post-trial motion is not at issue on appeal. Instead, we must determine whether
Tennessee Farmers’ motion was one recognized under Rule 59. In essence, the Bank argues
that Tennessee Farmers’ motion was a motion to reconsider the judgment which is not
contemplated by the Rules. Even if this were so, our courts may construe a motion to
reconsider as a motion to alter or amend under Rule 59.04.2 See McCracken v. Brentwood
United Methodist Church, 958 S.W.2d 792, 795 n.4 (Tenn. Ct. App. 1997) (“The Tennessee
Rules of Civil Procedure do not authorize ‘motions to reconsider.’ We construe this motion
to be a motion to alter or amend pursuant to Tenn. R. Civ. P. 59.04.”). Further, as noted
above, Tennessee Farmers’ post-trial motion was entitled “Motion to Alter, Modify, or
Amend Findings of Fact and Conclusions of Law and to Alter or Amend the Judgment in a
Non-Jury Case, or Alternatively Motion for a New Trial.” Thus, even on the face of its
motion, Tennessee Farmers clearly sought relief under Rule 52.02 3 and Rule 59.04.
Moreover, regardless of the strict formality of Tennessee Farmers’ motion, we must look to
the substance of the motion. See Tenn. Farmers Mut. Ins. Co. v. Farmer, 970 S.W.2d 453,
455 (Tenn. 1998) (“[W]hen determining whether a post-trial motion is one of those
designated by the rules of civil and appellate procedure as tolling commencement of the time
for filing a notice of appeal, courts must consider the substance of the motion, rather than its
form.”). In its post-trial motion, Tennessee Farmers asked the trial court to correct erroneous

        2
         “The purpose of a Rule 59.04 motion to alter or amend a judgment is to provide the trial court with
an opportunity to correct errors before the judgment becomes final.” In re M.L.D., 182 S.W.3d 890, 895
(Tenn. Ct. App. 2005). A motion to alter or amend should “be granted when the controlling law changes
before the judgment becomes final; when previously unavailable evidence becomes available; or to correct
a clear error of law or to prevent injustice.” Id. These motions, however, “should not be used to raise or
present new, previously untried or unasserted theories or legal arguments.” Id.
        3
            Rule 52.02 of the Tennessee Rules of Civil Procedure provides:

        Upon motion of a party made not later than 30 days after entry of judgment the court may
        amend its findings or make additional findings and may amend the judgment accordingly.
        The motion may be made with a motion for a new trial pursuant to Rule 59. When findings
        of fact are made in actions tried by the court without a jury, the question of the sufficiency
        of the evidence to support the findings may be raised on appeal whether or not the party
        raising the question has made in the trial court an objection to such findings or has made a
        motion to amend them or a motion for judgment.

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evidentiary rulings, correct factual rulings that were contrary to the weight of the evidence
presented, and correct substantive legal errors. Although the Bank takes issue with the fact
that Tennessee Farmers challenged most of the trial court’s rulings in its post-trial motion,
we see no reason why this alone would remove it from the purview of Rule 59. Accordingly,
after thoroughly reviewing the record, we conclude that Tennessee Farmers’ post-trial motion
was a proper motion under Rule 59. Because Tennessee Farmers’ timely filed its post-trial
motion, and timely filed a notice of appeal after the trial court denied its post-trial motion,
this Court has subject matter jurisdiction to hear this appeal.

                                  B. Trial Court’s Ruling

       Finally, we must address the trial court’s award of attorney’s fees and costs in favor
of the Bank. The trial court based its award of attorney’s fees on its finding that Tennessee
Farmers’ interpretation of the policy, that the Bank was required to provide them with notice
of the commencement of foreclosure proceedings, amounted to bad faith and an unfair act
or practice under the TCPA.

       In its findings of fact and conclusions of law, the trial court stated:

       The Tennessee Supreme Court’s ruling in this case is consistent with the
       position US Bank has taken throughout the entire pendency of this case,
       whereas, the position taken by [Tennessee Farmers] is not consistent with the
       law, past or present. The record contains no facts to support [Tennessee
       Farmers’] position, nor its privately held interpretation of its own policy in a
       way different from what others dealing with [Tennessee Farmers] would
       assume a correct interpretation to be. Nor did [Tennessee Farmers] make any
       effort to notify any of its policyholders of its unique interpretation of a
       commonly understood term.

       [Tennessee Farmers’] unwritten interpretation of the standard mortgage clause
       in the policy under consideration in the instant case is inconsistent with the
       accepted meaning of the term “increase in hazard.” . . . .

       [Tennessee Farmers’] interpretation of its policy is contrary to the plain
       language of Tenn. Code Ann. Sect. 56-7-804, and it is not supported by the
       language of the policy itself, nor by any evidence brought forth in this case or
       by any rule of law offered.

       ....

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Despite the lack of legal precedent in Tennessee to support the position taken
by [Tennessee Farmers] in this case, it refused to pay US Bank’s claim, forcing
US Bank to commence the present lawsuit. In pursuing its lawful interests in
prosecuting its claim for breach of contract and its request for declaratory
judgment, the court finds that every action taken by US Bank was necessary
and inseparable from the prosecution of its claim under the TCPA.

US Bank’s action to compel [Tennessee Farmers] to pay its claim as a
mortgagee under the standard mortgage clause was also an action to prosecute
claim under the TCPA that [Tennessee Farmers] was guilty of an unfair or
deceptive act or practice. The proof for both was identical, and US Bank's
actions in prosecuting both claims cannot be separated in any meaningful way.

....

[Tennessee Farmers’] interpretation of its own standard mortgage clause in the
policy issued in the present case appears to have been based solely and entirely
upon the subjective opinions of its underwriters as to what the law ought to be,
as opposed to what it is, without regard and with indifference to, long-settled
and fundamental rules of law applicable to insurance policies in Tennessee,
and it did so without notifying its policy holders of its interpretation.

There is no basis in law or in the facts of this case, for [Tennessee Farmers] to
argue, or for the court to conclude, that [Tennessee Farmers] was acting in
good faith in handling this fire loss claim by US Bank as a mortgagee under
the standard mortgage clause issued in the present case. The court finds that
what should have been an ordinary fire loss claim became protracted and
expensive litigation only because of [Tennessee Farmers’] insistence on
interpreting its policy in a legally incorrect way. [Tennessee Farmers’]
argument essentially was that a mortgagee should be required, as a matter of
public policy, to give notice to an insurer when it commences foreclosure
proceedings, irrespective of the fact that neither the law, nor the language of
the policy requires such notice. [Tennessee Farmers] asks this court to fill in
what it considers insufficiencies in the statutory law of the state and its own
policy. The court cannot do that, especially given the following statement by
the Tennessee Supreme Court in the present case: “[W]e decline to read into
this policy an obligation to notify the insurer of the commencement of
foreclosure. In our view, the insurer is essentially asking us to write new a
contract for the parties in accordance with its idea of what the policy should
have said. This we decline to do, as our duty is to construe and enforce the

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                                       1
policy as written, and not to make a new contract for the parties on different
terms.”

....

Simply stated, the interpretation [Tennessee Farmers] would have the court
adopt regarding interpreting the personal fire insurance policy in the present
case is inconsistent with accepted understanding of what constitutes an
“increase in hazard” for purposes of a standard mortgage clause.

....

Under the circumstances of the present case, US Bank is entitled to recover its
attorney’s fees as an element of damages for [Tennessee Farmers’] delay in
paying US Bank’s legitimate claim under the standard mortgage clause and for
compelling US Bank to enforce the terms of this standard mortgage clause
through a protracted series of legal maneuvers.

....

The essential purpose of hazard insurance is to protect a person who has an
ownership interest in property from damage to that property. By purchasing
hazard insurance coverage from [Tennessee Farmers], US Bank had a right to
expect to be protected from casualty losses such as the fire that occurred on
April 12, 2003, and to further expect it would not have to spend hundreds of
thousands of dollars to obtain that protection. US Bank's damage (its
“ascertainable loss of money or property” under the TCPA) viz [Tennessee
Farmers], was [Tennessee Farmers’] failure to protect US Bank’s interest in
the property by refusing to pay US Bank’s claim.

....

Consequently, US Bank is entitled to a judgment for its damages that were
proximately caused by [Tennessee Farmers’] breach of contract in the present
case, those damages to include the principal unpaid balance on the
mortgage-loan, interest and all consequential and incidental damages US Bank
has incurred due to [Tennessee Farmers’] six year delay in paying this claim
under the standard mortgage clause.

In the alternative, the court finds that US Bank is entitled to an award of

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                                      1
attorneys’ fees under the TCPA, and since its claim for breach of contract was
identical to, or at least based upon the same set of facts, US Bank’s attorneys’
fees cannot be meaningfully separated, and US Bank is entitled to a judgment
for all its attorneys’ fees and all other expenses incurred in prosecuting this
case.

....

The defendant, [Tennessee Farmers], argues that it has a right to challenge
claims that are questionable, arguable or fairly debatable as to either matters
of law or fact without being subject to a bad-faith claim, and so it does.
Whether a claim is fairly debatable, however, depends upon whether a
reasonable insurer under the circumstances would have denied payment based
upon the information available to it at the time of the denial. This court finds
that a reasonable insurer would not have done so in this case.

....

US Bank has shown by a preponderance of the evidence the following
elements of a common law claim for a bad-faith failure to pay:

         a. That [Tennessee Farmers] issued a policy of insurance to US Bank
         and that US Bank made lawful, reasonable claim under that policy;

         b. That [Tennessee Farmers] intentionally refused to pay US Bank’s
claim;

         c. That [Tennessee Farmers] had no reasonably legitimate or arguable
         reason for its refusal to pay the claim;

         d. That [Tennessee Farmers] had actual knowledge of the absence of a
         reasonably legitimate, debatable or arguable reason for the refusal; and

         e. That [Tennessee Farmers] intentionally failed to determine whether
         it had a reasonably legitimate or arguable reason for refusing to pay US
         Bank’s claim.

See American Jurisprudence 2d, Insurance Sect. 1736

In refusing to pay this claim, [Tennessee Farmers] relied upon an unwritten

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                                        1
       and undisclosed interpretation of its own policy, a policy it could have easily
       made clear and consistent with [Tennessee Farmers’] inaccurate interpretation
       of it. This refusal to pay US Bank’s lawful claim has caused US Bank to incur
       unnecessary and additional expense, loss and injury, including attorneys’ fees.

        We respectfully disagree with the trial court’s conclusion that Tennessee Farmers’
interpretation of the policy throughout the litigation amounted to bad faith and an unfair act
or practice under the TCPA. As noted by the Supreme Court, the issue of whether, under a
standard mortgage clause in a fire insurance policy, the Bank’s commencement of
foreclosure proceedings amounted to an increase in hazard requiring notification to
Tennessee Farmers involved “a matter of first impression.” U.S. Bank, N.A. v. Tenn.
Farmers Mut. Ins. Co., 277 S.W.3d 381 (Tenn. 2009). The Supreme Court further noted that
“no Tennessee case has squarely addressed the precise issue presented . . . .” Id. at 388.
Moreover, prior to the Supreme Court’s opinion, this Court agreed with Tennessee Farmers’
interpretation of the policy. Clearly, reasonable minds disagreed over the precise issue which
the trial court claimed to be well-settled. In fact, had the Supreme Court agreed with the
position taken by this Court, there would be no basis for the trial court’s reasoning that
Tennessee Farmers’ interpretation was unreasonable and inconsistent with well-settled law.
Absent the use of hindsight and the retroactive application of the Supreme Court’s ruling, the
trial court failed to provide, and we are unable to find, any other basis to conclude that
Tennessee Farmers acted in bad faith and in violation of the TCPA. Accordingly, we reverse
the judgment of the trial court. Furthermore, we find no merit in Tennessee Farmers’
contention that the trial court erred in denying its counterclaim against the Bank under the
TCPA. All other issues in this cause are pretermitted.

                                      V. Conclusion

       For the forgoing reasons, we reverse the judgment of the trial court and remand for
further proceedings consistent with this Opinion. Costs of this appeal are taxed to the
Appellee, U.S. Bank, N.A., as servicer for the Tennessee Housing Development Agency, for
which execution may issue if necessary.

                                                    _________________________________
                                                    DAVID R. FARMER, JUDGE

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