American Family total-loss offers in Tennessee: how the appraisal clause works

Tennessee regulates first-party automobile total losses through the substantive auto-claim settlement standards in the regulation at Tenn. Comp. R. & Regs. 0780-01-05-.09, issued under the Tennessee Unfair Trade Practices and Unfair Claims Settlement Act of 2009 (Tenn. Code Ann. title 56, chapter 8, part 1), and the bad-faith refusal-to-pay penalty at Tenn. Code Ann. § 56-7-105 (which the Court of Appeals has held does not apply to automobile insurance policies — see below). Tenn. Comp. R. & Regs. 0780-01-05-.09 — Standards for Prompt, Fair, and Equitable Settlements Applicable to Automobile Insurance. The substantive auto-total-loss settlement standards live in this regulation, promulgated under the authority of Tenn. Code Ann. §§ 56-2-301, 56-8-101 through 56-8-120, 56-8-105, 56-8-108, and 56-8-110. When the insurer elects a cash settlement, it is based on the actual cost to purchase a comparable automobile, including all applicable taxes, license fees and other fees incident to transfer of ownership, and the cost may be derived from two or more comparable automobiles in the local market area available within the last ninety days; two or more comparable automobiles in proximate areas, including the closest major metropolitan areas, when none are available locally; one of two or more quotations from two or more licensed local dealers when comparable automobiles are not available; or a statistically valid source that gives primary consideration to the values of vehicles in the local market area (0780-01-05-.09(1)(b)). A settlement that deviates from those methods must be supported by documentation giving particulars of the automobile's condition, and any deductions from the cost, including deduction for salvage, must be as specific as reasonably possible and specific and appropriate as to dollar amount ((1)(c)); betterment or depreciation deductions must be itemized and specified as to dollar amount ((5)). Critically, Tenn. Comp. R. & Regs. 0780-01-05-.01 expressly provides that "Nothing herein shall be construed either to create or to imply a private cause of action for violation of this Chapter." Tenn. Code Ann. § 56-7-105 — Bad-Faith Refusal to Pay Insurance Claims. When an insurer refuses to pay a loss within sixty (60) days after a demand by the policyholder, and the court or jury finds that the refusal was not in good faith and that the failure inflicted additional expense, loss, or injury, the insurer is liable for the loss plus interest plus a sum not exceeding twenty-five percent (25%) on the liability for the loss. APPLICABILITY CAVEAT: Tenn. Farmers Mut. Ins. Co. v. Cherry, 374 S.W.2d 371, 372 (Tenn. 1964), held that the statute applies only to written contracts that themselves bear interest from the time they become due — life, fire and accident policies — and not to liability insurance policies. In Gaston v. Tenn. Farmers Mut. Ins. Co., 120 S.W.3d 815 (Tenn. 2003), a policyholder's claim under the uninsured motorist provision of her policy (as the Court of Appeals describes it in Giles, below), the Tennessee Supreme Court let her § 56-7-105 bad-faith claim go to a jury without mentioning Cherry; a federal court has said Gaston did not overrule Cherry by implication but calls its continuing validity into question (For Senior Help, LLC v. Westchester Fire Ins. Co., No. 3:19-cv-00126 (M.D. Tenn. Jan. 25, 2021)). In Giles v. GEICO General Insurance Co., No. M2021-00165-COA-R3-CV (Tenn. Ct. App. Oct. 28, 2021), an insured's § 56-7-105 claim against her own uninsured/underinsured-motorist carrier, the Court of Appeals held that § 56-7-105 does not apply to automobile insurance policies; bound by Cherry, it would not read Gaston as altering that rule. Tenn. Comp. R. & Regs. 0960-01-.29(3) — 75% Salvage History. As printed in the Motor Vehicle Commission's rebuilt/salvage disclosure notice on tn.gov, the rule defines "salvage history" to include a passenger motor vehicle damaged to the extent that the total estimated or actual cost of parts and labor to rebuild or reconstruct it to its pre-accident condition and for legal operation on the roads or highways exceeds 75% of its retail value, as set forth in a current edition of any nationally recognized compilation of retail values; the notice cites Tenn. Code Ann. § 55-3-211 for the definitions of "rebuilt title" and "salvage title". The reference value is retail value, not actual cash value.