Phoenix Insurance Company v. Walter and Elsie Brown

Tennessee Court of Appeals, Eastern Section, decided February 21, 1964; certiorari denied by the Supreme Court of Tennessee July 15, 1964 (McAmis, Presiding Judge, for the court; Cooper and Parrott, JJ., concurring). The complete opinion appears below. Our text comes from the Caselaw Access Project (case.law), Harvard Law School’s open archive of published U.S. case law, which supplies the opinion as printed in the official reporter at 53 Tenn. App. 240. The reporter’s head matter — the caption, the parallel-cite line “381 S.W.(2d) 573.”, the “Eastern Section” line, the decision and certiorari dates, and the counsel listing (Heiskell Winstead, Church Hill, and Armstrong & Santore, Greeneville, for plaintiff in error; Milligan, Silvers & Coleman, Greeneville, for defendants in error) — is summarized in this paragraph rather than printed as opinion text; a caption and a court-and-date line are reprinted above the opinion. This is an older scan and it needed more repair than most. Here is the complete list: the judge’s name line was set in bold; “deified liability” was restored to “denied liability”; “visiting in Bogersville” was restored to “visiting in Rogersville” (the same town is spelled correctly earlier in the opinion); “she wrote the ad-Ílister” was restored to “she wrote the adjuster”; “inquiring -wh.eth.er the loss wonld he paid” was restored to “inquiring whether the loss would be paid”; “August 10,1960” was spaced to “August 10, 1960”; the stray apostrophe in “a stipulation in a ‘fire policy provided” was removed; “the amount of any loss- should be determined” was rejoined to “the amount of any loss should be determined”; “the expression ‘after the.fire.’” was restored to “the expression ‘after the fire.’”; “Tennessee eases dealing with” was restored to “Tennessee cases dealing with”; and closing double quotation marks that the scan rendered as two apostrophes were normalized in three places — at the end of the quoted limitation clause, at the end of the quoted payment clause, and at the end of the quotation from Aetna Insurance Co. v. Miers. Three oddities were deliberately left as printed, because they may be the reporter’s own rather than the scanner’s: the citation “151 S.W. 1030 at p. 1935”, the spelling “Cherokee Founderies, Inc.”, and the stray comma in “Baird v. Insurance Company, supra, which, is quoted from at some length.” Nothing else was changed. No word of the court’s has been changed, condensed, reordered, or paraphrased.

The full opinion

PHOENIX INSURANCE COMPANY, Plaintiff in Error, v. WALTER and ELSIE BROWN, Defendants in Error.

Court of Appeals of Tennessee, Eastern Section. February 21, 1964. Certiorari denied by the Supreme Court July 15, 1964.

McAMIS, P. J.

This action was brought by Walter and Elsie Brown against Phoenix Insurance Company upon an insurance policy issued in the name of Walter Brown, insuring property of Elsie Brown against loss by fire. The case was tried without a jury and resulted in a judgment for $1000.00, from which the Insurance Company has appealed.

The assignments renew here the defenses (1) that the action was not brought within the period of 12 months after the loss occurred as required by the policy; (2) the named insured, Walter Brown, had no insurable interest in the property.

Walter and Elsie Brown were divorced in 1953. Elsie Brown has since lived in Baltimore, Maryland. Walter Brown continued to live in Hawkins County, Tennessee, where the insured property is located. Notwithstanding the divorce, they appear to have maintained a relationship of trust and confidence.

In 1957, while the title to the insured property stood in his name, Walter Brown obtained from Robert C. Armstrong, an insurance agent of Rogersville, a policy of fire insurance on the property in the Great American Insurance Company. The premium for a three year period ending August 10, 1960, was paid when that policy was issued.

On October 11, 1957, Walter Brown conveyed the property to Elsie Brown. No change was made in the first policy after this transfer of title. On October 1, 1960, Mr. Armstrong called to Mr. Brown’s attention the necessity of renewing the insurance which had expired nearly two months before. Mr. Brown authorized a renewal of the insurance and on that date Armstrong issued the policy in defendant Phoenix Insurance Company. Brown testified that it did not occur to him to advise the agent that title to the property had been transferred to his former wife. It is not insisted the agent was aware of the transfer.

The house on the property was completely destroyed by fire on September 19, 1961, during the period for which the premium on the policy in the defendant company was paid by Mr. Brown. Suit was instituted January 29, 1963, approximately 16 months and 10 days after the fire occurred.

Brown reported the fire to Armstrong and, at the request of an adjuster, answered under oath certain questions which the adjuster reduced to writing. According to Brown, the adjuster took no formal proof of loss. When questioned by the Court, defendant’s counsel stated that no formal proof of loss was ever furnished the Company. Defendant neither admitted nor denied liability over the period of the next five or six months.

Elsie Brown testified she was visiting in Rogersville when the fire occurred and was interviewed there by an adjuster representing defendant. After returning to Baltimore, and on October 1, 1961, she wrote the adjuster, inquiring whether the loss would be paid. She received no reply until about six months after the fire when, for the first time, defendant denied liability.

The limitation clause in the policy reads:

“No suit or action 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.”

The policy also provides:

“The amount of loss for which this 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.”

We think there is applicable here the following statement in Hill v. Home Ins. Co., 22 Tenn.App. 635, 641, 125 S.W.(2d) 189, 192:

“A provision limiting suit or action on the policy to ‘twelve months next after the date of loss’ means twelve months ‘after the cause of action accrues’. Insurance Company v. Scales, 101 Tenn. 628, 641, 49 S.W. 743, 747.

“The policy here in question contained provisions for notice and proof of loss to be furnished by the insured to the insurer within sixty days from the date of the loss, which, in effect, afforded the insurer immunity from suit for such period of sixty days, and thereby postponed the accrual of the cause of action accordingly. 14 R.C.L., page 1419, section 581.

“But defendant’s absolute and unconditional denial of any liability on the policy, in its letter to complainant of date February 12, 1934, was a waiver by defendant of the provision of the policy which afforded it immunity from suit for sixty days after the loss, and complainant’s right to sue accrued when liability was thus denied by defendant. Insurance Company v. Hancock, 106 Tenn. 513, 516, 62 S.W. 145, 52 L.R.A. 665.”

As we have seen, defendant failed either to admit or deny liability until at least five months after the fire occurred. No formal proof of loss was ever demanded or furnished. Denial of liability terminated defendant’s immunity from suit and on that date the right to sue accrued. Hill v. Insurance Company, supra. Until that time plaintiffs could not know whether proof would be demanded. Suit was brought well within twelve months thereafter.

It should be pointed out that the Company is not attempting to defeat recovery because proof of loss was not furnished within 60 days after the fire occurred or thereafter.

In addition to the foregoing, under the terms of the policy above copied, the Company had sixty days after “ascertainment of the loss” either by agreement or arbitration award filed with the Company within which to pay the loss. The loss was never so ascertained and it follows that the right of action did not accrue until the denial of liability by letter to Elsie Brown.

Other stipulations of the policy may operate to nullify or invalidate a contractual limitation upon the time within which suit must be brought. 29A Am.Jur. 863. The text cites under a footnote Leach v. Republic Fire Ins. Co., 58 N.H. 245, where a stipulation in a fire policy provided that the amount of any loss should be determined by impartial arbitration and that no suit should be maintained until after such award. The stipulation here involved is in effect the same since it allows the insurer 60 days after the filing of such award within which to pay the loss. A suit brought before the award or within 60 days thereafter would be premature.

In Phoenix Ins. Co. v. Fidelity & Deposit Insurance Company, 162 Tenn. 427, 37 S.W.(2d) 119, the Court followed what it termed the majority rule that a policy provision limiting the time for bringing suit must be construed along with a provision for immunity from suit and said: “The limitation begins to be effective from the time the right of action accrues, notwithstanding the expression ‘after the fire.’ ”

Under the authorities cited we think the court correctly held the suit not barred. Did Walter Brown have an insurable interest in the property?

The record shows that Walter Brown was looking after the property for Elsie Brown and was expected to keep it insured. She was aware that a policy had been procured but apparently did not know it was in his name.

It should be pointed out at the outset that we are not dealing here with a policy provision requiring that the insured be the sole and unconditional owner of the property. The insistence is that the named insured was without an insurable interest and that Elsie Brown was the only person having such interest.

Baird v. Fidelity-Phoenix Fire Ins. Co., 178 Tenn. 653, 162 S.W.(2d) 384, 140 A.L.R. 1226, contains a full review of Tennessee cases dealing with, what constitutes an insurable interest, including the early case of Aetna Insurance Co. v. Miers, 37 Tenn. 139, where it was said:

“What is an insurable interest in property, is not very clearly and distinctly settled in the books. It is said that it may be proved, without the evidence of any legal or equitable title to the property insured. The term interest, in this application, does not necessarily imply property. There is some difficulty in likening an insurable interest to any other interest in property. Angel on Ins., sec. 56. But policies of insurance, without some interest, are illegal and void, as a species of gaming.

“So there must be a line of distinction between wager policies, and those coupled with an interest.

“The contract of insurance is one of indemnity against losses and disadvantages to the insured; and therefore, any interest in the subject matter, or property insured, is sufficient to sustain an insurance of real estate.”

The opinion in the Baird case also quotes from Chief Justice Green’s opinion in Gleason v. Prudential Fire Ins. Co., 127 Tenn. 8, at p. 28, 151 S.W. 1030 at p. 1935, as follows:

“The only question raised upon this petition is whether the husband has an insurable interest in the wife’s general estate. The title to the property insured and destroyed was in Mrs. Adkisson, but the policy was issued to Adkisson and wife, and it is insisted on behalf of the receiver that Adkisson did not have any interest in this property, and that there can be no recovery on this policy. This defense is not well made.

“It appears in the proof that the property was Mrs. Adkisson’s general estate. Her husband, therefore, had a freehold estate therein, with the right to control it, and various other rights respecting it, which are well recognized. Standing in this attitude to the property, he had an insurable interest in it. We have so held in former unreported cases. Many authorities to this effect are collected in a note to Tyree v. Virginia F. & M. Ins. Co., 66 L.R.A. 657. The husband has a beneficial interest in such property, and he is also treated in many of the cases as agent for the wife respecting such property.”

The Baird case involved a policy running in the name of executors of the widow and devisee of the original owner. Although it was doubtful whether the widow had any interest in the property, it was held that, since the executors had the insured property under their care and control, they had an insurable interest.

The Baird opinion also cites Catron v. Tennessee Insurance Company, 25 Tenn. 176, where Mr. Justice Turley quoted from the opinion of Chief Justice Marshall in Columbia Insurance Co. v. Lawrence, 2 Pet. 25, 7 L.Ed. 335, which in turn quoted from Marshall on Insurance against Fire, as follows:

“It is not necessary however, in order to constitute an insurable interest, that the insured shall in every instance, have the absolute and unqualified property of the effects insured. A trustee, a mortgagor, a reversioner, a factor or agent, with the custody of goods to be sold upon commission may insure. * * *”

The question was next considered by the Supreme Court in Cherokee Founderies, Inc. v. Imperial Assur. Co., 188 Tenn. 349, 219 S.W.(2d) 203, 9 A.L.R.(2d) 177. Although the opinion indicates no recession from Baird v. Insurance Company, supra, which, is quoted from at some length, the Court held that a person having only a parol, and therefore voidable, contract to purchase real property did not have an insurable interest.

In American Indemnity Co. v. Sou. Missionary College, 195 Tenn. 513, 260 S.W.(2d) 269, 39 A.L.R.(2d) 714, a stockholder owning all of the stock of a corporation obtained a policy in its own name upon property of the subsidiary corporation. After holding that the stockholder had an insurable interest, and citing the rule broadly stated in the Baird case and set forth at 29 Am.Jur. p. 293, et seq., that anyone who would suffer a loss from the destruction of the property has an insurable interest, the Court, on petition to rehear, said:

“The petitioner is most insistent that the Southern Missionary College should have, in applying for the policy, stated the nature of its alleged interests, i.e., that it was the owner of all the stock in the Collegedale Merchantile Enterprises, Inc. We cannot accede to this as a sound postulate in the Law of Insurance. There are cases almost without number dealing with the question of ‘sole and unconditional ownership’ of property where the insurer insisted upon a forfeiture because of an invalid title, or no legal title, or no title at all in the policy holder. But in cases too numerous to require citation it is held that even though ownership does not rise to the dignity of a legal title the interest may be insurable.”

Gillespie v. Federal Compress & Warehouse Co., 37 Tenn.App. 476, 265 S.W.(2d) 21, holds that a warehouseman who is not bound to insure property in transit to or from his warehouse has an insurable interest in the property because “of the frequent uncertainty as to whether the damage occurred in transit or in storage.”

Under the proof in this case, Walter Brown acted as the agent of the owner in looking after the property and keeping it insured. If he had failed to procure insurance he might have been held responsible for the loss and we think, under the authorities above cited and discussed, he had an insurable interest.

Affirmed.

Cooper and Parrott, JJ., concur.

What it decided

A house in Hawkins County burned to the ground on September 19, 1961. Suit was not filed until January 29, 1963 — “approximately 16 months and 10 days after the fire occurred.” The policy said no action could be brought “unless commenced within twelve months next after inception of the loss.” Phoenix argued the case was four months too late. It lost, and the $1,000 judgment was affirmed.

The twelve months runs from accrual, not from the flames. Quoting Hill v. Home Insurance Co., the court adopted the settled Tennessee construction: a clause limiting suit to “twelve months next after the date of loss” means twelve months “after the cause of action accrues.” The reason is structural. The same policy that shortens the deadline also forbids you to sue immediately — it gives the insurer sixty days after proof of loss before payment is due, which “afforded the insurer immunity from suit for such period of sixty days, and thereby postponed the accrual of the cause of action accordingly.”

The denial was the starting gun. Phoenix “failed either to admit or deny liability until at least five months after the fire occurred.” Elsie Brown wrote the adjuster twelve days after the fire asking whether the loss would be paid and heard nothing for about six months. When the denial finally came, it did two things at once. It ended the insurer’s own immunity from suit, and it started the clock: “Denial of liability terminated defendant’s immunity from suit and on that date the right to sue accrued … Until that time plaintiffs could not know whether proof would be demanded. Suit was brought well within twelve months thereafter.”

There was an independent second reason. The policy made the loss payable sixty days after “ascertainment of the loss” by written agreement or by a filed award. Neither ever happened: “The loss was never so ascertained and it follows that the right of action did not accrue until the denial of liability by letter to Elsie Brown.” The court analogized to a policy requiring arbitration before suit — “A suit brought before the award or within 60 days thereafter would be premature.”

Then the second defense, and it is a substantial holding in its own right. Phoenix argued that Walter Brown, the named insured, had no insurable interest — he had deeded the property to his ex-wife in 1957 and simply never told the agent. The court walked through a century of Tennessee authority (Miers, Gleason, Catron, Baird, Cherokee Founderies, American Indemnity, Gillespie) and held: “Walter Brown acted as the agent of the owner in looking after the property and keeping it insured. If he had failed to procure insurance he might have been held responsible for the loss and we think … he had an insurable interest.” Title was not the question. Exposure to loss was.

What it did NOT decide

• It did not hold that a denial waives the proof-of-loss requirement. This is the most important limit on the page, and the court drew it itself in a one-sentence paragraph: “It should be pointed out that the Company is not attempting to defeat recovery because proof of loss was not furnished within 60 days after the fire occurred or thereafter.” The waiver the court did find, quoting Hill, was a waiver of the insurer’s sixty-day immunity from suit. No formal proof of loss was ever demanded here, and no proof-of-loss defense was raised. Anyone who cites Brown for the proposition that a denial excuses the sworn proof of loss is citing something this opinion deliberately kept out of the case.
• It did not hold that a shortened suit clause is unenforceable. The clause was treated as binding. The court construed it — it did not strike it.
• It did not decide when the clock starts if the insurer never denies. Denial was the accrual event here, and the alternative ground depended on the fact that the loss “was never so ascertained.” An insurer that demands a proof of loss, receives it, and pays part of the claim presents a different accrual question that this opinion does not answer.
• It did not decide what happens when a proof of loss is demanded and not furnished. The court expressly noted that until the denial “plaintiffs could not know whether proof would be demanded.”
• It did not construe a “sole and unconditional ownership” clause. The court said so at the outset: “we are not dealing here with a policy provision requiring that the insured be the sole and unconditional owner of the property.” If your policy has that clause, this case does not resolve it.
• It did not decide the amount of the loss. A bench trial produced $1,000; the appeal was about the two defenses only.
• It says nothing about bad faith, penalties, or attorney’s fees. For the Tennessee bad-faith penalty and its four elements, see Tenn. Code Ann. § 56-7-105 and Palmer v. Nationwide.
• It construed the words in a 1960 policy. The clause here said “within twelve months next after inception of the loss.” Yours may say something else. Read it.

Why it matters to policyholders

The deadline is the quietest way to lose a claim, and most people count it wrong. Homeowners assume the clock starts the day of the fire, the hailstorm, or the burst pipe. Insurers rarely correct that assumption. Brown says that in Tennessee, under this kind of clause, the twelve months runs from when you were first legally able to sue — and the insurer’s own denial can be the event that makes that possible.

Do not use that as permission to wait. This is the honest half. Brown is a rescue case, decided on the specific record of a carrier that sat silent for five or six months, never demanded a proof of loss, and never raised one as a defense. The safe practice has not changed in sixty years: calendar the date of loss deadline and the accrual deadline, treat the earlier one as real, and get a lawyer’s read on your actual policy language well before either passes. Tennessee’s general statute for breach of an insurance contract is six years under Tenn. Code Ann. § 28-3-109, but policies commonly shorten that by clause to one or two years, and whether a particular shortened clause binds you on your facts is a question for counsel on your policy’s words.

Tennessee now puts clocks on the silence the Browns endured. Under TDCI Rule 0780-01-05-.07 an insurer must acknowledge a claim within 30 days and reply to pertinent communications within 30 days. Under Rule 0780-01-05-.08 it must accept or deny within 60 days of a completed proof of loss, give written reasons, send continuing letters every 60 days if it needs more time, tender payment of undisputed amounts within 30 days of affirming liability — and notify a first-party claimant at least 30 days before an applicable statute of limitations expires. Elsie Brown’s unanswered letter is exactly the conduct those rules address.

So the practical move is the opposite of waiting. Submit a completed, sworn proof of loss with a documented estimate, in writing, with proof of delivery. That single act starts the 60-day accept-or-deny clock, forecloses the argument that killed the insured in Georgia’s Evans v. Ohio Casualty, and creates the dated record every later argument will be built on. Silence from a carrier is not neutral; it is a fact you should be documenting.

The insurable-interest half deserves its own attention. Divorce, an estate in probate, a parent holding a house for a child, a caretaker keeping a family property insured — Tennessee has said for more than a century that “any interest in the subject matter, or property insured, is sufficient,” and that “even though ownership does not rise to the dignity of a legal title the interest may be insurable.” A carrier that says “you don’t own it, so you can’t collect” is making an argument Brown addresses head-on. It is not automatic, and a “sole and unconditional ownership” clause changes the analysis, but the deed is not the end of the conversation.

Where the file goes from here. Once a Tennessee carrier concedes the peril and the fight becomes the number, the appraisal machinery and its limits are set out in Merrimack v. Batts. A public adjuster documents the loss, prepares and submits the sworn proof of loss, prices the repair, invokes appraisal where it fits, and keeps the compliance record airtight. Suing on a limitation defense — or pleading bad faith — is attorney work, and we refer it out and keep working the file alongside counsel. More Tennessee claim law, in full text, is on the Tennessee claim-law page.

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