Bad Faith Insurance Practices in Tennessee: When Your Insurer Isn’t Playing Fair

You pay insurance premiums expecting that when a covered loss occurs, your insurer will honor the policy. But when an insurer unreasonably denies, delays, or underpays a valid claim, it may be engaging in bad faith insurance practices. Tennessee law gives policyholders meaningful tools to hold insurers accountable for bad faith, and understanding these rights is essential for Nashville businesses and individuals who find themselves in a coverage dispute.

What Constitutes Bad Faith Under Tennessee Law

Bad faith insurance in Tennessee is more than just a disagreement over coverage. It occurs when an insurer refuses to pay a claim without a legitimate basis or handles a claim in a manner that is dishonest, unreasonable, or designed to avoid its contractual obligations. Tennessee recognizes bad faith as an independent cause of action, meaning policyholders can sue for bad faith in addition to suing for breach of the insurance contract itself.

Tennessee’s bad faith standard requires the policyholder to show that the insurance company’s denial or handling of the claim lacked a reasonable basis. If the insurer had an arguable reason for its position, even if a court later determines the denial was incorrect, the bad faith claim may not succeed. The key question is whether the insurer conducted a fair and thorough investigation before making its coverage decision and whether its interpretation of the policy was reasonable under the circumstances.

Common examples of bad faith conduct in Tennessee include denying a claim without conducting an adequate investigation, unreasonably delaying payment on a claim that is clearly covered, misrepresenting policy provisions to justify a denial, failing to promptly communicate with the policyholder about the status of a claim, and offering an unreasonably low settlement amount that does not reflect the actual value of the loss.

Damages Available in Tennessee Bad Faith Cases

One of the most significant aspects of Tennessee bad faith law is the range of damages available to policyholders. Beyond the policy benefits themselves, a successful bad faith claim can result in substantial additional recovery.

Tennessee Code Annotated Section 56-7-105 provides for penalty interest on life insurance and disability claims when the insurer’s refusal to pay is not in good faith. For other types of insurance, Tennessee courts have recognized a common law bad faith cause of action that allows recovery of compensatory damages, including economic losses caused by the insurer’s conduct and, in appropriate cases, damages for emotional distress.

Punitive damages may also available in Tennessee bad faith cases if the insurer’s conduct is particularly egregious. Punitive damages are designed to punish the insurer and deter similar conduct in the future. Tennessee courts have awarded significant punitive damage awards in cases where insurers acted with reckless disregard for the policyholder’s rights. However, punitive damages are subject to constitutional limitations and Tennessee’s statutory caps under Tennessee Code Annotated Section 29-39-104.

The availability of these enhanced damages fundamentally changes the economics of an insurance coverage dispute. An insurer facing potential bad faith liability has far more at stake than the original claim amount, which can create powerful incentives for resolution.

Common Insurer Tactics to Watch For

Nashville businesses and policyholders should be alert to tactics that may signal bad faith by their insurer. One common approach is the lowball offer, where the insurer acknowledges coverage but offers a settlement that is far below the reasonable value of the claim. Another is the moving target denial, where the insurer initially denies on one ground, then shifts to a different ground when the first one is challenged.

Delay is another frequent tactic. Some insurers slow-walk the claims process, requesting duplicative documentation, failing to return calls, or dragging out their investigation well beyond what is necessary. While some complex claims legitimately require extended investigation, unreasonable delay can itself constitute bad faith under Tennessee law.

Middle Tennessee policyholders should also watch for insurers who rely on policy exclusions that do not actually apply to the facts of the claim or who interpret policy language in a manner that is inconsistent with how Tennessee courts have construed similar provisions. Keeping detailed records of every interaction with the insurer is critical, because these records become the evidence in a bad faith case.

Steps to Take If You Suspect Bad Faith

If you believe your insurer is acting in bad faith, there are several steps you should take. First, continue to cooperate with the insurer’s reasonable requests, as failing to do so can undermine your position. Second, put your concerns in writing. A clearly worded letter to the insurer documenting the unreasonable conduct creates a record that can be valuable later. Third, consult with an attorney who handles Tennessee insurance bad faith claims before the situation deteriorates further.

Filing a complaint with the Tennessee Department of Commerce and Insurance can also prompt the insurer to take a closer look at the claim. While the department does not resolve individual claims disputes, its involvement can sometimes motivate an insurer to reevaluate its position.

It is worth noting that bad faith claims in Tennessee are subject to their own statute of limitations, and waiting too long to act can forfeit the opportunity to pursue enhanced damages. The time to evaluate a potential bad faith claim is when the insurer’s conduct first raises concerns, not after years of frustration have passed.

If your insurer is not playing fair with your claim in Tennessee, I can help. Contact Malloy Law for a confidential consultation.