Spears v. Tennessee Farmers Mut. Ins. Co., M2008-00842-COA-R3-CV

Citation300 S.W.3d 671
Decision Date17 July 2009
Docket NumberNo. M2008-00842-COA-R3-CV,M2008-00842-COA-R3-CV
PartiesTom SPEARS, et al. v. TENNESSEE FARMERS MUTUAL INSURANCE COMPANY.
CourtCourt of Appeals of Tennessee
OPINION

RICHARD H. DINKINS, J., delivered the opinion of the court, in which FRANK G. CLEMENT, JR. and ANDY D. BENNETT, JJ. joined.

Owners of an insured vehicle that was damaged by fire filed suit against their insurance company for breach of contract, failure to pay insurance claim in good faith, and violations of the Tennessee Consumer Protection Act. Insurer filed a counter-complaint alleging that one of the insureds had no right of recovery under the policy because she had no insurable interest in the vehicle and that the other insured was barred from seeking recovery under the policy because the insured failed to answer questions under oath when asked by the insurer. The trial court granted summary judgment to the insurer. Finding no error, we affirm.

I. Background

The Appellants, Mr. and Mrs. Spears, owned and insured a 2004 Chevrolet C15 Tahoe.1 The policy, which was effective in July 2005, was issued by the Appellee, Tennessee Farmers Mutual Insurance Company ("TFMI"). Some time during July, the Spears decided to purchase a Ford Expedition and sell the Tahoe.2 Mr. Spears inquired about the trade-in and retail values of the Tahoe, but thought he could sell it for more selling it himself. On July 30, Mr. Spears parked the vehicle near the road on their property and advertised the vehicle for sale. The Spears contend that they had the financial ability to buy the Expedition while paying for the Tahoe until it sold; however, they admit that they were behind in payments on the Tahoe at the time.3

On July 31, the Spears had friends over for a cook-out and one of them, Ms. Eliza Boley, expressed an interest in buying the Tahoe. Mr. Spears told her he was asking $38,000 for the Tahoe; Ms. Boley offered to pay $32,000. She drove the vehicle during the party and asked Mr. Spears if he would consider selling it for $35,000 or $36,000. Mr. Spears said he would think about it and Ms. Boley took paperwork regarding financing the vehicle home with her and said that she would discuss the matter with her husband. At the conclusion of the party, Mr. Spears moved the Tahoe back to the front of the residence; he was the last person to drive the vehicle and, upon exiting the vehicle, locked it and set the alarm.4

The next morning, August 1, Mr. Spears walked outside of the house and noticed that the vehicle's lights were blinking. As he approached the vehicle, he noticed that the paint looked like something had been poured on it. When he reached the vehicle, he opened the door and saw that the vehicle was burned from the inside. None of the windows were broken, but a broken beer bottle was laying near it. Mr. Spears reported the incident to the police and then called his TFMI agent, Stan Hall, to file a claim for the loss. The police arrived, investigated the scene, and completed an incident report.

On August 4, Mr. Spears gave a statement to TFMI claims adjustor, Lee Amonette, at TFMI's Lafayette office. The statement was recorded, but Mr. Spears was not under oath and did not sign a transcript of his answers. Mr. Amonette referred the Spears' claim to TFMI's Special Investigations Unit because he suspected that it was "potentially fraudulent." On August 10, several TFMI agents including TFMI's investigator, Lee Brooks, a forensic chemist, Dennis Akin, and a fire cause and origin expert, Raymond Glenn Aslinger, went to the Spears' residence to investigate the fire cause and origin for TFMI. Detective David Winnett from the Trousdale Sheriff's Department met them at the Spears' residence as they took photographs and gathered evidence. Mr. Akin and Mr. Aslinger provided a written report of their findings and conclusions to TFMI on August 16 and 22, respectively. Their reports concluded that the fire was intentionally set using an accelerant, gasoline, and that there was no evidence of forced entry to the Tahoe. On August 26, Mr. Spears provided a recorded statement to Mr. Brooks at TFMI's Lebanon office. Mr. Brooks asked Mr. Spears questions for approximately two and a half hours, but Mr. Spears was not placed under oath nor did he sign a transcript of his answers.

On September 14, Mr. Spears filed a Sworn Statement in Proof of Loss with TFMI seeking to recover money damages under the policy in the amount of $38,900.00. Based on the recommendation of Mr. Brooks, who felt there were unresolved inconsistencies in his investigation of the Tahoe fire, TFMI's attorney, Arthur McClellan, sent Mr. and Mrs. Spears a letter on October 6, notifying them that TFMI was requesting that they answer questions under oath as provided for in their policy and that TFMI had appointed him to conduct the examination under oath ("EUO"). The EUO was scheduled for October 18 at Mr. McClellan's offices in Gallatin, Tennessee. The letter asked the Spears to bring several documents with them and informed them that "the examination would cover all of the circumstances concerning the claim you have made as to the fire loss to your vehicle on July 31, 2005." The letter also informed the Spears that they could have an attorney present, but that the attorney would not be allowed to participate.

On October 18, Mr. and Mrs. Spears went to Mr. McClellan's office and brought most of the requested documents, but only Mrs. Spears answered questions under oath and the examination was cut short because the Spears had another appointment to go to. During the examination of Mrs. Spears, she became upset,5 but resumed answering questions after regaining her composure. Because Mrs. Spears' examination was incomplete, she did not sign a transcript of her answers. Mr. Spears did not answer any questions under oath on October 18. After the EUO, the Spears did not go to their other appointment, but instead went to their local TFMI agent's, Stan Hall, office. They told Mr. Hall that they felt that TFMI did not believe them and that they were asking too many personal questions that the Spears did not feel TFMI had a right to know, particularly with regard to the Spears' income; Mr. Spears said that he was considering withdrawing the claim.

On October 20, the Spears retained attorney Michael Clemons. Mr. Clemons wrote Mr. McClellan a letter on October 24 requesting "documentation and/or other proof substantiating your reasons for denial" of the Spears' claim. Mr. McClellan responded by letter on November 2, informing Mr. Clemons that TFMI had not denied the Spears' claim, but simply requested to question the Spears under oath as provided for in the policy. On November 4, Mr. Clemons responded to Mr. McClellan's letter apologizing for "any assumptions on my part that [TFMI] had denied my clients' claim." He expressed that the Spears, despite some reluctance, intended to cooperate in TFMI's investigation and provide the late-filed exhibits that Mr. McClellan had requested following the October 18 EUO of Mrs. Spears. On November 30, Mr. Clemons sent three of the four late-filed exhibits requested by TFMI and informed Mr. McClellan that the Spears "are ready to set up a time to for [sic] you to continue, and hopefully conclude, your investigation of their insurance claim." Mr. Clemons and Mr. McClellan attempted to find a mutually convenient date to complete Mrs. Spears' EUO and conduct Mr. Spears' EUO in December 2005, but ultimately scheduled the EUO for January 31, 2006. On January 14, Mr. Clemons confirmed by letter to Mr. McClellan that the Spears were available and intended to complete the EUOs on January 31.

On January 25, Mr. Clemons informed Mr. McClellan by letter that the Spears had retained another attorney, Tim Bowden, to represent them and, consequently, he was withdrawing from further representation of the Spears. On January 26, Mr. Bowden sent Mr. McClellan a letter informing him that the Spears would not participate in the previously schedule EUO on January 31 and that the Spears intended to bring legal action against TFMI for bad faith. The Spears did not attend the EUO on January 31.

On March 20, Mr. McClellan sent the Spears a letter requesting their presence at the law offices of Donoho, Taylor & Taylor in Hartsville, Tennessee on March 27, 2006, in order to complete Mrs. Spears' examination under oath and to take Mr. Spears' examination under oath pursuant to the terms of the policy. The Spears did not attend the EUO on March 27. On April 7, Mr. Brooks updated his TFMI case file with the note that since the Spears failed to attend the March 27 EUO, TFMI should seek a declaratory judgment and implead the amount of the repair estimate for the vehicle.

On April 7, 2006, the Spears filed a Complaint in the Circuit Court for Trousdale County seeking compensatory and punitive damages and attorney's fees based on allegations that TFMI had breached the contract of insurance, violated the Tennessee Consumer Protection Act, and acted in bad faith in not paying their claim under the insurance policy in violation of Tenn.Code Ann. § 56-7-105.

On June 12, TFMI filed an Answer and Counter-Complaint seeking a declaratory judgment and alleging that Mrs. Spears had failed to complete and Mr. Spears had refused to answer questions under oath when asked as required by the policy's duty to cooperate clause, which TFMI contended was a mandatory condition precedent to recovery under the policy. TFMI further alleged that Mr. Spears could not recover under the policy because there was no coverage under the policy for claims of persons whose intentional act or omission caused economic loss or property...

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