No Bad Faith by TFMIC in Denying Bank's Fire Claim for Failure to Notify of Foreclosure

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

Court: TN Court of Appeals

Attorneys:

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.

Judge: FARMER

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.

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