Tennessee's bad-faith insurance penalty: up to 25% — if you clear four hurdles first.

What does Tennessee's bad-faith statute actually say?

The operative language of Tenn. Code Ann. § 56-7-105(a), condensed to its moving parts: insurers doing business in Tennessee, "in all cases when a loss occurs and they refuse to pay the loss within sixty (60) days after a demand has been made by the holder of the policy," shall be liable to pay the policyholder, "in addition to the loss and interest thereon, a sum not exceeding twenty-five percent (25%) on the liability for the loss" — provided the court or jury finds "that the refusal to pay the loss was not in good faith, and that the failure to pay inflicted additional expense, loss, or injury including attorney fees upon the holder of the policy."

Two features of that language deserve a plain-English translation:

• The 25% is a ceiling, not a schedule. The statute says the additional liability, within the limit, "shall, in the discretion of the court or jury trying the case, be measured by the additional expense, loss, and injury including attorney fees thus entailed." You prove what the refusal actually cost you — extra living expenses, worsening damage, attorney fees — and the penalty is sized to it.
• The trigger is a demand plus 60 days. No demand, no penalty. Demand plus a lawsuit filed on day 45, no penalty. The clock is not a technicality; it is an element.

The full statutory text, with the official source linked, is in our Reading Room.

The 60-day formal demand: the step that kills most penalty claims

Tennessee courts read "demand" to mean a formal demand for payment — and here is the trap: filling out the insurer's claim forms is not a demand. Neither is a phone call, an adjuster meeting, or months of back-and-forth emails about the estimate. The demand that starts the 60-day clock is a deliberate, dated, written demand for payment of the loss, delivered so its receipt can be proven.

Policyholders lose Tennessee bad-faith penalties without the carrier ever proving its claim handling was reasonable — the case dies at the threshold because no formal demand was made, or suit was filed before the 60 days ran. Get the demand right and the penalty question gets decided on the merits, where your record does the talking.

The demand also has to come at the right time: the first Palmer element requires that the policy has, by its terms, become due and payable. A demand fired off before the policy's own conditions are satisfied invites the carrier to argue the clock never started.

Palmer v. Nationwide: the four things you must prove

The checklist case is Palmer v. Nationwide Mutual Fire Insurance Co., 723 S.W.2d 124 (Tenn. Ct. App. 1986), where the Court of Appeals reversed a jury's 20% penalty award and restated the prerequisites. In the court's own words:

"Under the holdings of our courts, before there can be a recovery of penalty under T.C.A. § 56-7-105, (1) the policy of insurance must, by its terms, have become due and payable, (2) a formal demand for payment must have been made, (3) the insured must have waited 60 days after making his demand before filing suit (unless there was a refusal to pay prior to the expiration of the 60 days), and (4) the refusal to pay must not have been in good faith." (723 S.W.2d at 126.)

In practice:

• Due and payable — the claim has ripened under the policy's own terms: notice given, proof of loss and cooperation conditions met.
• Formal demand — the written demand described above, not the claim paperwork.
• The 60-day wait — suit comes after the window closes, unless the carrier refuses outright before it does.
• Refusal not in good faith — the element the whole pre-suit record exists to prove, and the one the next section is about.

What defeats the penalty — and why the record decides it

Palmer is also a warning label. The insurer in that case won because its arson defense rested on real evidence, and the court restated three doctrines every Tennessee policyholder should know before counting penalty money:

• Delay alone is not bad faith. Quoting the Tennessee Supreme Court's Johnson decision, Palmer holds that delay does not constitute bad faith where there is a genuine dispute as to value, no conscious indifference to the claim, and no proof of an improper motive.
• A good-faith defense — even a losing one — defeats the penalty. Palmer quotes Nelms: if an insurer unsuccessfully asserts a defense made in good faith, the statute does not permit imposing the penalty.
• The statute is penal and strictly construed, and the policyholder bears the burden of proving bad faith.

Read together, the message is not "the penalty is unreachable." It is that the penalty is reached with evidence: a file showing the carrier had the proof of a covered, quantified loss in hand and refused anyway — no genuine dispute, no reasonable investigation behind the number, no answer to the documentation. That file does not assemble itself after suit is filed. It is built during the claim.

What bad faith looks like inside a Tennessee claim file

Tennessee wrote down what unacceptable claim handling looks like. Tenn. Code Ann. § 56-8-105 lists fifteen unfair claims practices; the ones that matter in homeowner files include knowingly misrepresenting policy provisions, failing to acknowledge claim communications with reasonable promptness, refusing to pay without a reasonable investigation, failing to attempt a prompt, fair settlement once liability is reasonably clear, and failing to promptly give a reasonable, accurate explanation for a denial or lowball compromise offer.

Two honest caveats. First, § 56-8-105 is enforced by the state's insurance regulator — Tennessee courts have held there is no private right of action under it, so it is not a lawsuit in itself. Its power for a policyholder is as the vocabulary of a complaint to Tennessee's insurance regulator and as the plain-English description of unreasonableness a penalty case is built on. Second, Tennessee's claim-handling day-counts live in a TDCI regulation rather than a statute — Rule 0780-01-05 gives insurers 30 days to acknowledge, 60 days to accept or deny after proof of loss, and 30 days to pay — and a documented violation of those clocks is exactly the kind of record a penalty case is built on. Our guide to Tennessee claim settlement timelines walks every deadline.

Who does what: the attorney's lane and the public adjuster's lane

Straight talk, because Tennessee licensing law demands it and so does honesty: recovering the § 56-7-105 penalty means litigation, and litigation is attorney work. A public adjuster does not file or try the suit.

What a public adjuster does is build everything the suit stands on: documenting and quantifying the loss so it is provably due and payable, drafting the claim record so the formal demand is bulletproof and dated, holding the carrier's conduct up against § 56-8-105 on paper, and negotiating — because most well-documented claims settle without a courtroom. Friedman & Associates works both lanes: we fight the claim as licensed public adjusters and, when a carrier's refusal earns a lawsuit, we refer it to policyholder counsel we work with, record in hand. Our fee is contingency only — no recovery, no fee — within Tennessee's statutory caps on public adjuster fees.

Questions Tennessee policyholders ask us

The 60-day clock does not start until the demand is made. A free, confidential case review by a licensed Tennessee public adjuster takes three taps — and if we take the case, you pay nothing unless we recover.

See if my case qualifies 770-230-2616