Affordable Constr. Servs., Inc. v. Auto-Owners Ins. Co.

• Decision Date: 26 April 2021
• Docket Number: No. M2020-01417-SC-R23-CV,M2020-01417-SC-R23-CV
• Parties: AFFORDABLE CONSTRUCTION SERVICES, INC. et al. v. AUTO-OWNERS INSURANCE COMPANY et al.
• Court: Tennessee Supreme Court

621 S.W.3d 693

AFFORDABLE CONSTRUCTION SERVICES, INC. et al.

v.AUTO-OWNERS INSURANCE COMPANY et al.

No. M2020-01417-SC-R23-CV

Supreme Court of Tennessee.

Assigned on Briefs February 24, 2021

FILED April 26, 2021

Randall N. Songstad, Memphis, Tennessee, for the petitioner, Affordable Construction Services, Inc.

Bradford D. Box and Michael L. Mansfield, Jackson, Tennessee, for the respondent, Owners Insurance Company.

Sharon G. Lee, J., delivered the opinion of the Court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Holly Kirby, and Roger A. Page, JJ., joined.

Sharon G. Lee, J.

Tennessee Code Annotated section 56-7-111 provides that when an insured property owner's home or other structure sustains more than $1,000 in damages, the property or casualty insurance company shall name the general contractor of an uncompleted construction contract as a payee when issuing payment to the owner for the loss. Here, an insurance company issued a check to the insured owner but did not name the general contractor as a payee. The general contractor sued the insurance company, alleging noncompliance with section 56-7-111. We accepted three certified questions of law from the United States District Court for the Western District of Tennessee, one of which requires us to determine whether a general contractor has a private right of action against an insurance company for violating section 56-7-111. We hold that section 56-7-111 does not expressly grant a private right of action to the general contractor, and the general contractor failed to prove that the legislature intended to imply a private right of action. Thus, the general contractor has no right to sue the insurance company for noncompliance with section 56-7-111.

I.

Grand Valley Lakes Property Owners Association, Inc. owned property on Grand Valley Drive in Saulsbury, Tennessee. Owners Insurance Company¹ issued a property and casualty insurance policy on the property. A severe weather event damaged the property, and the Association hired Affordable Construction Services, Inc. to make repairs. Three lawsuits were filed involving payment of insurance proceeds.²

The first lawsuit was filed by the Association against the Insurance Company to collect the Association's claim for property damages. See Grand Valley Lakes Prop. Owners Assoc., Inc. v. Owners Ins. Co. , No. 16-cv-01322-JDB-egb (W.D. Tenn.). The parties settled their dispute, and the Insurance Company issued a check payable only to the Association.

In the second lawsuit, Affordable Construction sued the Association and the Insurance Company in the Hardeman County Circuit Court to recover payment for repairs Affordable Construction made to the insured property. Affordable Construction later voluntarily dismissed the Insurance Company as a defendant. The circuit court then dismissed the case against the Association, finding there was no enforceable contract between Affordable Construction and the Association for the repairs.

Finally, Affordable Construction sued the Insurance Company in the Hardeman County Chancery Court seeking a declaratory judgment. Affordable Construction claimed that the Insurance Company violated Tennessee Code Annotated section 56-7-111 by not naming Affordable Construction as a payee on the insurance proceeds check to the Association.

The case was removed to the United States District Court for the Western District of Tennessee³ based on diversity of citizenship.⁴ The Insurance Company moved for judgment on the pleadings, arguing, in part, that Affordable Construction had no private right of action against the Insurance Company under section 56-7-111. Even if Affordable Construction had a private right of action, the Insurance Company asserted that Affordable Construction did not have to be included as a payee on the check because there was no contract between Affordable Construction and the Association. The federal district court ruled that Affordable Construction was collaterally estopped from relitigating whether it had a contract with the Association. The parties disputed whether a contract between the parties was required under section 56-7-111. Because Tennessee substantive law applies in an action based on diversity⁵ and there was no Tennessee appellate court decision interpreting section 56-7-111, the federal district court certified three questions of state law to this Court under Tennessee Supreme Court Rule 23:

(1) Does [Tennessee Code Annotated section] 56-7-111 provide for a private right of action?

(2) In order for an insurance company to be obligated to name a general contractor as a payee on the check that it writes to its insured under [ section] 56-7-111, must there have been a contract between the general contractor and the insured?

(3) If a contract between the general contractor and the insured is required in order for the statute to apply, must that contract be uncompleted at the time the check is written?

II.

Our authority to answer these questions of law from the federal district court comes from Tennessee Supreme Court Rule 23.⁶ Under this Rule, we "may ‘accept and answer a question of state law certified ... by the federal court to assist the federal court in deciding a question of state law.’ " Embraer Aircraft Maint. Servs., Inc. v. Aerocentury Corp. , 538 S.W.3d 404, 409 (Tenn. 2017) (quoting Yardley v. Hosp. Housekeeping Sys., LLC , 470 S.W.3d 800, 803 (Tenn. 2015) ). When answering certified questions, this Court considers only questions of law, not questions of fact. Id. (quoting Seals v. H & F, Inc. , 301 S.W.3d 237, 241 (Tenn. 2010) ).

The primary issue we must resolve is whether section 56-7-111 provides for a private right of action. A private right of action allows a person to sue to remedy a wrong or prevent a wrong caused by another party's violation or threatened violation of a statute. See Hardy v. Tournament Players Club, Inc. , 513 S.W.3d 427, 433 (Tenn. 2017). It is the exclusive province of the legislature—not the courts—to create a statutory private right of action. Brown v. Tenn. Title Loans, Inc. , 328 S.W.3d 850, 855 (Tenn. 2010) (citing Premium Fin. Corp. of Am. v. Crump Ins. Servs. of Memphis, Inc. , 978 S.W.2d 91, 93 (Tenn. 1998) ; Reed v. Alamo Rent-A-Car, Inc. , 4 S.W.3d 677, 689 (Tenn. Ct. App. 1999) ). To bring a cause of action to enforce a statutory duty, the plaintiff must show that the legislature intended for a private right of action to exist. Hardy , 513 S.W.3d at 434. Whether the legislature provided for a private right of action in section 56-7-111 is a question of law requiring statutory construction. Brown , 328 S.W.3d at 855 (citing Premium Finance , 978 S.W.2d at 93 ); Embraer Aircraft , 538 S.W.3d at 409 (quoting Seals , 301 S.W.3d at 242 ). When construing a statute, "[o]ur chief concern is to carry out the legislature's intent without unduly broadening or restricting the statute." Embraer Aircraft , 538 S.W.3d at 410 (quoting Seals , 301 S.W.3d at 242 ).

A court can find that the legislature created a private right of action in one of two ways: based on the express terms of a statute or by implication through the statute's structure and legislative history. Brown , 328 S.W.3d at 855 ; Premium Finance , 978 S.W.2d at 93. We begin with the language of section 56-7-111 to determine whether it grants Affordable Construction an express private right of action against the Insurance Company:

When insured property losses in excess of one thousand dollars ($1,000) accrue to the owners of dwellings or other structures insured under policies of property or casualty insurance ..., the insurance company shall name the general contractor ... of any uncompleted construction or building contract as a payee on the draft to the owner covering payment for the loss. The insurance company shall name the general contractor as payee on the draft pursuant to this section regardless of whether the work that was performed or is yet to be performed is less than twenty-five thousand dollars ($25,000).

Tenn. Code Ann. § 56-7-111 (2016).

Section 56-7-111 does not expressly create a private right of action. Thus, we must determine whether the legislature intended to imply a private right of action. See Brown , 328 S.W.3d at 855 (citing Premium Finance , 978 S.W.2d at 93 ; Reed , 4 S.W.3d at 689 ). We do this by examining the statute's structure and legislative history, assisted by the framework this Court set forth in Brown . See id.

In Brown , the plaintiffs filed a putative class action lawsuit against a title pledge lender under the Tennessee Title Pledge Act, Tennessee Code Annotated sections 45-15-101 to -120. 328 S.W.3d at 853. The title pledge lender had loaned money to the plaintiffs and taken possession of the plaintiffs’ motor vehicle certificates of title to secure the loans. Id. According to the plaintiffs, the lender violated the Act by charging unauthorized fees and more interest than allowed by the Act. Id. The trial court dismissed the case, finding the Act provided no private right of action to the plaintiffs. Id. at 854. The Court of Appeals granted an interlocutory appeal and reversed the trial court's judgment, holding that the Act provided a private right of action. Id.

Upon our review, the parties in Brown did not argue that the Act expressly created a private right of action. Thus, we focused on whether the plaintiffs had proven that there was a legislatively implied private right of action based on the statutory structure and its legislative history. Id. at 855. The Court considered these factors in determining whether there was an implied private right of action:

(1) whether the party bringing the cause of action is an intended beneficiary within the protection of the statute,

(2) whether there is any indication of legislative intent, express or implied, to create or deny the private right of action, and

(3) whether implying such a remedy is consistent with the underlying purposes of the legislation.

Id.⁷

Federal and state courts...