Riad v. Erie Ins. Exch.
| Decision Date | 04 March 2014 |
| Docket Number | No. E2013–00288–COA–R3–CV.,E2013–00288–COA–R3–CV. |
| Citation | 436 S.W.3d 256 |
| Parties | John RIAD v. ERIE INSURANCE EXCHANGE. |
| Court | Tennessee Court of Appeals |
OPINION TEXT STARTS HERE
Suzanne S. Cook, Johnson City, Tennessee, and S. Morris Hadden, Kingsport, Tennessee, for the appellant, Erie Insurance Exchange.
Joshua H. Jenne, Cleveland, Tennessee, for the appellee, John Riad.
This case concerns Erie's refusal to pay insurance proceeds to Plaintiff, who filed suit, alleging claims of breach of contract, bad faith refusal to pay, and violations of the Tennessee Consumer Protection Act, codified at Tennessee Code Annotated section 47–18–101 et seq. The case proceeded to jury trial. After denying a myriad of motions and reopening the proof to admit the insurance policy into evidence, the trial court submitted the case to the jury. The jury awarded Plaintiff compensatory and punitive damages and found that Erie's failure to pay was in bad faith and in violation of the Tennessee Consumer Protection Act. The court assessed the statutory bad faith penalty and awarded treble damages and attorney fees. Erie appeals. We affirm the decision of the trial court.
On July 24, 2007, John Riad (“Plaintiff”) purchased three apartment buildings (collectively“the Property”) in Cleveland, Tennessee for $540,000. He financed $525,000 of the purchase price with First National Bank and obtained an insurance policy with the help of Todd Walker of McIntire and Associates (“McIntire”). Mr. Walker, a statutory agent of Erie Insurance Exchange (“Erie”), insured the property through Erie. On June 8, 2009, Plaintiff sold the Property to Harry and Fern Perry (collectively “the Perrys”) for $672,000. Plaintiff financed the Property even though he remained indebted to First National Bank. The Perrys submitted an insurance application through McIntire and ultimately received an insurance policy (“the Policy”) from Erie. The Policy designated First National Bank as the first mortgagee on the Property but made no mention of Plaintiff. Upon Mr. Walker's discovery that Plaintiff had not been included in the Policy, Mr. Walker contacted Erie and requested that Plaintiff be added to the Policy to protect Plaintiff's interest.
On November 4, 2009, Plaintiff discovered that the Property had been damaged by vandalism and that a number of appliances and air conditioning units had been stolen. He reported the damage and theft to law enforcement and Mr. Walker, who submitted an insurance claim on his behalf. The claim remained unpaid when Plaintiff filed suit against Erie on August 3, 2011.1 Plaintiff alleged that Erie breached its contract, that the breach was in bad faith, and that Erie violated the Tennessee Consumer Protection Act (“TCPA”). Plaintiff sought recovery of a bad faith penalty, attorney fees, and compensatory, punitive, and treble damages.
The case proceeded to a jury trial at which several witnesses testified. Mr. Walker testified that Erie was one of several insurance companies that he dealt with on a regular basis. He clarified that he was acting as an agent for Erie in this case, that he was not responsible for writing policies or making policy determinations, and that he merely assisted clients in submitting applications, which were either accepted or denied by Erie. He recalled that Plaintiff initially approached him about insuring the Property in 2007. He stated that he assisted Plaintiff in securing the initial policy from Erie and that he later assisted Plaintiff in attempting to become an additional insured on a second policy after the Property was sold to the Perrys.
Mr. Walker testified that prior to the sale of the Property in June 2009, Plaintiff had not submitted any claims for damage, loss or theft, or vandalism. He said that while he had never met the Perrys, his agency secured the Policy for them through Erie. He explained that his assistant submitted the insurance application for the Perrys because he was out of the office at the time. He stated that he visually inspected the Property and found improvements that led him to believe that the Property was in “better condition” than in 2007. He admitted that his visual inspection of the Property did not include an inspection of the interior of the apartments. Nevertheless, he reported to Erie that the Property was in an insurable condition. Erie ultimately approved the application and issued the Policy to the Perrys.
Mr. Walker testified that when First National Bank informed him that Plaintiff had financed the Property for the Perrys, he contacted Erie and requested “whatever coverage was necessary to protect [Plaintiff's] financial interest in the [P]roperty.” He claimed that Erie advised him to submit an application requesting that Plaintiff be named an “additional insured.” He opined that while he was free to suggest the type of policy that Plaintiff needed, Erie was ultimately responsible for deciding how to insure Plaintiff. He identified the submitted form, dated September 23, 2009, which provided,
I need to add an additional insured to policy as the previous owner is doing [o]wner financing. I need to add it to both 4th Street locations.
He conceded that in requesting coverage for Plaintiff, he neglected to include one of the three buildings that comprised the Property. He insisted that he did not intend to exclude one of the buildings from coverage. He stated that First National Bank was listed as the mortgagee for the Property because it retained a financial interest in the Property.
Mr. Walker decried Erie's delayed response to Plaintiff's claim and testified that First National Bank even submitted a letter in an effort to support Plaintiff's interest. The letter, dated August 12, 2010, provided, in pertinent part,
I have recently come to understand that the property pledged to First National Bank to secure a loan extended to [Plaintiff] has been adversely affected by the unfortunate acts of theft and vandalism. This property is located at [ ].
I further understand that [Erie] has delayed the process of paying a legitimate claim to our mutual customer that was filed in an effort to return the subject property to its original condition.
Please be advised that First National Bank would like to engage in whatever process necessary to support the claim filed by [Plaintiff], or if necessary, enter into a separate claim in an effort to have the property pledged to the bank reconditioned.
Also at issue is the fact that [Plaintiff] has had diminished rental income due to [Erie's] prolonged delay in the payment of the filed claim. I would like to know if this loss of revenue is covered under the terms of the policy, as the diminished revenues are a concern to both First National Bank and our client. I would like these “lost rents” included in the claim for the benefit of [Plaintiff].
He stated that his office forwarded the letter to Erie's claims adjuster, Clint Quarles. He opined that in pursuing the claim on Plaintiff's behalf, Erie provided conflicting information and often failed to return telephone calls and other correspondence. He identified a document, dated June 4, 2010, in which he warned Erie that Plaintiff's attorney expressed interest in filing a civil suit and pursing a bad faith claim. He claimed that he had never seen an insurance company delay a claim for as long as Erie had delayed Plaintiff's claim. He conceded that he was not privy to Erie's actual investigation and that Erie had, at the very least, conducted an examination in April 2010.
Clarence Martin testified that he had worked as an appraiser, a licensed contractor, and a real estate agent. He sold the Property to Plaintiff in 2007, assisted Plaintiff in managing the Property and collecting rent, and subsequently assisted Plaintiff in selling the Property to the Perrys. He claimed that the Property was “looking good” and that only 3 of the 24 units were vacant when the Perrys purchased the Property. He recalled that he accompanied the Perrys as they inspected “at least” nine of the apartments before closing. He insisted that “anything that needed fixed was fixed” and that the units were in an “average condition” and clean even though they were “older.” He relatedthat after the sale, Plaintiff even repaired a unit that had sustained water damage. He stated that other than the water damage, the Perrys never reported any other problems with their purchase.
Mr. Martin testified that he and Plaintiff found “a lot of damage” when they returned to the Property. He assessed the cost to repair the damage and missing items to be approximately $92,600. He could not remember how many units were in rentable condition, but he claimed that at least 18 of the units needed new carpet.
Mr. Quarles testified that he had worked for Erie as an insurance adjuster for approximately ten years. He explained that as an adjuster, his role was limited to determining whether a claim was covered by a particular policy. He insisted that he never made determinations as to whether a particular person should be covered by a policy. He stated that he was the adjuster assigned to Plaintiff's claim, which was submitted in December 2009. He recalled that shortly after the claim was filed, he sent a letter to the Perrys and Plaintiff in which he claimed that his documents reflected that Plaintiff was an “additional insured and mortgagee” on only two of the three buildings. He claimed that he mistakenly identified Plaintiff as a mortgagee. He identified a second letter, dated February 1, 2010, in which he informed Plaintiff that his records reflected that Plaintiff was actually “an additional insured on [two of the buildings] for liability purposes only.” He explained that property loss such as theft or...
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