Johnson v. Tennessee Farmers Mutual Insurance Co.

556 S.W.2d 750, 1977 Tenn. LEXIS 617

• Court: Tennessee Supreme Court
• Decided: June 13, 1977
• Status: Published

Opinions

OPINION

HARBISON, Justice.

This is an action on an automobile theft insurance policy. The trial court found the value of the vehicle on the date of the theft to be $4,400.00 and allowed judgment for the insured in that amount, plus interest of $270.24, representing the difference between the amount necessary to discharge a mortgage on the vehicle on the date of the loss and the necessary amount on the day of the trial. In addition the trial court allowed a statutory bad-faith penalty of ten percent of the value of the vehicle, pursuant to T.C.A. § 56-1105. Although the insured had sued for loss of the use of the vehicle as provided in the policy, the proof offered on that subject was undocumented and indefinite in amount, so that no recovery was allowed for that portion of the claim.

Only the insurer appealed from the judgment of the trial court, assigning as error in the Court of Appeals the allowance of interest and penalty. Reviewing the facts of the case, the Court of Appeals concluded that neither the penalty nor the interest should have been awarded, in view of the fact that the insured had not made a definite or formal demand for payment until less than sixty days prior to filing suit. T.C.A. § 56-1105 allows a penalty, in the discretion of the trier of fact, when the insurer refuses to pay “within sixty (60) days after a demand shall have been made by the holder of the policy on which said loss occurred . . . ."

The vehicle in question was purchased by Mr. Robert L. Johnson, the named insured, in March 1974. The purchase price was $5,313.50, not including sales tax. It was a new vehicle and was used primarily by the insured’s wife and his college-age son, and was then taken by the son, Robert D. Johnson, to college with him in January. It was stolen on the night of January 4, 1975, which was during a weekend, and the loss was promptly reported to the insurance carrier at the beginning of the next week.

The proof shows that the insurance carrier took at least two different statements from the insured’s son, but neither of these has been filed in the record, and the dates do not appear. It further does not appear in the record whether a formal proof of loss was filed. The insured’s son testified that he did not make a formal demand, or at least a written demand, upon the insurance company, but did state that he thought the vehicle was worth approximately $5,000.00 on the date of the loss. He said that he never really made any fixed demand but told the insurance carrier that he wanted “the face value of the car.”

The insured’s son testified that the company never met his claim of $5,000.00. However, he advised the adjuster that “if he could get a car comparable to mine I would take that . . . .”

The record reflects that the claim was handled by two different insurance adjusters, one in the area where the insured’s son was attending college, and the other in the area where the insured resided. The insurance carrier did not consider that the vehicle was worth the amount so close to the original purchase price, as suggested by the insured’s son, because it had been used for approximately nine months and had been driven between seven thousand and eight thousand miles.

On March 12, 1975 the insured’s son retained counsel, and a written demand was made by the attorney upon the insurance carrier for settlement. Thereafter the company and counsel for the insured negotiated extensively in an effort to find a replacement vehicle comparable to the stolen automobile. The insurance adjuster testified that he had located three vehicles in Bristol, roughly comparable to the automobile in question, any one of which he could have purchased for $3,650.00. None of the negotiations succeeded, however, and suit was filed on behalf of the insured on April 26, 1975.

At the trial an appraiser testified for the insured, fixing the approximate value of the vehicle on the date of the loss at $4,500.00. The adjuster for respondent testified that in his opinion it was worth between $3,850.00 and $3,900.00.

It is apparent that there was a genuine dispute between the parties in the case as to the fair value of the vehicle on the date of the theft. While there was a delay in the adjustment of the loss, it does not appear that the insurance carrier was consciously indifferent to the claim of the insured or that it acted out of any improper motive. There were genuine efforts to find a replacement automobile which would be mutually satisfactory. Under all of the circumstances we agree with the Court of Appeals that the statutory penalty should not be applied to this case, and we concur in its deletion of the penalty, in the amount of $440.00, from the judgment.

The allowance of interest, however, is in a somewhat different category. While the penalty statute does make reference to interest as well as penalty, interest may be allowed, in proper cases, wholly apart from the penalty statute.

An unliquidated loss on an insurance policy such as the one in question usually does not bear interest as a matter of right under T.C.A. § 47-14-107, but it is well settled that the trier of fact may, in his discretion, allow interest upon an unliqui-dated claim for property damages or breach of contract. In the case of Phoenix Ins. Co. v. Jordan, 28 Tenn.App. 11, 184 S.W.2d 721 (1944), interest was allowed upon a fire loss, the Court holding that if the policy of insurance did not fall within the terms of the statute allowing interest as a matter of right, then its allowance would be discretionary. The Court found no abuse of discretion on the part of the chancellor in awarding it. See also Textile Workers Union of America v. Brookside Mills, Inc., 205 Tenn. 394, 402-403, 326 S.W.2d 671 (1959); Owen v. Holdway, 57 Tenn.App. 713, 718, 425 S.W.2d 623 (1967); Thayer v. Wright Co., 50 Tenn.App. 515, 531, 362 S.W.2d 805 (1961); Akers v. Sedberry, Inc., 39 Tenn.App. 633, 646, 286 S.W.2d 617 (1955).

The rule was recently stated by the Court of Appeals for the Sixth Circuit as follows:

“The fact that the claim does not fall within the terms of the statute making interest mandatory does not preclude the granting of interest; in Tennessee the granting or withholding of interest prior to judgment in cases not falling under the statute is within the discretion of the trial judge.” Farmer’s Chemical Assoc. v. Maryland Cas. Co., 421 F.2d 319, 323 (6th Cir. 1970).

In the present case the trial judge awarded pre-judgment interest because the vehicle was financed and the amount allowed represented the increased obligation of the insured to the mortgagee between the date of the loss and the date of trial. We are unable to say that the trial judge abused his discretion in making this allowance, and accordingly we restore the amount of pre-judgment interest awarded by the trial judge, making the judgment $4,670.24. The entire judgment, of course, bears interest from the date of its entry in the trial court until payment. T.C.A. § 47-14-110.

Judgment will be entered in this Court accordingly, and all costs on appeal will be equally divided between the parties. Costs accrued in the trial court will be taxed to the respondent.

COOPER, C. J., and FONES, J., concur. HENRY and BROCK, JJ., dissent.