Lloyd L. Meyers v. Farmers Aid Association of Loudon County, Tennessee

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 01, 2014 Session

LLOYD L. MEYERS v. FARMERS AID ASSOCIATION OF LOUDON
COUNTY, TENNESSEE

Appeal from the Circuit Court for Loudon County
No. 2013CV44 Russell E. Simmons, Jr., Judge

No. E2013-02585-COA-R9-CV-FILED-DECEMBER 9, 2014

This is an interlocutory appeal from the denial of Appellant insurer’s motion for summary
judgment in an action on a homeowner’s policy that contained a contractual one-year statute
of limitations. The Appellee insured filed suit eighteen months after the loss occurred. In
the trial court, the Appellant insurer moved for summary judgment, arguing that the one-year
statute of limitations in the Appellee insured’s policy was a bar to his action. The trial court
agreed with the Appellee’s interpretation of the policy provisions and denied the motion for
summary judgment. This court granted the Appellant’s application for interlocutory appeal.
Following our review, we reverse the trial court’s decision and remand the case for entry of
summary judgment in favor of Appellant.

Tenn. R. App. P. 9 Interlocutory Appeal; Judgment of the Circuit Court is Reversed
and Remanded

K ENNY A RMSTRONG, J., delivered the opinion of the Court, in which D. M ICHAEL S WINEY,
J., and J. S TEVEN S TAFFORD, P.J., W.S., joined.

Christopher Dunn Heagerty, Knoxville, Tennessee, for the appellants, Farmers Aid
Association of Loudon County, Tennessee

A. Wayne Henry, for the appellee, Lloyd L. Meyers

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 OPINION

I. Background

On or about Oct. 11, 2010, Lloyd L. Meyers (“Appellee”) purchased a homeowner’s
insurance policy from Farmers Aid Association of Loudon County, Tennessee (“FAA,” or
“Appellant”). The policy insured Mr. Meyers’s property at 2242 Davis Ferry Rd, Loudon,
Tennessee. The following provisions of that policy are at issue in the instant appeal:

When loss payable. The amount of loss for which the Company may be liable
shall be payable sixty days after proof of loss, as herein provided, is received
by this Company and ascertainment of the loss is made either by agreement
between the insured and this Company expressed in writing or by the filing
with this Company of an award as herein provided.

* * *

Suit. No suit or action on this policy for the recovery of any claim shall be
sustainable in any court of law or equity unless all the requirements of this policy shall
have been complied with, and unless commenced within twelve months next after
inception of the loss.

On or about September 14, 2011, a fire destroyed Mr. Meyers’s property. Mr. Meyers
notified FAA of the loss, and FAA acknowledged the loss in a letter to Mr. Meyers dated
September 14, 2011. Subsequently, on November 15, 2011, Mr. Meyers submitted a sworn
proof of loss. FAA did not respond to his proof of loss and took no further action with
respect to his claim.

On March 12, 2013, more than a year and a half after he filed his proof of loss, Mr. Meyers
filed suit against FAA in the Circuit Court of Loudon County. In his complaint, in addition
to his compensatory damages claim, Mr. Meyers sought bad faith damages and punitive
damages against FAA under the Tennessee Consumer Protection Act. FAA answered the
complaint on April 4, 2013 and on April 11, 2013 moved for summary judgment, asserting
that Mr. Meyers’s suit was barred by the contractual limitations period contained in the
policy. The trial court denied the motion for summary judgment. In its memorandum
opinion, the trial court reasoned that FAA’s failure to ascertain the loss after Mr. Meyers
filed his proof of loss tolled the contractual limitations period. Accordingly, the trial court
held that Mr. Meyers’s suit was not time barred. On October 3, 2013 FAA filed a motion to
reconsider the denial of its motion for summary judgment, or in the alternative, a motion for
interlocutory review.

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The trial court denied the motion to reconsider but granted the motion for interlocutory
appeal. This Court granted the interlocutory appeal on April 16, 2014.

II. Issues

The sole issue certified to this Court by the trial court is:

If the insured files a proof of loss, as the insured did in the case sub judice, is
the proof of loss sufficient to trigger the beginning of the immunity period,
regardless of whether there has been “ascertainment of the loss” under the
terms of the policy issued to the Plaintiff.

III. Standard of Review

Interlocutory appeals are governed by Tennessee Rule of Appellate Procedure 9, which
provides that “an appeal by permission may be taken from an interlocutory order of a trial
court from which an appeal lies to the Supreme Court, Court of Appeals or Court of Criminal
Appeals only upon application and in the discretion of the trial and appellate court.” Tenn.
R. App. P. 9(a). The party seeking an interlocutory appeal may, within thirty days after the
entry of the interlocutory order complained of, file a motion with the trial court requesting
permission to take an interlocutory appeal. Id. § 9(b). Should the trial court decide to grant
the motion and set forth its reasons for doing so in a written opinion, this Court may, in its
discretion, allow the appeal to proceed. Id.

The order appealed in this case denied Appellant’s motion for summary judgment.
Accordingly, we apply the standard of review applicable to summary judgment decisions.
When a motion for summary judgment is made, the moving party has the burden of showing
that “there is no genuine issue as to any material fact and the moving party is entitled to
judgment as a matter of law.” Tenn. R. Civ. P. 56.04. According to the Tennessee
Legislature:

In motions for summary judgment in any civil action in
Tennessee, the moving party who does not bear the burden of
proof at trial shall prevail on its motion for summary judgment
if it:

(1) Submits affirmative evidence that negates an essential
element of the nonmoving party's claim; or

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 (2) Demonstrates to the court that the nonmoving party's
evidence is insufficient to establish an essential element of the
nonmoving party's claim.

Tenn. Code Ann. § 20-16-101 (effective on claims filed after July 1, 2011).

The instant appeal requires us to interpret and apply the provisions of an insurance contract.
It is well settled that “[s]ummary judgment is a preferred vehicle for disposing of purely legal
issues.” Campora v. Ford, 124 S.W.3d 624, 628 (Tenn. Ct. App. 2003). “In general, courts
should construe insurance policies in the same manner as any other contract.” Lancaster v.
Ferrell Paving, Inc., 397 S.W.3d 606 (Tenn. Ct. App. 2011). Because the construction of
a contract involves legal issues, contract cases are particularly suited to disposition by
summary judgment. Campora, 124 S.W.3d at 628. A trial court’s decision to grant a motion
for summary judgment presents a question of law. Our review is therefore de novo with no
presumption of correctness afforded to the trial court’s determination. Bain v. Wells, 936
S.W.2d 618, 622 (Tenn. 1997). This Court must make a fresh determination that the
requirements of Tenn. R. Civ. P. 56 have been satisfied. Abshure v. Methodist Healthcare-
Memphis Hosps., 325 S.W.3d 98, 103 (Tenn. 2010).

IV. Analysis

Tennessee has long held that an insurance policy provision establishing an agreed limitations
period within which suit may be filed against the company is valid and enforceable. Guthrie
v. Conn. Indem. Ass'n, 49 S.W. 829, 830 (Tenn. 1899); Hill v. Home Ins. Co., 125 S.W.2d
189, 192 (Tenn. Ct. App. 1938). Our courts have generally held that a contractual limitations
period begins to run upon accrual of the cause of action. Phoenix Ins. Co. v. Fidelity &
Deposit Co., 162 Tenn. 427, 37 S.W.2d 119 (1931). “We have interpreted insurance policies
containing language requiring a claim to be brought within so many days after a property
loss, but which protect the insurer from suit until after a settlement period, as meaning that
suit must be brought within so many days after the cause of action accrues.” Certain
Underwriter's at Lloyd's of London v. Transcarriers Inc., 107 S.W.3d 496, 499 (Tenn. Ct.
App. 2002) (citing Boston Marine Ins. Co. v. Scales, 49 S.W. 743, 747 (Tenn. 1898)).
Because the settlement period provides a period of immunity, during which the insured may
not bring suit, the cause of action has been construed as accruing once the immunity period
has expired, rather than on the date of the actual loss. Id. Denial of the claim by the insurer
before expiration of the settlement of loss period, however, is an effective waiver of the
immunity period. Home Ins. Co. v. Hancock, 62 S.W. 145 (Tenn. 1900). Thus, an insurer
cannot raise the immunity period as a defense to a suit brought within that period once it has
denied the claim. Hill, 125 S.W.2d at 192. Therefore, an insured's cause of action accrues
upon denial of liability by the insurance company when that denial comes within the

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immunity period. Id. “It follows that if the insured's claim is not denied within the settlement
of loss period, during which the insurer is immune from suit, [the] cause of action accrues
upon expiration of the settlement of loss period, when the insurer is no longer immune from
suit.” Certain Underwriter's, 107 S.W.3d at 499.

On the motion for summary judgment, Appellee argued that Phoenix Insurance Company
v. Brown, 381 S.W.2d 573 (Tenn. Ct. App. 1964) should control. Appellant, on the other
hand, argued that Certain Underwriter’s mandated a grant of summary judgment in its favor.
In denying summary judgment, the trial court determined that Phoenix controlled,
specifically holding that Certain Underwriter’s “is not applicable because the settlement of
loss section [in Certain Underwriter’s did] not impose this requirement that there be an
‘ascertainment of loss’ as required by the Farmers Aid policy.” The trial court went on to
note that, based on the Phoenix case, Mr. Meyers’s “right of action has not accrued under
the policy terms.” The trial court reasoned that “in this lawsuit [Mr. Meyers] complied with
the policy by furnishing the required proof of loss. To then allow insurer to draft the terms
of its policy which [Mr. Meyers] cannot negotiate in such a way that it can lay back and do
nothing is not just.”

In Phoenix, the insured notified the insurance company of his loss and was interviewed
under oath by an adjuster, but he never submitted a formal proof of loss. Id. at 574. The
insurance company never demanded proof of loss, nor did it deny the insured’s claim until
roughly six months after the insured property was destroyed. Id. The Phoenix Court
reasoned that because no formal proof of loss was submitted after the insurance company
was notified, the plaintiff could not have known whether proof of loss would be demanded
until the claim was denied. Id. at 575. Thus, the Phoenix Court concluded that the insured’s
right of action did not accrue until the denial was made Id.

Although the contractual language of the insurance policy in Phoenix is nearly identical to
the language of the policy in the instant case, the facts are readily distinguishable. In
Phoenix, the insured never submitted a formal proof of loss. Here, however, Mr. Meyers
submitted a sworn proof of loss. The trial court’s reliance on Phoenix is also misplaced
because Phoenix did not turn on the contractual language, but rather the fact that the insured
failed to submit a proof of loss. Because the holding in Phoenix rested on the insured’s
failure to submit a formal proof of loss, that case is inapplicable to the instant case, and the
trial court erred in relying upon Phoenix.

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The policy at issue in Certain Underwriter’s contained the following provision, in relevant
part:

SETTLEMENT OF LOSS. All adjusted claims shall be paid or made good to
the Insured within sixty (60) days after presentation and acceptance of
satisfactory proof of interest and loss at the office of the Company. No loss
shall be paid or made good if the Insured has collected the same from others.

107 S.W.3d at 498.

Although the policy language in Certain Underwriter’s varies somewhat from our case, the
facts are nearly identical. 107 S.W.3d at 498. In Certain Underwriter’s, the insurer filed for
declaratory judgment to determine its liability where a year had elapsed since the insured
tendered his proof of loss. Id. The insurer argued that the contractual limitation period had
run. Id. The insured argued that the insurer needed to deny the claim before the insured
could bring suit on the policy. Id. This Court held in Certain Underwriter’s in favor of the
insurance company, concluding that “the contractual statute of limitations begins to run upon
denial of liability or upon expiration of the immunity period, whichever comes first.” Id. at
500. Because the contract at issue in Certain Underwriter’s did not include the
ascertainment of loss language, the trial court rejected Certain Underwriter’s as controlling
in this case.

Neither Phoenix nor Certain Underwriter’s is directly on point. Appellants, however, have
proposed that Burton v. Nationwide Insurance Co., No. 1:07-CV-129, 2007 WL 3309076
(E.D. Tenn. Nov. 6, 2007) should guide our decision in this case. Burton presents both
similar facts and substantively similar contractual language. In Burton, the insured filed a
proof of loss. Id. at *1. The contractual language in that case required that proof of loss be
submitted and created a one-year contractual limitation within which suit could be brought
against the insurance company. Id. at *2. The Burton contract also included a sixty-day
settlement period with the following language:

Payment will be made within 60 days after we review your proof of loss and:

(1) reach agreement with you; or
(2) there is an entry of final judgment; or
(3) there is a filing of an appraisal award with us.

Id. The Burton Court determined that the sixty-day settlement period began to run upon the
submission of a proof of loss, and not when the insurer ascertained the loss. The Burton
Court explained that:

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 Plaintiff's interpretation of the law would allow an insurer to receive a proof of loss,
and then refrain from granting or denying the claim indefinitely. As a result, the
insured's cause of action would never accrue under the policy because there was
neither a denial, nor alternatively an agreement, final judgment, or appraisal award
which would have started the sixty day period. Tennessee law has not created such
an absurdity. See Brick, 140 S.W.3d at 330 (“To require denial of a claim before a
cause [of] action could accrue would permit the insurer to merely sit on a claim and
do nothing.”). Instead, the insured are given two options: wait until the insurer denies
the claim, or file a proof of loss, thus forcing the insurer to make a decision within
the contracted-for period, i.e. sixty days. If the insurer fails to make such a
determination within that period, the insured has a right to sue. See, e.g., Brick, 140
S.W.3d at 330; Lloyd's, 107 S.W.3d at 499-500; Hill, 125 S.W.2d at 192.

Burton v. Nationwide Ins. Co., No. 1:07-CV-129, 2007 WL 3309076, at *3 n. 2 (E.D. Tenn.
Nov. 6, 2007) (internal citations omitted).

We agree with the reasoning of the District Court in Burton, and apply it to the instant case.
Although the policy language in Burton and the instant case are not identical, both policies
require action by both the insured and the insurer before the settlement period begins. The
insured has to submit a proof of loss and the insurer has 60 days to ascertain the loss after the
proof of loss has been provided. As pointed out by the Burton Court, to construe the policy
before us to allow the insurance company to create a contract whereby it may remain immune
from suit by its own inaction (after receipt of the proof of loss) would constitute an absurd
result. To avoid such a result, we hold that, under the language of this contract, the insured’s
cause of action accrued sixty days after he submitted his proof of loss. We also note that this
Court has previously held that a cause of action accrues when the immunity period expires.
See Gagne v. State Farm Fire and Cas. Co., No. E2011-01117-COA-R3-CV, 2012 WL
691621 (Tenn. Ct. App. March 5, 2012).

In this case, the record shows that after Mr. Meyers submitted his proof of loss, the parties
did not communicate again until Mr. Meyers filed suit. Of course, any right of payment
under the policy inured to Mr. Meyers’s benefit, and it was his burden to protect those rights.
Indeed, it was incumbent upon Mr. Meyers to follow up with FAA after he submitted his
proof of loss. While we may find some measure of fault in FAA’s inaction, it was Mr.
Meyers who waited more than a year before taking any action to secure payment of his
insurance claim.

For the foregoing reasons, we hold that the trial court erred as a matter of law when it denied
Appellant’s motion for summary judgment. Under the terms of the insurance policy here,
the settlement period began when Mr. Meyers submitted his proof of loss. In that FAA never
denied his claim, Mr. Meyers’s cause of action accrued when the settlement period or

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immunity period ended on January 14, 2012, sixty days after he filed his November 15, 2011
proof of loss. As such, the one-year contractual statute of limitations had already expired
when Mr. Meyers filed his suit on March 12, 2013.

V. Conclusion

We reverse the trial court’s order denying summary judgment. We remand for entry of an
order granting summary judgment in favor of Appellant and for such further proceedings as
may be necessary and are consistent with this opinion. Costs of this appeal are assessed to
the Appellee, Lloyd L. Meyers, for which execution may issue if necessary.

_________________________________
KENNY ARMSTRONG, JUDGE

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