Under Tennessee law, policyholders who pay their premiums create a legal presumption that they have accepted the terms of coverage. The statute limits lawsuits by underinsured policyholders who thought they had enough coverage but found after a loss that they did not.
The Tennessee Supreme Court ruled Friday that the presumption created by Tennessee Code Annotated Section 56-7-135(b) applies to insurance agents as well as insurance carriers.
The high court reversed the Court of Appeals and granted summary judgment against a lawsuit filed by a couple who say they their insurance agent for excess uninsured motorist coverage when they bought a policy, but discovered they didn’t have the coverage only after the wife was injured in an accident that wasn’t her fault.
“The insureds would like to see a distinction drawn between claims against the insurer and claims against the agent—allowing the insurer to benefit from the statutory rebuttable presumption while ensuring that the agent remains liable for his or her negligence,” the Supreme Court said in an opinion written by Justice Roger A. Page. “This, however, is not what our legislature has done.”
Dr. Talat Parveen and her husband purchased various insurance policies through ACG South Insurance Agency after they moved to Johnson City, Tennessee from Georgia in 2013. The husband, Khurshid Shaukat, says he brought the couple’s existing policies with State Farm to the ACG office and asked agent Jeffrey Norris to purchase the exact same coverage in Tennessee. Norris denied that.
The couple’s State Farm auto insurance policy from Georgia included $2 million in excess uninsured motorists coverage, which was noted on the policy and carried an additional premium.
Parveen learned that she lacked that coverage under the new Safeco policy in November 2015, after she was injured in an automobile accident with a tow truck — called a “wrecker” in the Supreme Court’s order. The court said the driver of the wrecker was responsible for the accident. As it happens, his wrecker was also uninsured.
Parveen filed a professional negligence claim against Norris and ACG seeking damages of at least $1 million.
Washington County Circuit Court Judge J. Eddie Lauderback granted ACG’s motion for summary judgment. The judge found that because Parveen and her husband had paid the Safeco premiums in 2013, 2014 and 2015, they must be presumed to have accepted the coverage provided by their policies under 56-7-135(b). The judge found that Parveen and Shaukat had not introduced evidence to rebut the presumption.
The Court of Appeals, however, reversed that decision. The appellate panel found that the statutory presumption does not apply to actions against insurance agents.
The appellate court hinged its decision on three words in the statute, which states: “The payment of premium for an insurance contract, or amendment thereto, by an insured shall create a rebuttable presumption that the coverage provided has been accepted by all insureds under the contract.”
The appellate court decided that the term “under the contract” limits the application of the statute to the insurance company and the insureds, since they were the only parties to the insurance contract.
The Supreme Court said it is “puzzling” that the Court of Appeals read so much into those three words.
“It is true that each word of the statute—including the phrase ‘under the contract’—should be given full effect,” the high court said. “Still, we also find it relevant and take notice of the order in which the words of the statute are written.”
The Supreme Court said the term “under the contract” clearly modifies the words that comes directly before it, “all insureds.” The court said the phrase “serves to clarify that the presumption only applies against those insured under the contract, not third parties.”
“If the legislature had intended to limit subsection (b)’s rebuttable presumption to actions against certain persons or entities—particularly against the insurance carrier as the insureds have suggested—it certainly could have done so,” the opinion says.
The Supreme Court reversed the Court of Appeals and reinstated Judge Lauderback’s order granting summary judgment in favor of Safeco.
About the photo: The Washington County, Tennessee courthouse is shown. Photo courtesy of Washington County.
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