                NOT RECOMMENDED FOR FULL-TEXT PUBLICATION
                           File Name: 05a0978n.06
                           Filed: December 14, 2005

                                    Case Nos. 04-5585, 04-6276

                           UNITED STATES COURT OF APPEALS
                                FOR THE SIXTH CIRCUIT

 STATE INDUSTRIES, INC.,                               )
                                                       )
         Plaintiff-Appellee,                           )
                                                       )       ON APPEAL FROM THE
                 v.                                    )       UNITED STATES DISTRICT
                                                       )       COURT FOR THE MIDDLE
 TWIN CITY FIRE INSURANCE                              )       DISTRICT OF TENNESSEE
 COMPANY and PACIFIC INSURANCE                         )
 COMPANY, LIMITED,                                     )
                                                       )
         Defendants-Appellants.                        )
                                                       )
 _______________________________________               )

BEFORE: BOGGS, Chief Judge; BATCHELDER and GIBBONS, Circuit Judges.

       ALICE M. BATCHELDER, Circuit Judge. Defendants-Appellants Twin City Fire

Insurance Company and Pacific Insurance Company Limited (collectively known as “Hartford”

because of their affiliation with the Hartford Insurance Group) appeal the district court’s order

denying them judgment as a matter of law on Plaintiff-Appellee State Industries, Inc.’s (“State”)

claim that they violated the Tennessee Consumer Protection Act, T.C.A. § 47-18-101 et seq.

(“TCPA”). Alternatively, Hartford asks the court to award a new trial because the district court

erroneously instructed the jury, and to vacate as moot the district court’s declaration that Hartford’s

insurance contracts with State required it to insure against punitive damages. Because we conclude

that Hartford is entitled to judgment as a matter of law on the issue of whether it violated the TCPA,

we will REVERSE the decision of the district court.
       State, a Tennessee corporation with its principal place of business in Ashland City,

Tennessee, manufactures water heaters. Twin City Fire Insurance Company, an Indiana corporation,

and Pacific Insurance Company, a Connecticut corporation, are insurance companies affiliated with

the Hartford Insurance Group. In 1994-95, State chose an insurance program under which it self-

insured for product liability claims, defending and paying such claims itself, until the claims reached

$2 million per occurrence or $5 million in the aggregate. State’s insurance program consisted of

three separate insurance contracts that it entered into with Hartford: a products liability policy, an

umbrella policy, and an excess policy. The first two policies provided liability limits of $5,000.00

and $5 million respectively. The Excess Policy provided an additional $10 million of liability

coverage. The policies are silent as to whether punitive damages are covered and make explicitly

clear that Hartford “shall not be obligated to assume charge of, participate in, or pay for the

investigation or defense of any ‘claim’ or ‘suit.’”

       In 1996, Heron and Sylvia Villarreal individually and on behalf of their minor child filed suit

against State in Hidalgo County, Texas, claiming actual and punitive damages on behalf of their son,

who was killed in a fire that started after an open gas can was left near one of State’s water heaters.

While State defended the action pursuant to its self-insured retention, it kept Hartford advised of all

pre-trial processes and strategies and allowed Hartford to attend its settlement discussions. Shortly

after trial commenced in the Villarreal case, State received a $900,000 settlement demand from the

plaintiffs; State rejected the demand and the trial proceeded to judgment. The jury returned a verdict

in favor of the Villarreals and awarded $7 million in compensatory damages and $5 million in

punitive damages.




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        After the verdict was rendered, State submitted a claim to Hartford for payment of both the

compensatory and punitive damages. Hartford initially denied State’s claim for punitive damages

via telephone. Then, in a letter dated March 15, 1999, Hartford explained that under Powell v.

Hartford Casualty Insurance Company, 19 F. Supp. 2d 678, 696 (N.D. Tex. 1998) (holding that

coverage provided by an automobile insurance policy for punitive damages is void and

unenforceable under Texas public policy), it had no liability for punitive damages awarded against

State. The letter also stated that there was nothing in the language of the insurance contracts that

required Hartford to insure against punitive damages. At no time before the dispatch of this letter

had Hartford explained to State that its policies did not cover awards of punitive damages.

        On April 5, 1999, State filed the instant suit against Hartford in the United States District

Court for the Middle District of Tennessee, alleging that Hartford: 1) had breached the insurance

contracts; 2) had denied coverage in bad faith in violation of Tenn. Code. Ann.§ 56-7-105; 3) was

estopped from denying coverage; and 4) had violated the TCPA by deceptively and unfairly waiting

until after the Villarreal jury had rendered its verdict to inform State that it would not cover punitive

damages. With regard to the TCPA claim, State alleges that it would have settled the Villarreal case

had Hartford informed it of Hartford’s understanding that Texas law prohibits insuring against

awards of punitive damages. After State had filed the instant suit in federal court, it reached a

settlement agreement with the Villarreals whereby State would pay $7 million in compensatory

damages and the Villareals would waive their right to punitive damages. Accordingly, State paid

$2 million under its self-insured retention and Hartford, as excess and umbrella carrier, paid the

remaining $5 million.




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       In December of 1999, after Villarreal had been settled, State moved the district court for

partial summary judgment, asking the court to rule that Hartford’s policies covered the Villarreal

punitive damage award. The district court granted State’s motion and held, as a matter of law, that

“the subject insurance policies, construed properly as Tennessee insurance contracts, provide

coverage for punitive damage liability awards entered against the insured.” State’s case against

Hartford was tried before a jury, which returned a verdict in favor of State on both the breach of

contract and bad faith claim and the claim that State had violated the TCPA. The verdict form

instructed the jury to determine the amount of the damage award on each claim, and advised the jury

that State was not entitled to recover on both claims, but would be required to elect the theory on

which it would recover, should the jury find in its favor on both. The jury awarded damages on each

claim in the amount of $2,901,250.00, and the district court, on State’s motion, doubled the jury’s

award pursuant to T.C.A. § 47-18-109(a)(3).

       Hartford filed a motion under FED. R. CIV. P. 50 and 59 for judgment as a matter of law, new

trial, or remittitur. The district court granted Hartford’s motion in part, striking down the jury’s

award of damages for breach of contract and bad faith and reducing the TCPA award to $1.1 million,

representing the difference between the amount for which State could have settled the Villarreal

case at the commencement of the trial and the $2 million self-insured retention that State was forced

to contribute to resolve the Villarreal case following the jury’s verdict. Though it found that

Hartford had no duty to advise State about the insurance coverage of punitive damages awards, the

district court held that Hartford’s decision not to notify State of its intent to deny coverage on

punitive damages was deceptive and violated the TCPA; the court doubled the $1.1 million award




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because Hartford had acted willfully. The district court also denied Hartford’s alternative motions

for a new trial or remittitur. Hartford’s timely appeal followed.

       Hartford argues that it is entitled to judgment as a matter of law under Rule 50(b) on the

issue of whether it violated the TCPA. We review de novo the district court’s denial of a motion

for judgment as a matter of law under Rule 50(b). H.C. Smith Investments, L.L.C. v. Outboard

Marine Co., 377 F.3d 645, 650 (6th Cir. 2004). As a federal court sitting in diversity, we apply the

forum state’s standard for granting judgment as a matter of law. Id. The Supreme Court of

Tennessee described this standard in Conatser v. Clarksville Coca-Cola Bottling Co:

       In ruling on the motion, the court must take the strongest legitimate view of the
       evidence in favor of the non-moving party. In other words, the court must remove
       any conflict in the evidence by construing it in the light most favorable to the non-
       movant and discarding all countervailing evidence. The court may grant the motion
       only if, after assessing the evidence according to the foregoing standards, it
       determines that reasonable minds could not differ as to the conclusions to be drawn
       from the evidence.

920 S.W.2d 646, 647 (Tenn. 1995) (internal quotation omitted).

       The TCPA provides, in pertinent part:

       (a) Unfair or deceptive acts or practices affecting the conduct of any trade or
       commerce constitute unlawful acts or practices and are Class B misdemeanors.
       (b) Without limiting the scope of subsection (a), the following unfair or deceptive
       acts or practices affecting the conduct of any trade or commerce are declared to be
       unlawful and in violation of this part . . .
       (27) Engaging in any other act or practice which is deceptive to the consumer or to
       any other person . . . .

T.C.A 47-18-104. Neither the TCPA nor the Supreme Court of Tennessee has defined the terms

“deceptive” or “unfair” as used in the Act. Ganzevoort v. Russell, 949 S.W.2d 293, 298 (Tenn.

1997). “Where a particular act or practice has not been specifically addressed in the [TCPA], the

definition of those terms are [sic] left to the courts on a case by case basis.” Id. at 300. While the


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Act does not impose strict liability, id. at 299, this court has held that the TCPA does not require

proof of intent, which means that plaintiffs can recover for negligent violations. Shah v. Racetrac

Petroleum Co., 338 F.3d 557, 569 (6th Cir. 2003) (citing Menuskin v. Williams, 145 F.3d 755, 767-

68 (6th Cir. 1998)). The Supreme Court of Tennessee, however, has stated that “proof of deception”

may be “dependent upon evidence of intent or knowledge.” Grazenvoort, 949 S.W.2d at 300.

       The district court held that Hartford violated the TCPA by failing to tell State what its policy

did not cover. Hartford, however, had no duty to counsel State about the contents of State’s own

insurance policies. Nothing in the insurance policies themselves imposes a duty on Hartford to

advise its policyholders about matters as to which the policy is silent, such as claims for punitive

damages. Indeed, the policies, which are silent on the subject of punitive damages, state that

Hartford has no duty to participate in the defense of any “claim” or “suit.” Nor does the law of

Texas—the state in which the Villareal action was tried—impose such a duty:

       [t]he majority rule is that where an insured maintains both primary and excess
       policies . . . the excess insurer is not obligated to participate in the defense until the
       primary policy limits are exhausted . . . The premiums charged are . . . a reflection
       of the risks undertaken. Because the primary insurer’s duty to defend extends to
       covered claims without regard to their amount, an excess insurer’s duty to defend is
       not typically invoked merely because a claim has been asserted against the insured
       in excess of primary limits.

Keck, Machin & Cate v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 20 S.W.3d 692, 700-01 (Tex.

2000) (internal quotations and citations omitted). Finally, as the district court correctly noted,

Tennessee follows this rule as well. See U.S. Fire Ins. v. Vanderbilt Univ., 82 F. Supp. 2d 788, 794

(M.D. Tenn. 2000) (quoting St. Paul Fire & Marine Ins. v. Children’s Hosp. Nat’l Med. Ctr., 670

F. Supp. 393, 402 (D.D.C. 1987) (“prior to the time the verdict was rendered, [the excess carrier]

had no duty to speak with respect to the excess policies.”).


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       Insureds with a self-insurance retention, such as State, are their own primary carriers. See

Pacific Employers Ins. v. Domino’s Pizza, 144 F.3d 1270, 1276-77 (9th Cir. 1998). Because

Hartford had absolutely no duty to participate in State’s defense before the jury rendered a verdict

in excess of the self-insured retention, it follows that Hartford had no duty to: 1) foresee that State

interpreted its policies as insuring against awards of punitive damages (despite the policies’ silence

on the subject of punitive damages and Hartford’s recent victory in Powell, which held that

insurance policies covering punitive damages are unenforceable in Texas), 2) affirmatively disabuse

State of such an idea, and 3) urge State to settle the case within State’s self-insured limits.

       State’s argument that Hartford’s omission violated the TCPA relies heavily on Gaston v.

Tennessee Farmers Mutual Insurance Company, 120 S.W.3d 815 (Tenn. 2003), which held that a

primary insurer violated the TCPA by not informing its insured that an unauthorized settlement

would void coverage. In that case, Gaston, who had under-insured motorist coverage through

Tennessee Farmers Mutual Insurance Company, was injured in an auto accident caused by a driver

who was insured by CNL Insurance Company. Gaston sent a letter to CNL demanding payment of

her medical bills and forwarded a copy to one of Tennessee Farmers’s claims adjusters. Id. at 818.

After Gaston reached a settlement with CNL, she asked Tennessee Farmers to make payments

pursuant to its under-insured motorist policy. Relying on the policy’s provision that Tennessee

Farmers does not provide coverage if the insured reaches a settlement without the insurer’s written

consent, Tennessee Farmers denied Gaston’s claim. The Supreme Court of Tennessee held that a

jury could reasonably conclude that Tennessee Farmers’s conduct was unfair or deceptive under the

TCPA because—despite the fact that Tennessee Farmers received a copy of the proposed




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settlement—it did not notify Gaston that an unauthorized settlement would void coverage. Id. at

822.

       Gaston is distinguishable from the case at bar because, unlike Hartford, Tennessee Farmers

had a duty, as a primary insurer, to participate in the policyholder’s defense. Gaston is also

distinguishable because in that case, by failing to inform Gaston that it would not pay her claim if

she settled with CNL without Tennessee Farmers’s authoriztion, Tennessee Farmers acted in its own

interest and sought to avoid paying a claim. Here, if Hartford had advised State at the time of the

$900,000 settlement demand that Hartford’s policies did not cover punitive damages, and State had

therefore agreed to the demand—as State now contends it would have done—Hartford’s excess

coverage would not have been triggered at all, with the result that Hartford would have saved $5

million. Hence, Hartford’s omission, unlike Tennessee Farmers’s, can hardly be seen as a deliberate

ploy to avoid paying a claim.

       Under all of the circumstances of this case, we think that Hartford is entitled to judgment as

a matter of law on State’s TCPA claim. Hartford did not inform State that it would cover punitive

damages when, in fact, it would not; to the contrary, the policy does not mention such coverage and

Hartford made no representations on the issue of punitive damages whatsoever. To hold that an

excess insurer’s silence, in the absence of a duty to speak, is a violation of the TCPA would penalize

excess insurers, who have no duty to participate in the defense, for not providing policyholders with

unsolicited legal advice.

       Accordingly, we REVERSE the judgment of the district court and REMAND this case with

instructions that the district court enter judgment as a matter of law in favor of Hartford. Because

Hartford is entitled to judgment as a matter of law, we do not reach its alternative arguments.


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