Statute Limited to Acts of Insured Cannot be Used Against Insurer

Court Must Read Statute as Written

Insured Seeks to Impose Damages on Insurer under the Fraud Act

Post 4759

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Losses claimed under a policy of insurance issued to Plaintiff Volunteer Management & Development Company (“Volunteer”) by Defendant State Auto Property & Casualty Insurance Co. (“State Auto”) resulted in a suit where Volunteer claims breach of contract and insurance fraud against State Auto and filed a petition to compel appraisal and appoint umpire. State Auto moved to dismiss the claims under the Insurance Fraud Act, “agency,” and punitive damages.

In Volunteer Management & Development Company, Inc. v. State Auto Property & Casualty Insurance Co., No. 1:23-cv-00041, United States District Court, M.D. Tennessee, Columbia Division (March 7, 2024) resolved the claims.

BACKGROUND

To survive a motion to dismiss, a complaint must contain sufficient factual allegations, accepted as true, to state a claim for relief that is plausible on its face. A claim has facial plausibility when the plaintiff pleads facts that allow the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.

When a court reviews a motion to dismiss, the court construes the complaint in the light most favorable to the plaintiff, accepts its allegations as true, and draws all reasonable inferences in favor of the plaintiff. Thus, dismissal is appropriate only if it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.

ANALYSIS

Plaintiff asserted a claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1). Defendant seeks dismissal of that claim because the cited statute applies only to actions of “an insured.” Defendant, as the insurer, contends it cannot violate that statutory provision.

PLAINTIFF MAY NOT MISLEAD COURT BY IGNORING LIMITATION IN STATUTE

In response, Plaintiff quoted the same statute, but omits the operative phrase, “by or on behalf of an insured,” effectively changing the scope of that statute so that its claim is cognizable.

The Court began, as it must, with the plain language of the statute. In this narrow respect, Plaintiff’s Response is correct. Clear and unambiguous statutes will be enforced according to their clear terms. As Plaintiff also acknowledges, but fails to actually do in its response, that every word of the statute will be given effect. The statute only applies to insureds and cannot apply to an insurer.

With regard to an award of punitive damages, Defendant is correct that punitive damages are generally not available in a breach of contract case.

Defendant’s Motion to Dismiss was granted as to the claim for insurance fraud under Tenn. Code Ann. § 56-53-103(a)(1).

ZALMA OPINION

A plaintiff should never lie to a court. When the insured acknowledged that the statute only applies to fraud by insureds on appeal it tried to sneak into a fraud case against State Auto by not fully quoting the statute. It didn’t work. The fraud statute is limited to fraud by insureds and there is no way it could be applied against an insurer. This was not even a good try, it was an attempt to defraud the court.

(c) 2024 Barry Zalma & ClaimSchool, Inc.

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About Barry Zalma

An insurance coverage and claims handling author, consultant and expert witness with more than 48 years of practical and court room experience.
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