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Is Tennessee Still a Valued Policy Law State? A Quick Review of Valued Policy Laws and a Recent Decision That Does Not Follow the Rule


I cannot remember any insurance reference material or case suggesting that Tennessee is not a valued policy law state. A recent federal decision seems to question whether Tennessee’s Valued Policy laws apply when the insurance policy is written with replacement cost coverage.

Insurance agents selling Tennessee insurance contracts are taught that Tennessee is a valued policy law state when the loss is by fire. In a listing of Valued Policy states, the Big I lists Tennessee and notes:

Valued policy states require insurers to pay the face amount of the policy in the event of a total loss, even if the replacement cost is lower than the policy’s face amount. Each valued policy state may apply the law differently. For example, some states may apply the statute only to fire losses; other states may require the insurer to refund premium for any additional coverage amounts over the replacement cost or the actual cash value of the building. Some states apply the law only to residential property; other states apply it to all property losses. Refer to your state’s law for specifics.

United Policyholders tells policyholders that Tennessee is a valued policy law state following a fire in FAQs About Property Damage Insurance Claims in Tennessee:

1. My home was completely destroyed. How long will it take before my insurance company settles with me?

That depends on if there are any cause and origin issues with the occurrence. This will not be an issue in a wildfire most likely. It also depends on whether your loss qualifies as a ‘total loss’ under Tennessee’s valued policy law. A ‘total loss’ means that it has lost it’s [sic] ‘character and identity’ as a home. If your loss does qualify as a total loss, you should get paid faster and avoid lengthy negotiations because the insurance company is required to pay you the policy limits. Normally, it should not take more than 30-60 days.

Insurance defense attorneys and property insurance adjusters through the PLRB have long been taught that Tennessee is a valued policy law state, citing a 1996 article, Do You Owe The Policy Limits? Unveiling the Mystery of Valued Policy Laws – Claims Magazine:

Currently there are 19 states which have valued policy laws: Arkansas, Florida, Georgia, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Ohio, South Carolina, South Dakota, Tennessee, Texas, West Virginia, and Wisconsin. For the purposes of this article, valued policy laws are law which, under some circumstances, force an insurer to pay the limit of liability shown in the policy declarations for a loss, even if the policy terms provide for loss payment of less than that limit of liability.

The purpose of valued policy statutes is ‘to prevent insurance companies from over-valuing the insured structure for premium purposes, thereby allowing them to collect an excess premium and later contest the value when there is a loss.’…

While valued policy laws vary from state to state, they do share a few common elements. First, all of the valued policy statutes apply to some type of real property (usually listed as buildings and structures). Second, all of the statutes include fire as a peril. Third, all of them apply to total losses. However, the list of common elements ends at this point.

Two of the most troublesome issues in applying valued policy laws are blanket coverage and constructive total losses. First, what if the insured’s policy contains a blanket limit and there is a total loss to only one building covered under the limit? Of the few states that have addressed the issue, the result has been that the valued policy does not apply unless all of the blanketed items are a total loss. The valued policy law should not apply to items covered under a blanket basis unless there is a total loss of all the property because the valued policy law is not triggered until there is a total loss to the property insured for a particular limit.

Second, what if a building is partially destroyed by fire, but a local ordinance requires its demolition. Is the insurer responsible for the policy limits? If the valued policy state recognizes constructive total losses, the insurer would owe the policy limits. Of the 19 ‘pure’ valued policy states, only in Georgia, Montana, South Carolina, and South Dakota, could no case law be found. All other states consider constructive total losses as total losses for purposes of the valued policy law.

This blog previously stated in Gatlinburg Fires and Valued Policy Law in Tennessee:

if a policy has been in force for 90 or more days in Tennessee and the insured structure suffers a total loss, the carrier must pay the full value of the insurance policy.

The Tennessee Insurance Litigation Blog, written by two excellent insurance coverage attorneys, Brandon McWherter and Park Chastain, has commented on Tennessee as being a valued policy law state. Brandon wrote an article, “Total Loss” Doesn’t Necessarily Mean “Burned to the Ground,” where he stated:

Tennessee’s valued policy law (T.C.A. 56-7-803) provides that an insurer is liable to the policyholder for the full policy limits if a total loss occurs. As a result, the big ‘fight’ is often over the issue of whether a loss is ‘total’ or ‘partial’ in nature. Back in May, Parks Chastain commented here that the identity test should be used to determine whether a structure will be deemed a total loss. Parks relied on the Laurenzi and Hollingsworth cases to support his contention that the test is whether a building has lost its identity and specific character as a building. I think our courts interpret the valued policy law in a less restrictive manner than Parks suggests is appropriate.

… Just because the brick is still standing doesn’t mean your loss isn’t total in nature. Don’t get confused by the ‘total loss’ language. At its base level, it really all boils down to whether it would be reasonable to repair a house or not. Even though that’s not technically the legal test, its [sic] going to result in the same conclusion most of the time. So if an insurance company attempts to argue that a house isn’t a total loss even though it is agreeing the home needs to be demolished and rebuilt, don’t go for it. You’ve got a total loss, and you are entitled to the full face value of your insurance policy.”

Parks Chastain, an insurance defense attorney, wrote an informative article about reasons why the Tennessee Valued Policy law applies only to fire and not other perils, in Tennessee’s Valued Policy Law Should Apply Only To Losses By Fire, Not Windstorm. Nowhere did Parks write that Tennessee Valued Policy laws do not apply to replacement cost policies.

Indeed, no insurance articles in the United States indicate that replacement cost policies are an exception to any state Valued Policy laws. So you can understand why I was thinking, “What is this judge doing?” while reading Steadfast Investments & Properties, LLC, v. AmGUARD Insurance Company, 1 which effectively held that replacement cost policies are not subject to Tennessee valued policy laws.

I have a great deal of respect for the vast majority of insurance defense counsel. I often refer to them as “ingenious” because of their ability to come up with creative and novel coverage interpretations that prevent my policyholder clients from collecting under policies and holding insurance companies accountable for unfair claims practices that cause extracontractual harm. In this case, the insurance defense counsel made this argument to the court about why replacement cost policies are not subject to Tennessee’s Valued Policy Law:

Tennessee courts both before and after the enactment of the valued policy law 100 years ago have acknowledged the existence of open or replacement costs policies of fire insurance that are not governed by the valued policy law statutes. See Lasater v. Equitable Fire & Marine Ins. Co., 483 S.W.2d 740, 746 (Tenn. Ct. App. 1971) (‘In Newark Fire Ins. Co. v. Martineau, 26 Tenn.App. 261, 170 S.W.2d 927, it was pointed out that the foregoing statute has no application to an open fire insurance policy and, where the policy sued on is an open one, the value of the property at the time of the loss must be determined’)(emphasis added); Liu v. Rock Ridge Ins. Co., 2023 WL 6063802 (E.D. Tenn. Mar. 17, 2023) (finding that the fire insurance policy at issue does not fix one amount to pay upon a total loss, but is instead an open policy that leave the amount of recovery uncertain up to a stated policy limit); Liang v. Rock Ridge Insurance Company, Case No. 3:22-cv344 (E.D. Tenn. Sept. 8, 2023) (finding that the fire insurance policy at issue was an open policy not a valued policy under Tennessee law). What is clear from each of the foregoing cases is that insurance companies in Tennessee can and do issue open policies for insurance that cover a risk of loss from fire. Tennessee’s valued policy law is not, and should not be, read into every fire insurance policy in the state.

In support of its assertion, Plaintiff improperly conflates the coverage limit of $827,742 in the Policy with an express valuation of the building. A coverage limit is the maximum possible amount an insurance company may be required to pay in the event of a loss not the actual value of the property that is being insured. Plaintiff’s position ignores that the Policy’s Declarations Page expressly provides that the building coverage valuation is ‘replacement cost.’ Thus, per the express terms of the Policy, the limits, or the maximum possible amount Amguard would be required to pay under the Policy is $827,742, but the actual value of the building is not expressly defined in the Policy and may be less (or more) than the stated limit. Thus, the common sense or plain reading of the policy clearly shows that the policy places an upper limit on what Amguard may be required to pay under the Policy while stating that the actual value of the property is open, undefined, and will be determined at the time of the loss. Tennessee law is clear that a valued policy requires a clear indication to value the risk and loss. Palatine Ins. Co. v. E. K. Hardison Seed Co., 303 S.W.2d 742, 747 (Tenn. 1957) (quoting American Insurance Co. v. Gentile Bros. Co., 109 F.2d732, 735 (5th Cir. 1940)). Setting a limit in a policy for insurance is certainly not a clear indication that a specific value was placed on the property at issue, especially when the Policy expressly provides that the value will be calculated utilizing a replacement cost method after the loss occurs.

What this argument does not say is that if this logic is true, no property insurance policy covering real property would ever be subject to valued policy laws. This is because whether the policy is sold on a replacement cost or actual cash value basis, those values only set the maximum that the insurance company will ever pay.

The argument did not explain to the judge that these valued policy laws were originally passed when only actual cash valued policies were written and to prevent insurers from applying policy language allowing them to pay less than actual cash value policy limit. Under an actual cash value policy, which states a value, that value is the upper limit of what the insurer has to pay. Actual cash value policies do not say that they will pay that value stated in the event of total loss. That is part of the reason for valued policy laws in the first place when only actual cash value policies were written—to prevent arguments about valuation in the event of total loss. If the insurer accepts a premium for a stated value, whether at actual cash value or replacement cost, and a total loss happens, the insurer pays that stated value.

The policy in this case was sold with a stated value for which a premium was paid based on that value. Indeed, the declaration page explained that “this coverage is rated based on an estimate and is subject to audit.” The policy provided an automatic 4% inflation increase, which stated:

To keep up with construction cost increases we have automatically adjusted the Building Automatic Increase (Inflation Guard) on your Building Coverage to 4%.

Please review your policy. If you have any questions regarding your building valuation or need to make an adjustment, please contact your agent.

However, the court found that replacement cost policies, and it must also assuredly apply to actual cash value policies, which do not have policy language that require the amount to be paid in the event of a total loss, are not subject to Tennessee Valued Policy laws reasoning in part:

Here, a plain reading of three provisions supports the conclusion that the parties meant for this contract of insurance to be open. First, the policy limit is exactly that: a limit, not a fixed sum. Black’s Law Dictionary defines liability limit as ‘[t]he maximum amount of coverage that an insurance company will provide on a single claim under an insurance policy.’ Liability Limit, Black’s Law Dictionary (11th ed. 2019) (emphasis added). In other words, following a loss, the insurer would pay the replacement cost for the damaged property up to the limit, no more. Establishing a limit is not the same as conclusively establishing value.

Second, the replacement cost provision suggests that this policy was not valued. A policy providing for replacement cost is one that permits an insured to receive payment for the cost to replace the lost property. 12A Jordan R. Plitt et al., Couch on Ins. § 176:56 (3d ed. 2024). A replacement cost provision may award an insured proceeds exceeding the actual cash value of the property because it includes that sum plus additional costs to replace the structure; as such, replacement cost coverage typically places insureds in a better position than they were prior to the loss. See 3 Allan D. Windt, Ins. Claims & Disps. § 11:35 (6th ed. 2024). It would be inconsistent with an intention to create a valued policy to include a replacement cost provision because the replacement cost may well differ from the set value. Although Plaintiff contends that this term does not apply to total losses that is mentioned nowhere in the agreement (D.E. 26-1). Absent an indication that the insurer meant to provide replacement cost coverage only for partial losses, it is improper to read that additional language into an otherwise unambiguous term. See Allstate Ins. Co. v. Watson, 195 S.W.3d 609, 611 (Tenn. 2006). Thus, the replacement cost provision indicates that this policy is open rather than valued. This is the most common sense reading because the cost to replace the property would almost assuredly differ from the precise limits of the policy, and it is the replacement cost—not the limit (unless, of course, the replacement cost exceeded or equaled the limit)—that Amguard is obligated to pay.

Likewise, the appraisal process is inconsistent with a finding that this policy was valued. The contract provides for an appraisal procedure if the parties disagree about the amount of a covered loss. (Id.) This term indicates that each party may appoint its own appraiser and the two appraisers will then choose an impartial umpire who will prepare a report providing the amount of the loss. This process would be entirely superfluous if this insurance policy was valued, and courts applying Tennessee law are cautioned against adopting any interpretation that renders a contractual term superfluous.

If this logic holds true and courts interpret Tennessee’s Valued Policy Laws in this manner, no property insurance policy covering real property that is sold at replacement cost or actual cash value basis will be subject to Tennessee’s valued policy law. This is because virtually all of them have an appraisal clause, and none provide a value but instead a stated maximum limit. That is how the property insurance product has always worked—the stated value is the maximum an insurer will pay. To prevent unjust enrichment and to stop insurers from arguing an amount less than that stated value was owed, some states passed valued policy laws to mandate paying that maximum stated amount in the event of a total loss.

This is an important case. The parties and the court tried to have the Supreme Court of Tennessee provide an opinion. That court declined to do so, stating:

Pursuant to Tennessee Supreme Court Rule 23, a certification order was filed in this Court on January 5, 2024, by the United States District Court for the Western District of Tennessee. Briefs have now been filed pursuant to Section 7, and, upon consideration of the certification order and the briefs filed by the parties, this Court declines certification of the following question of law:

When an insurance company insures a property in Tennessee with a stated policy limit for building coverage, and the requirements for a ‘valued’ policy under Tenn. Code Ann. §§ 56-7-801 – 803 are otherwise satisfied, is the policy a ‘valued’ or ‘open’ policy under Tennessee law when the insurance policy also includes: (1) ‘replacement cost’ as an available damages valuation method for covered losses: and (2) an appraisal condition?

The District Court granted certification because, in its view, Steadfast presented an issue of first impression—namely, that Tennessee’s ‘valued policy’ law applies to every fire insurance policy as a matter of law. Dist. Ct. Cert. Order at 5 & n.1. Steadfast, however, does not advance this legal argument in the briefs it has filed in this Court. In fact, Steadfast repeatedly disclaims making any such argument. The only issue that Steadfast presents in this Court is whether the particular insurance policy at issue in this case is a ‘valued policy’ given the policy’s language. Because Steadfast has not advanced the legal argument that the District Court thought warranted certification, this Court declines certification.

I intend to speak with the policyholder’s very capable attorney and keep up on future developments. Still, based on this decision, I wonder if all of the prior articles and lessons about Tennessee’s valued policy laws and how they apply will have to be changed. The new question all insurance coverage claims practitioners should be asking is whether Tennessee is still a valued policy law state.

Thought For The Day

Nothing stays the same, nothing remains static. Which way a thing changes depends on you.
—Neale Donald Walsch


1 Steadfast Invs. & Properties v. Amguard Ins. Co., No. 1:23-CV-01091, 2024 WL 3264521 (W.D. Tenn. July 1, 2024).