ÿWPC( {Ë<¾3ÅÉ´­oß’™ÿҊس8|¥$ÙY2†VŽlÔ½"‚Î=)ø†)0 ë(#AŸ™_z¶xÊÁ¨Ì± 57-*áØ›Ã¬;š°4=v‘|9ÅÇIùW–pR©.>ø‚6Y~BÜÏ7bŽO (Ëk×T^)Ðc G;̽€QÓ—Þf¯øÑ€k*‘é2ÞîQ5·ù·üIc—ôòwâ¶7Ü&­;/›hûÎsP-rô°fß›5„SN! ›f›ÞûÍè$UU4b·F7ÿ¡0þE3ϯ­ý™…EˆÔ9ïô êÐwÛö[u¼ûÔñë¹Ùfšú©šþ˜|gd±c,€]{Ù¥d¼7I4™ˆf<ÆæìýÜÖ”Ewz…¨<•Bûmø’ sÐ ÁAQ4ƒ1VaWwƒ¹×v År?¤am9¥.¢-EÌÇ;5g‰Ü°x‚6v+î)ÀØgGHìŽÞÏ{LÃÍòŒ;m yM§§é6)i%Va=¸ëU³x£<îú„#ó”BÅd»Å ~ÑÓ„}ØŸÓ‹Šeú¼{È!¶3”°Óí )P@gÖšlÂ]cª`öE$Ê~J:€ÅZîL0\PÒâ×ô£$Ò }WÇb %\UNb 0ˆ° 0D8U"N|Ê`à z@ Òº U:Œ ^ Æ ÁÒ w“Æ—Æ]Æ#Æéc¯NN4E*,; m=T#Á\\\\\\\\\\\\\\\\\\\b 0ë%%%% B 0¤- D3Ñ D- 0K11 AS|ÆÏ 0¤• 0D9 A«}»(ÖÃ9 Z‹6Times New Roman Regular(`£ª$¡¡Ñ€.ÑÑ8€½­»»d»»d8ÑÑ ý ÑÓ  Ó(#Ã$òòÚ  Ú0Ú  Úóó(í€"  Z6Times New Roman Regular Ñ e Ñ VÝ ƒR1h$ÝÓ  Óà  àòòÚ  Ú2Ú  ÚóóÔ€ôÚ„ò»»ÔÝ  ÝÔ_Ô€McColgan€purchased€the€building,€land,€and€existing€inventory€for€$55,000.00.€€Prior€to€the€fire€on€April€3,Ð ° Ð2000,€the€auto€parts€building€was€appraised€for€tax€purposes€at€$12,800.00.€€The€land€upon€which€the€building€wasÐ xÈ Ðlocated€was€appraised€at€$7,300.00.€€McColgan€asserted€at€trial€that€these€appraisal€values€were€irrelevant€forÐ @ Ðdetermining€the€reasonable€resale€value€of€the€property€at€the€time€of€loss. ˜C:\PROGRA~1\COREL\WORDPE~1\TEMPLATE\CUSTOM~1\REVISE~1.WPTC:\Program Files\Corel\WordPerfect Office 2000\Template\Custom WP Templates\revised standard opinion.wpt,c½¬AZ‹"Arial Regular´{K-s  ·Ý ƒR1h$ÝÓ  Óà  àòòÚ  Ú1Ú  ÚóóÔ€ôÚ„ò»»ÔÝ  ÝÔ_Ô€Ron€Ô_ÔMcColganÔ_Ô€died€on€or€about€May€13,€2002.€€In€an€agreed€order,€Virginia€Ô_ÔMcColganÔ_Ô,€the€Ô_ÔadministratrixÔ_ÔÐ ° Ðof€Ron€Ô_ÔMcColganÔ_Ôððs€estate,€was€substituted€as€the€appellee.Level 1Level 2Level 3Level 4Level 5‚Level 1Level 2Level 3Level 4Level 5„Level 1Level 2Level 3Level 4Level 5…Level 1Level 2Level 3Level 4Level 5 YÝ ƒR1h$ÝÓ  Óà  àòòÚ  Ú3Ú  ÚóóÔ€ôÚ„ò»»ÔÝ  ÝÔ_Ô€After€the€formal€demand€letter€of€August€14,€2000,€McColgan€incurred€an€additional€$3,986.00€in€expensesÐ ° Ðfor€debris€removal.€€He€removed€the€debris€at€the€demand€of€the€city€of€Big€Sandy,€Tennessee.ä]ö,€”¨bk0…¨3|xÿU‹ÿÀÀÀ ˜HP LaserJet 4 Plus,ð,,,,,ð0- ù-(|G21h$¤¤Ý ƒ£ª!ÝÑ€.ÑÑ8€¦l»»dd8ÑÑ ý ÑÓ  ÓÝ  Ýà  àòòÚ  Ú0Ú  ÚóóÔ€ôÚ„ò»»Ô d(|3A$££Ý ƒ£ª!ÝÑ€.ÑÑ8€¦l»»dd8ÑÑ ý ÑÓ  ÓÝ  ÝVVVV'ÿÿdxd)!ÈÈÈÈdxdx( ±þ$’’ò òFigure€Ú  Ú1Ú  Úó ó^_X`YEþÿ<<CÿÿƒLevel 1Level 2Level 3Level 4Level 5(|3A$¢¢Ý ƒ£ª!ÝÑ€.ÑÑ8€¦l»»dd8ÑÑ ý ÑÓ  ÓÝ  Ý($$””ò òÚ  Ú1Ú  Úó óX[Z&OLE 2.0 Box <=8ÿÿÿÿÿÿÿÿÿÿCÿÿ HKKKKÝ ƒ£ª!ÝÑ€.ÑÑ8€¦l»»ddÈ8ÑÑ ý ÑÓ  ÓÝ  ÝÔ_ÔÑ  ÑÔ€¼¦l»»»ÔÑ8€ª[XXdð»»d8ÑÑ  ÑÓ*°ÈX‡XV“X°œX*Óà@ü ü ìàÔ‡îø_¦lÔIN€THE€COURT€OF€APPEALS€OF€TENNESSEEˆÐ ° Ðà@õõ%ìàAT€JACKSONÔ#†¼¦l»îîø_6#ԈРÜ, ÐÓ  ÓOn„Briefs€August€8,€2002Ð X ÐÔ‡Xª[X»¼¦lÔÌò òÔ#†¼¦l»XXª[#ÔRON€MCCOLGAN€d/b/a€BIG€SANDY€AUTO€PARTSòòóó€v.€AUTO„OWNERSÐ  ` ÐINSURANCE€COMPANYòòóóÔ‡Xª[X»¼¦lÔó óÐ ( x ÐÌà@@½½ìàò òA€Direct€Appeal€from€the€Chancery€Court€for€Benton€CountyÐ 0 € Ðà@@øøìàNo.€00„168€€€€€€The€Honorable€Ron€E.€Harmon,€ChancellorÐ  p ÐÌÌà@@ìì*ìàßA€V) °°` d€÷E<ï` AßÐ ð@  ÐÌà@@TTìàNo.€W2002„00114„Ô_ÔCOAÔ_Ô„R3„CV€„€Filed€October€11,€Ô_Ô2002Ô_ÔÐ ï?  ÐÌßA€V) °°` dE<Î` AßÐ Ï Ðó óÌÓ  ÓÔ‡Xâ@XXXª[Ôà  àAppellee„insured€filed€a€complaint€against€appellant„insurance€company€for€breach€ofÐ Î Ðcontract€and€bad€faith€penalties€when€appellant€refused€to€pay€coverage€owed€under€an€existingÐ º  Ðpolicy€for€fire€damages€appellee€suffered€to€his€place€of€business€and€business€personal€property.€Ð ¦ö ÐAppellant€raised€an€affirmative€defense€of€arson.€€Chancery€court€awarded€appellee€policy€proceedsÐ ’â Ðequal€to€the€coverage€limits€provided€in€his€policy€and€a€twenty„five€percent€bad€faith€penaltyÐ ~Î Ðpursuant€to€T.C.A.€ðð€56„7„105.€€Appellant€appeals€solely€on€the€issue€of€the€bad€faith€penalty.€€WeÐ jº Ðreverse€in€part,€affirm€in€part€and€remand.Ô#†Xª[XXXâ@/#ÔÔ#†¼¦l»XXª[Ë#ÔÔ‡Xª[X»¼¦lÔÐ V¦ ÐÓ#ÓÌò òTenn.€R.€App.€P.€3;€Appeal€as€of€Right;€Judgment€of€the€Chancery€Court€Reversed€in€Part,Ð 2‚ ÐAffirmed€in€Part,€and€Remandedó óÐ "r ÐÌòòÓ  ÓÔ#†¼¦l»àXª[…#ÔÔ‡Xª[X.¼¦lÔW.€Frank€Crawford,€P.J.,€W.S.óó,€delivered€the€opinion€of€the€court,€in€which€òòAlan€E.€Highers,Ð R ÐJ.óó€and€òòDavid€R.€Farmer,€J.óó,€joined.Ð òB ÐÌDwayne€D.€Maddox€III,€Huntingdon,€For€Appellant,€Auto€Owners€Insurance€CompanyÐ Ò " ÐÌTerry€J.€Leonard,€Camden,€For€Appellee,€Ron€McColgan,€d/b/a€Big€Sandy€Auto€PartsÐ ²"! ÐÓt ÓÌò òOPINIONó óÔ#†¼¦l»XXª[£ #ÔÔ‡Xª[X»¼¦lÔÐ ’$â# ÐÌòòóóÔ#†¼¦l»XXª[… #ÔÔ‡Xª[X»¼¦lÔÓ  ÓÑ€ïWÑÑ8€â@XXdìXXdð8Ñà  àAppellee€Ron€McColgan€d/b/a€Big€Sandy€Auto€Parts€(ð ðMcColganðð)׃ ×Ý ƒ#ÃÝòòÚ  Ú1Ú  ÚóóÝ  Ý×  ×€was€the€owner„operatorÐ r&Â!% Ðof€Big€Sandy€Auto€Parts,€a€vehicle€parts€supply€store€located€in€Big€Sandy,€Tennessee.€€McColganÐ b'²"& Ðâ âalso€owned€a€convenience€store€operated€under€the€name€of€Buckððs€Place,€located€on€a€lot€adjacentÐ R(¢#'ýà Ðto€the€auto€parts€store.€€After€acquiring€the€auto€parts€building€and€existing€inventory€in€1997,׃×Ý ƒ#ÃÝòòÚ  Ú2Ú  ÚóóÝ  Ý×  ×Ð ° Ðâ âMcColgan€purchased€a€fire€policy€for€the€parts€store€from€Auto€Owners€Insurance€Company€(ð ðAutoÐ  ð ÐOwnersðð).€€Pursuant€to€the€terms€of€the€policy,€Auto€Owners€provided€replacement€cost€coverageÐ à Ðfor€the€building€with€limits€of€$90,000.00€and€for€business€personal€property€with€limits€ofÐ €Ð Ð$30,000.00.€€Both€limits€were€subject€to€$500.00€deductibles.€€The€policy€also€included€a€$5,000.00Ð pÀ Ðlimit€for€debris€removal.€€The€policy€term€covered€the€time€period€from€January€10,€2000€throughÐ ` ° ÐJanuary€10,€2001.Ð P   ÐÌà  àOn€April€3,€2000,€a€fire€completely€destroyed€the€building€that€housed€McColganððs€auto€partsÐ 0 € Ðbusiness,€and€the€contents€and€inventory€therein.€€McColgan€was€in€Chattanooga€at€the€time€of€theÐ  p  Ðfire,€working€for€Orchard€Fence€Company.€€He€notified€the€insurance€company€of€the€fire,€and€AutoÐ `  ÐOwners€retained€Southern€Fire€Analysis,€Inc.€(ð ðSFAðð)€to€conduct€an€investigation€of€the€fireððs€origin.€Ð P  ÐJim€Jennings€(ð ðJenningsðð),€a€certified€fire€inspector,€performed€the€investigation€for€SFA.€€As€partÐ ð@  Ðof€his€investigation,€Jennings€spoke€with€McColgan,€employees€of€the€store,€and€the€local€volunteerÐ à0  ÐFire€Chief.€€After€completing€his€investigation,€Jennings€concluded€that€the€fire€was€arson€related,Ð Ð  Ðpinpointing€the€direct€cause€and€origin€of€the€fire€as€arson.€€According€to€Jenningsðð€report,€the€fireÐ À Ðoriginated€in€the€rear€corner€of€the€building€and€was€sparked€by€the€intentional€use€of€mineral€spiritsÐ ° Ðas€an€accelerant.€€McColgan€stipulated€to€the€fact€that€the€cause€and€origin€of€the€fire€was€arson.Ð  ð ÐÌà  àAt€trial,€McColgan€testified€that€he€had€operated€his€auto€parts€business€at€a€loss€ever€sinceÐ €Ð Ðhis€purchase€in€1997.€€His€testimony€revealed€that€he€lost€over€$22,000.00€on€this€business€in€1998.€Ð pÀ ÐMcColgan€further€testified€that€at€the€time€of€the€fire,€he€was€indebted€to€various€creditors€for€a€totalÐ `° Ðamount€exceeding€$100,000.00.€€During€the€trial,€Auto€Owners€also€elicited€information€fromÐ P  ÐMcColgan€regarding€two€prior€felony€convictions€involving€drugs€and€possession€of€stolen€property.Ð @ ÐÌà  àIn€compliance€with€the€terms€of€his€policy,€McColgan€filed€a€claim€for€the€loss€of€theÐ  p Ðbuilding€and€contents.€€Auto€Owners€hired€Keith€Juneau€(ð ðJuneauðð),€an€independent€claims€adjusterÐ ` Ðwith€Juneau€Property€Claims€Service,€to€assess€McColganððs€claim.€€In€his€report,€Juneau€determinedÐ P Ðthat€McColganððs€losses€exceeded€the€policy€limits.€€Auto€Owners€denied€the€claim.Ð ð@ ÐÌà  àIn€a€letter€dated€August€14,€2000,€McColgan€issued€a€formal€demand€for€payment€of€theÐ Ð  Ðinsurance€proceeds.€€McColgan€requested€a€total€reimbursement€of€$120,000.00,€$90,000.00€forÐ À! Ðlosses€to€his€building€and€$30,000.00€for€losses€to€business€personal€property.€€Payment€wasÐ °"  Ðdemanded€within€60€days.׃°×Ý ƒ#ÃÝòòÚ  Ú3Ú  ÚóóÝ  Ý×  ×€€McColgan€further€warned€that€failure€to€pay€the€policy€proceeds€wouldÐ  #ð! Ðprompt€legal€action,€in€which€he€would€request€the€court€to€award€damages,€prejudgment€interest,Ð $à" Ðand€bad€faith€penalties€pursuant€to€T.C.A.€ðð€56„7„105.€€Despite€McColganððs€request,€Auto€OwnersÐ ° Ðremained€steadfast€in€its€refusal€to€pay.Ð  ð ÐÌà  àOn€October€20,€2000,€McColgan€filed€suit€in€chancery€court€alleging€breach€of€contract.€Ð €Ð ÐMcColgan€also€sought€bad€faith€penalties€under€T.C.A.€ðð€56„7„105€for€failure€of€Auto€Owners€toÐ pÀ Ðpromptly€pay€a€valid€claim.€€On€September€21,€2001,€McColgan€filed€a€motion€to€amend€or€alter€hisÐ ` ° Ðcomplaint,€praying€for€the€additional€recovery€of€prejudgment€interest.€€The€court€granted€theÐ P   Ðmotion,€and€a€bench€trial€followed€on€November€21,€2001.Ð @  ÐÌà  àAt€the€conclusion€of€the€trial,€the€trial€court€found€that€plaintiff€had€a€valid€insurance€policyÐ  p  Ðwith€Auto€Owners€for€the€coverage€heretofore€set€out,€that€plaintiff€suffered€a€total€loss€of€theÐ `  Ðinsured€property,€which€is€more€than€the€coverage€of€the€policy,€and€that€neither€McGolgan,€nor€anyÐ P  Ðone€in€his€behalf,€caused€the€fire.€€On€December€10,€2001,€the€court€filed€a€final€order€stating:Ð ð@  ÐÌà8  àà8` Ð Ð àà ¸ àThis€cause€came€on€to€be€heard€on€this€the€21st€day€ofÐ Ð  ÐNovember,€2001,€before€the€Honorable€Ron€E.€Harmon,€presiding€inÐ À Ðthe€Chancery€Court€of€Benton€County,€Tennessee,€upon€theÐ ° ÐComplaint,€Answer,€testimony€of€witnesses€and€the€entire€record:Рð` x` x ÐÌà8  àà8` Ð Ð àà ¸ àThe€Court€finds€that€the€Plaintiff€suffered€a€fire€loss€to€hisÐ €Ð Ðbuilding€and€personal€property€on€April€3,€2000.€€At€the€time€of€theÐ pÀ Ðfire,€the€Plaintiff€had€a€valid€insurance€policy€in€effect€with€theÐ `° ÐDefendant.€€The€Court€further€finds€that€the€Plaintiff€did€not€cause€theÐ P  Ðfire€nor€did€he€have€anyone€on€his€behalf€to€cause€the€fire.Ð@` x` x ÐÌà8  àà8` Ð Ð àà ¸ àIT€IS,€THEREFORE€ORDERED€that€the€Plaintiff€is€herebyÐ  p Ðawarded€a€Judgment€against€the€Defendant,€Auto€Owners€InsuranceÐ ` ÐCompany€for€the€loss€to€his€building€in€the€amount€of€NINETYÐ P ÐTHOUSAND€and€00/100€($90,000.00)€DOLLARS€less€a€fiveÐ ð@ Ðhundred€dollar€($500.00)€deductible,€THIRTY€THOUSAND€andÐ à0 Ð00/100€($30,000.00)€DOLLARS€less€a€five€hundred€dollar€($500.00)Ð Ð  Ðdeductible€for€the€loss€of€his€contents,€THREE€THOUSAND€NINEÐ À! ÐHUNDRED€EIGHTY€SIX€and€00/100€($3,986.00)€DOLLARS€forÐ °"  Ðthe€clean€up,€THIRTEEN€THOUSAND€FIVE€HUNDREDÐ  #ð! ÐSEVENTY€SEVEN€and€07/100€($13,577.07)€DOLLARS€forÐ $à" Ðprejudgment€interest€from€October14,€2000€through€November€21,Ð €%Ð # Ð2001€which€is€calculated€for€403€days€at€a€rate€of€$33.69€per€day€andÐ p&À!$ ÐTWENTY€NINE€THOUSAND€SEVEN€HUNDRED€FIFTYÐ `'°"% ÐDOLLARS€($29,750.00)€DOLLARS€for€bad€faith€penalties€which€isÐ P( #& Ð25%€of€the€total€judgment€regarding€Plaintiffððs€building€and€contents.Ð@)$'` x` x ÐÌà8  àà8` Ð Ð àà ¸ àIT€IS€FURTHER€ORDERED€that€the€said€attorney€forÐ  +p&) ÐPlaintiff€recover€his€discretionary€costs€from€the€Defendant€in€theÐ ,`'* ÐÑïWÑâ âÑe°Ñâ âÑ  Ñamount€of€$147.20€and€that€same€be€assessed€as€court€costs€and€moreÐ ° Ðspecifically€Defendant€is€ordered€to€pay€to€Terry€J.€LeonardÐ  ð Ðreimbursement€for€the€following:€€Doris€Harris,€Court€ReporterÐ à Ð(deposition€of€parties)€in€the€amount€of€$147.20.ЀÐ` x` x ÐÌà8  àà8` Ð Ð àà ¸ àWHEREFORE,€IT€IS€ORDERED€that€the€Plaintiff€is€herebyÐ ` ° Ðawarded€a€Judgment€against€the€Defendant,€Auto€Owners€InsuranceÐ P   ÐCompany€for€the€total€amount€of€ONE€HUNDRED€SIXTY€SIXÐ @  ÐTHOUSAND€THREE€HUNDRED€THIRTEEN€and€07/100Ð 0 € Ð($166,313.07)€DOLLARS,€plus€discretionary€cost€in€the€amount€ofÐ  p  ÐONE€HUNDRED€FORTY€SEVEN€and€20/100€($147.20)Ð `  ÐDOLLARS,€plus€additional€prejudgment€interest€at€a€rate€of€$33.69Ð P  Ðper€day€from€November€22,€2001€through€the€entry€of€this€Order.Ðð@ ` x` x ÐÌà8  àà8` Ð Ð àà ¸ àIT€IS€FURTHER€ORDERED€that€the€Defendant€pay€the€costsÐ Ð  Ðof€the€cause€for€which€let€execution€issue€if€necessary.ÐÀ` x` x ÐÌà  àAuto€Owners€has€appealed€and€presents€the€sole€issue€for€review,€as€stated€in€its€brief:€€ð ðDidÐ  ð Ðthe€trial€court€err€in€allowing€statutory€bad€faith€penalties€under€Tennessee€Code€Annotated€Ô‡ XÕØ XXXª[ÔððÔ#†Xª[X X XÕØŸ0#ÔÔ‡Xâ@XXXª[Ô€56„7„Ð à Ð105€based€upon€the€proof€offered€by€the€plaintiff?ððÐ à ÐÌà  àSince€the€case€was€tried€by€the€court€sitting€without€a€jury,€we€review€the€case€de€novo€uponÐ h¸ Ðthe€record€with€a€presumption€of€correctness€of€the€findings€of€fact€by€the€trial€court.€€Unless€theÐ T¤ Ðevidence€preponderates€against€the€findings,€we€must€affirm,€absent€error€of€law.€€T.R.A.P.€13(d).Ð @ ÐÌà  àSection€56„7„105(a)€(2000)€of€the€Tennessee€Code€Annotated€provides:Ð h ÐÌà8  àà8` Ð Ð àThe€insurance€companies€of€this€state,€and€foreign€insuranceÐ ð@ Ðcompanies€and€other€persons€or€corporations€doing€an€insurance€orÐ Ü, Ðfidelity€bonding€business€in€this€state,€in€all€cases€when€a€loss€occursÐ È Ðand€they€refuse€to€pay€the€loss€within€sixty€(60)€days€after€a€demandÐ ´  Ðhas€been€made€by€the€holder€of€the€policy€or€fidelity€bond€on€whichÐ  !ð Ðthe€loss€occurred,€shall€be€liable€to€pay€the€holder€of€the€policy€orÐ Œ"Ü  Ðfidelity€bond,€in€addition€to€the€loss€and€interest€thereon,€a€sum€notÐ x#È! Ðexceeding€twenty„five€percent€(25%)€on€the€liability€for€the€loss;Ð d$´" Ðprovided,€that€it€is€made€to€appear€to€the€court€or€jury€trying€the€caseÐ P%  # Ðthat€the€refusal€to€pay€the€loss€was€not€in€good€faith,€and€that€suchÐ <&Œ!$ Ðfailure€to€pay€inflicted€additional€expense,€loss,€or€injury€includingÐ ('x"% Ðattorney€fees€upon€the€holder€of€the€policy€or€fidelity€bond;€andÐ (d#& Ðprovided€further,€that€such€additional€liability,€within€the€limitÐ )P$' Ðprescribed,€shall,€in€the€discretion€of€the€court€or€jury€trying€the€case,Ð ì)<%( Ðbe€measured€by€the€additional€expense,€loss,€and€injury€includingÐ Ø*(&) Ðattorney€fees€thus€entailed.ÐÄ+'*` x` x ЇThis€statute€is€penal€in€nature,€and€therefore€must€be€strictly€construed.€€òòò òMinton€v.€TennesseeÐ ° ÐFarmers€Mut.€Ins.€Co.óóó ó,€832€S.W.2d€35,€38€(Tenn.€Ct.€App.€1992).Ð œì ÐÌà  àTo€recover€bad€faith€penalties€under€T.C.A.ðð€56„7„105,€the€claimant€must€prove€theÐ tÄ Ðfollowing:€Ð `° ÐÌà8  àà8` Ð Ð à(1)€the€policy€of€insurance€must,€by€its€terms,€have€become€due€andÐ 8 ˆ Ðpayable,€(2)€a€formal€demand€for€payment€must€have€been€made,€à8@Ôƒàà8@ÔÐ Ð à(3)Ð $ t Ðthe€insured€must€have€waited€60€days€after€making€demand€beforeÐ  ` Ðfiling€suit€(unless€there€was€a€refusal€to€pay€prior€to€the€expiration€ofÐ ü L  Ðthe€60€days),€and€(4)€the€refusal€to€pay€must€not€have€been€in€goodÐ è 8  Ðfaith.€€ÐÔ$ ` x` x ÐÌò òòòMintonóóó ó,€832€S.W.2d€at€38€(citing€ò òòòPalmer€v.€Nationwide€Mutual€Fire€Ins.€Co.óóó ó,€723€S.W.2d€124,€126Ð ¬ü  Ð(Tenn.€Ct.€App.€1986)).Ð ˜è  ÐÌà  àThe€burden€of€proving€that€an€insurance€company€acted€in€bad€faith€in€refusing€to€pay€a€claimÐ pÀ Ðlies€with€the€insured.€€ò òòòSeeóóó ó€ò òòòNelms€v.€Tennessee€Farmers€Mut.€Ins.€Co.óóó ó,€613€S.W.2d€481,€484€(Tenn.Ð \¬ ÐCt.€App.€1978)€(citing€ò òòòLife€&€Casualty€Ins.€Co.€v.€Robertsonóóó ó,€6€Tenn.€App.€43€(1927);€ò òòòPittman€v.Ð H˜ ÐMissouri€State€Life€Ins.€Co.óóó ó,€12€Tenn.€App.€228€(1930)).€€The€issue€of€bad€faith€is€a€factÐ 4„ Ðdetermination.€€ò òòòSee€Mason€v.€Tennessee€Farmers€Mut.€Ins.€Co.óóó ó,€640€SW.2d€561,€567€(Tenn.€Ct.Ð  p ÐApp.€1982).Ð  \ ÐÌà  àIn€finding€Auto€Owners€liable€under€its€policy,€the€chancellor€concluded€that€the€loss€wasÐ ä4 Ðcaused€by€a€fire€ð ðof€unknown€originðð€and€that€McColgan€was€not€responsible€in€any€manner€forÐ Ð  Ðcausing€the€fire.€€The€Chancellor€noted€that€McColgan€fully€cooperated€with€the€investigationÐ ¼  Ðconducted€by€Auto€Owners,€adequately€complied€with€the€claim€notification€terms€of€the€policy,€andÐ ¨ø Ðmade€a€valid€and€timely€formal€demand€for€payment.€€The€chancellorððs€award€of€bad€faith€penaltiesÐ ”ä Ðwas€based€on€his€finding€that€Auto€Owners€was€not€justified€in€withholding€payment€on€McColganððsÐ €Ð Ðclaim,€as€there€was€no€proof€tying€him€to€the€fire€loss€or€the€cause€of€the€fire.€Auto€Owners€put€onÐ l¼ Ðno€proof€at€the€trial,€and€there€simply€is€no€proof€in€the€record€justifying€Auto€Owners€denial€ofÐ X ¨ ÐMcColganððs€claim.€€The€evidence€does€not€preponderate€against€the€findings€of€the€chancellor.Ð D!” ÐÌà  àThe€parties€do€not€dispute€the€factual€conclusions€in€Jenningsðð€report€to€SFA€that€the€fire€wasÐ #l! Ðcaused€by€arson.€€Instead,€the€underlying€dispute€in€this€case€is€whether€McColgan€presentedÐ $X" Ðsufficient€evidence€to€prove€that€Auto€Owners€acted€in€bad€faith€in€denying€his€claim.€€Auto€OwnersÐ ô$D # Ðargues€that€a€bad€penalty€under€T.C.A.€ðð€56„7„105€should€not€be€given€against€an€insurance€companyÐ à%0!$ Ðabsent€a€finding€of€ð ðmoral€turpitude.ðð€€It€contends€that€its€denial€of€McColganððs€claim€was€notÐ Ì&"% Ðmotivated€by€moral€turpitude.€€Rather,€Auto€Owners€argues€that€it€was€justified€in€denying€the€claimÐ ¸'#& Ðfor€the€following€reasons.€€First,€the€fire€was€intentionally€set€using€mineral€spirits€as€an€accelerant.€Ð ¤(ô#' ÐSecond,€McColgan€was€a€convicted€felon€with€a€total€indebtedness€exceeding€$100,000.00.€€Third,Ð )à$( ÐMcColganððs€business€operated€at€a€loss€for€four€straight€years.€€Yet,€under€the€terms€of€his€policy,Ð |*Ì%) Ðâ âMcColgan€could€finally€realize€a€profit€on€the€business,€as€he€stood€to€recover€losses€in€excess€of€hisÐ h+¸&* Ðinitial€investment.€€Auto€Owners€asserts€that,€considered€together,€all€of€these€factors€suggest€aÐ ° Ðmotive€for€arson€and,€at€the€very€least,€constitute€a€good€faith€basis€for€denial€of€Ô_ÔMcColganÔ_Ôððs€claim.Ð œì Ðâ âÌà  àDespite€the€ð ðsuspiciousðð€nature€of€the€circumstantial€evidence€proffered€by€Auto€Owners,Ð tÄ Ðwe€find€that€McColgan€has€presented€sufficient€evidence€to€support€a€finding€of€bad€faith.€AlthoughÐ `° Ðthe€evidence€noted€above€lends€credence€to€an€arson€motive,€under€the€circumstances,€the€failure€ofÐ L œ Ðthe€Auto€Owners€to€pay€was€not€in€good€faith.€€McColgan€produced€evidence€that€he€complied€fullyÐ 8 ˆ Ðwith€the€policy€requirements€for€notification€of€claims€and€demand€of€payment,€that€the€policy€wasÐ $ t Ðvalid,€and€that€the€policy€covered€the€type€of€loss€suffered.€€Additionally,€he€offered€a€verifiableÐ  ` Ðexplanation€for€his€whereabouts€on€the€morning€of€the€fire€and€the€days€leading€up€to€the€loss.€€MostÐ ü L  Ðimportantly,€we€find€that€the€McColgan€has€sufficiently€proven€a€lack€of€good€faith€by€demonstratingÐ è 8  Ðthat€the€record€contains€no€evidence€connecting€him€to€the€fire€or€its€cause.€€As€a€result,€AutoÐ Ô$  ÐOwners€was€not€justified€in€withholding€payment€on€McColganððs€claim.€€Auto€Ownersðð€refusal€toÐ À  Ðhonor€the€policy€terms€without€any€justification€constituted€bad€faith.Ð ¬ü  ÐÌà  àMcColgan€satisfied€the€recovery€requirements€of€ðð€56„7„105€by€introducing€evidence€thatÐ „Ô  Ðhe€suffered€a€loss€to€his€building€and€business€personal€property€which€was€protected€under€a€validÐ pÀ Ðfire€insurance€policy€providing€coverage.€€McColgan€filed€his€suit€against€Auto€Owners€on€OctoberÐ \¬ Ð20,€2000,€more€than€60€days€after€his€formal€demand€for€payment€of€August€14,€2000.€€Additionally,Ð H˜ ÐMcColgan€testified€that€he€incurred€additional€expense€in€the€form€of€attorney€fees€as€a€result€ofÐ 4„ ÐAuto€Ownersðð€refusal€to€honor€the€policy.€€However,€we€have€searched€the€record€for€any€proof€ofÐ  p Ðthe€amount€of€such€fees€but€cannot€find€such€proof.€€The€bad€faith€penalty€statute€allows€for€recoveryÐ  \ Ðof€an€amount€òòò òup€toó óóó€twenty„five€percent€of€the€amount€of€loss€and€is€ð ðmeasured€by€the€additionalÐ øH Ðexpense,€loss,€or€injury€inflicted€upon€the€defendant€by€reason€of€the€suit.ðð€€T.C.A.€Ô#†Xª[XXXâ@å0#ÔÔ‡ XÕØ XXXª[ÔððÔ#†Xª[X X XÕØ@S#ÔÔ‡Xâ@XXXª[Ô€56„7„105Ð ä4 Ð(2000).€€This€so„called€penalty€is€not€simply€a€punitive€award€but€allows€for€the€recovery€of€theÐ Ð  Ðadditional€damages€caused€by€a€breach€of€the€insurance€policy.€€ò òòòSee€Rice€v.€Van€Wagoner€Cos.ó óóó,€738Ð ¼  ÐF.Supp.€252€(M.D.€Tenn.€1990).€€In€considering€an€award€of€the€ð ðbad€faithðð€penalty,€this€Court,€inÐ ¨ø Ðò òòòRay€v.€Shelter€Ins.€Co.ó óóó,€No.€01A01„9208„CV„00324,€1993€WL€15151,€at€*2€(Tenn.€Ct.€App.€Jan.Ð ”ä Ð27,€1993),€said:Ð €Ð ÐÌà8  àà8` Ð Ð àà ¸ àThis€is€a€penal€statute,€and€must€be€strictly€construed.€€ò òòòSt.Ð X ¨ ÐPaul€fire€&€Marine€Ins.€Co.€v.€Kirkpatrickó óóó,€129€Tenn.€55,€164€S.W.Ð D!” Ð1186€(1913).€€However,€Section€56„7„105€does€not€require€anÐ 0"€  Ðautomatic€twenty„five€percent€penalty€upon€a€finding€that€theÐ #l! Ðinsurance€companyððs€failure€to€pay€was€in€bad€faith€merely€becauseÐ $X" Ðit€is€a€penal€statute.€€There€must€be€a€showing€that€the€ð ðfailure€to€payÐ ô$D # Ðinflicted€additional€expense,€loss,€or€injury€upon€the€holder€of€theÐ à%0!$ Ðpolicy€or€fidelity€bond.ðð€€The€burden€is€upon€the€plaintiff€to€showÐ Ì&"% Ðsuch€additional€expense,€loss,€or€injury.€€Ð¸'#&` x` x ÐÌò òòòó óóóà  àUnder€the€circumstances,€and€in€considering€the€entire€record,€we€find€that€this€a€proper€caseÐ )à$( Ðto€invoke€the€provision€of€T.C.A.€Ô#†Xª[XXXâ@†S#ÔÔ‡ XÕØ XXXª[ÔððÔ#†Xª[X X XÕØæY#ÔÔ‡Xâ@XXXª[Ô€27„3„128€(2000),€which€provides:Ð |*Ì%) Ðâ âÐ h+¸&* Ðà8  àà8` Ð Ð àò ò27„3„128.€€Remand€for€correction€of€record.ó ó€€The€court€shall€also,Ð ° Ðâ âin€all€cases,€where,€in€its€opinion,€complete€justice€cannot€be€had€byÐ  ð Ðreason€of€some€defect€in€the€record,€want€of€proper€parties,€orÐ ŒÜ Ðoversight€without€culpable€negligence,€remand€the€cause€to€the€courtÐ xÈ Ðbelow€for€further€proceedings,€with€proper€directions€to€effectuate€theÐ d´ Ðobjects€of€the€order,€and€upon€such€terms€as€may€be€deemed€right.ÐP  ` x` x ÐÌà  àAccordingly,€the€judgment€of€the€trial€court€awarding€plaintiff„appellee€$29,750.00€as€badÐ ( x Ðfaith€penalty€is€reversed,€and€the€judgment€in€all€other€respects€is€affirmed.€€The€case€is€remandedÐ  d Ðto€the€trial€court€for€further€proceedings€to€determine€the€amount€of€the€bad€faith€penalty€consistentÐ  P  Ðwith€this€Opinion.€€Costs€of€the€appeal€are€assessed€one„half€against€the€plaintiff„appellee,€RonÐ ì <  ÐMcColgan,€d/b/a€Big€Sandy€Auto€Parts,€and€one„half€against€the€defendant„appellant,€Auto€OwnersÐ Ø(  ÐInsurance€Company,€and€its€surety.Ô#†Xª[XXXâ@,Z#ÔÔ#†¼¦l»XXª[ã #ÔÔ€Xª[X»¼¦lÔÐ Ä  ÐÌÌÌà  àà ` àà ¸ àà  àà h àà À à__________________________________________Ð €Ð Ðà  àà ` àà ¸ àà  àà h àà À àW.€FRANK€CRAWFORD,€PRESIDING€JUDGE,€W.S.