Day on Torts

Negligence case against insurance agent fails due to statutory presumption.

Because Tenn. Code Ann. § 56-7-135(a) creates a rebuttable presumption that a person who signs an insurance contract “has read, understands, and accepts the contents of such document,” and plaintiff did not rebut that presumption, the trial court properly granted summary judgment to defendants on plaintiff’s claims for negligence and negligent misrepresentation.

In Vanquish Worldwide, LLC v. Sentinel Insurance Company, LTD, No. E2020-01650-COA-R3-CV, 2022 WL 189791 (Tenn. Ct. App. Jan. 21, 2022), plaintiff provided certain services to the U.S. government, and it subcontracted some of these services to another company. Plaintiff purchased insurance through defendant insurance agent Steve Hardin, who met with plaintiff and was told that plaintiff “sought business liability coverage for the contract administration and claims bookkeeping that [plaintiff] performed under the trucking contract.” A policy was issued through defendant insurance company, which a representative of plaintiff executed.

Some time later, a dispute arose between plaintiff and the subcontractor. During arbitration, plaintiff “admitted that it had not paid [subcontractor] for invoices” for almost a year. During the arbitration proceedings, plaintiff informed defendant Hardin that it was in a dispute regarding a “booking error,” and plaintiff believed based on this conversation that the claim would be covered under the insurance policy. According to plaintiff, it was not told until a year and a half later that there might not be coverage for the claim.

The arbitration was eventually settled for $7 million, and plaintiff incurred $900,000 in legal fees. When coverage for these expenses was denied, plaintiff filed this suit for negligence and negligent misrepresentation against defendant Hardin, and for “agency/respondeat superior claims against the insurance companies based on Mr. Hardin’s actions.” Defendants moved for summary judgment as to all claims, which the trial court granted, and the Court of Appeals affirmed.

Tenn. Code Ann. § 56-7-135(a) provides that “the signature of an applicant for or party to an insurance contract on an application…or other document stating the type, amount, or terms and conditions of coverage, shall create a rebuttable presumption that…the person signing such document has read, understands, and accepts the contents of such document.” As the Court looked at each of plaintiff’s claims, the fact that plaintiff failed to rebut this presumption proved fatal.

Regarding the negligent misrepresentation claim against defendant Hardin, one of the essential elements of negligent misrepresentation is showing that the plaintiff justifiably relied on the misrepresentation. (internal citation omitted). While plaintiff did not dispute that the policy did not provide coverage, it asserted that the question of justifiable reliance on Mr. Hardin’s statements was an issue of fact that should have been left to the jury. Based on the circumstances of this case and the application of the relevant statute, however, the Court of Appeals disagreed. The Court noted that Tenn. Code Ann. § 56-7-135 is a burden shifting statute, and that plaintiff “did not assert that it successfully rebutted the statutory presumption.” Due to this unrebutted presumption, any alleged reliance on statements by defendant Hardin was therefore not reasonable. The Court explained:

Even assuming that [plaintiff] relied on misrepresentations by Mr. Hardin to its detriment, and that it would have mitigated its damages had Mr. Hardin provided accurate information, mere reliance is not an element of a negligent misrepresentation claim; the reliance must be justifiable. Insofar as [plaintiff] concedes that the insurance policies did not provide coverage for the disputed claims, and insofar as [plaintiff] failed to rebut the presumptions set out in Tennessee Code Annotated section 56-7-135(a), the facts [otherwise relied on by plaintiff] are not material.

Summary judgment on the negligent misrepresentation claim was thus affirmed.

The Court next addressed the general negligence claim against defendant Hardin, finding that the same statute would also negate the elements of this claim. To prove negligence, a plaintiff must show a duty of care, breach of that duty, an injury, causation in fact and proximate cause. (internal citation omitted). Because of the statutory presumption created by Tenn. Code Ann. § 56-7-135(a), however, the Court explained:

Even if we assume, arguendo, that [plaintiff] met its burden to establish the duty, breach, and injury elements of negligence, the section 56-7-135(a) statutory presumption would negate the element of causation; i.e., presuming that [plaintiff’s representative] read, understood, and accepted the contents of the insurance policy, there is simply no causal link between Mr. Hardin’s later statements and an injury to [plaintiff].

While it was unclear whether plaintiff had addressed a failure to procure insurance claim on appeal, the Court noted that such a claim would also fail due to a statutory presumption. Tenn. Code Ann. § 56-7-135(b) states that “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 Tennessee Supreme Court previously held that this statute applies to negligent failure to procure claims against insurance agents, and it was undisputed in this case that plaintiff had paid all premiums on the policy. Further, the Court noted that there was “undisputed proof that the type of coverage [plaintiff] sought (i.e., for intentional breach of contract) was not obtainable in the insurance market,” and that “[n]o court can impose a legal duty on Mr. Hardin for his alleged failure to obtain the unattainable.” Summary judgment on the general negligence claim was accordingly affirmed.

Regarding the claims against the insurance companies, which were based on vicarious liability, the Court ruled that “if there [was] no negligence by the agent, then ipso facto, there [was] no vicarious liability on the part of the principal.” The Court also denied plaintiff’s argument that the insurance companies should be estopped from denying coverage for the legal expenses associated with the underlying arbitration, as the case relied upon by plaintiff was decided before the statutory presumption was adopted, and under the facts of this case, plaintiff had not rebutted the statutory presumption and thus not shown that it reasonably relied on any alleged misrepresentation. Summary judgment for defendants was therefore affirmed on all counts.

This case shows the huge impact that Tenn. Code Ann. § 56-7-135 can have on a case against an insurance agent or insurance company. Before taking any such case, an attorney should review this statute and consider the implications of the statutory presumptions on any potential claims.

This opinion was released three months after oral arguments in this case.

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