               IN THE COURT OF APPEALS OF TENNESSEE
                   WESTERN SECTION AT NASHVILLE


DAVID WAYNE GURIEN,            )
                               )
          Plaintiff/Appellee,  ) Davidson Chancery No. 95-20-I
                               )
VS.                            ) Appeal No. 01A01-9610-CH-00459
                               )
ALLSTATE INSURANCE COMPANY, )

          Defendant/Appellant.
                               )
                               )                           FILED
                                                           August 1, 1997
       APPEAL FROM THE CHANCERY COURT OF DAVIDSON COUNTY
                     AT NASHVILLE, TENNESSEE
                                                         Cecil W. Crowson
         THE HONORABLE IRVIN H. KILCREASE, JR., CHANCELLOR
                                                        Appellate Court Clerk




MICHAEL P. MILLS
MICHELE E. COOPER
BREWER, KRAUSE, BROOKS & MILLS
Nashville, Tennessee
Attorneys for Appellant


KARYN C. BRYANT
JOHN D. VAUGHN
BOULT, CUMMINGS, CONNERS & BERRY
Nashville, Tennessee
Attorneys for Appellee




REVERSED




                                                ALAN E. HIGHERS, J.



CONCUR:

W. FRANK CRAWFORD, P.J., W.S.

HOLLY KIRBY LILLARD, J.
In this breach of contract case, David Wayne Gurien (“Plaintiff”) filed suit against Allstate

Insurance Company (“Defendant”) for Defendant’s failure to compensate him for the theft

of his automobile pursuant to the terms of the insurance contract that he had with the

Defendant. The trial court awarded Plaintiff $18,300.00 in compensatory damages and

$4,575.00 for the Defendant’s bad faith refusal to pay under the terms of the insurance

contract. A motion to alter or amend resulted in an adjustment of compensatory damages

to $17,300.00 to account for the deductible. The issues on appeal relate only to the award

of the bad faith penalty.



                                          FACTS



       On the evening of January 10, 1994, Plaintiff and his wife arrived home at

approximately 10:00 p.m. after going out for dinner and a movie. After parking their car in

its designated parking space near their condominium, Plaintiff and his wife went inside and

went to sleep.



       The next morning, Sunday, January 11, 1994, Plaintiff arose around 9:00 a.m.,

walked outside and allegedly discovered that his car had been stolen. Plaintiff immediately

reported the theft to the police and then went about the area questioning his neighbors

inquiring as to whether they had seen anything suspicious the night before.



       After receiving a claim number from the police, Plaintiff called and notified the

Defendant that his vehicle had been stolen.



       The following Monday, January 12, 1994, the police recovered Plaintiff’s car. The

recovered car was charred and burned.



       On January 13, 1994, Plaintiff and his wife completed and returned a sworn

statement in proof of loss to the Defendant.




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       Shortly thereafter, Plaintiff received a letter dated July 19, 1994 from Defendant’s

attorney, Mills (“Mills”), requesting that Plaintiff schedule a date for him and his wife to visit

Mills’ office for an examination under oath concerning the events surrounding the theft.

Upon arriving at Mills’ office for the examination under oath, Plaintiff and his wife carried

with them copies of canceled checks for payments on the vehicle and copies of their

federal income tax returns from the past two years as requested by Mills. Plaintiff and his

wife were separated and examined at different times during the examination under oath.



       During the course of Defendant’s investigation of Plaintiff’s claim, Plaintiff visited

Defendant’s office three times inquiring as to the status of his claim. On August 15, 1994,

Plaintiff’s third visit to Defendant’s office, Defendant verbally denied Plaintiff’s claim. In a

letter dated August 24, 1994, Defendant confirmed its verbal denial of Plaintiff’s claim in

writing stating that:

               It is the opinion of our Claim Department that this loss was not
               “accidental” from your standpoint. Further, it is our opinion that
               you breached the following clause of the policy: Fraud. We do
               not provide coverage for any “insured” who has made
               fraudulent statements or engaged in fraudulent conduct in
               connection with any accident or loss for which coverage is
               sought under this policy. Therefore, Allstate has no choice but
               to deny your claim for insurance proceeds.



       Defendant’s investigation of Plaintiff’s claim revealed that Plaintiff’s car, which had

been burned, was left totally intact. None of the automobile’s component parts had been

removed. Based upon the opinion of the Defendant’s expert witness, a forensic

reconstructionist, neither the vehicle’s lock assembly system nor the vehicle’s ignition

system had been defeated in any way, and nothing other than a key of the proper type had

been used to unlock the doors of the vehicle or to operate the vehicle. All keys for the car

were in the hands of the Plaintiff. Defendant’s investigation also revealed that Plaintiff had

many debts in comparison to his income.



       In a letter dated October 21, 1994, Defendant canceled Plaintiff’s automobile

insurance policy as of December 7, 1994 citing Plaintiff’s misrepresentation of loss for his

July 10, 1994 claim as the reason for the cancellation.


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       Plaintiff argued that he and his wife did not have the only key to Plaintiff’s

automobile. Plaintiff claimed that Crencor Auto Sales (“Crencor”), the company from whom

he bought the car, had a key to the car as well. Although Plaintiff testified that Crencor

never supplied him with a second key to the car at the time he purchased the car and that

Crencor retained an extra key to the car, Defendant testified that it was Crencor’s policy

to give all keys to cars sold to the purchaser at the time of purchase. Plaintiff also testified

that he had supplied Crencor with a key to the car three months before the theft occurred

when Plaintiff had Crencor repair the car, yet Plaintiff admitted that Crencor returned the

key to him after working on the car.



       Plaintiff filed suit on January 3, 1995 seeking compensatory damages and a sum

equal to twenty-five percent of his compensatory damages for Defendant’s bad faith refusal

to pay pursuant to the terms of the insurance contract.



                                             LAW



       The issues before this Court are as follow:

       1) Whether the trial court erred in denying Defendant’s motion for a directed verdict

as to Plaintiff’s claim of the Defendant’s bad faith refusal to pay under the terms of the

insurance contract;

       2) Whether the trial court erred in permitting the issue of the Defendant’s bad faith

denial of insurance coverage to be submitted to the jury; and

       3) Whether the trial court erred in denying Defendant’s motion for a new trial or

judgment notwithstanding the verdict on the issue of the Defendant’s bad faith refusal to

pay pursuant to the terms of the insurance contract.



       When deciding a motion for directed verdict, both the trial judge and the reviewing

court on appeal must look to all of the evidence, take the strongest legitimate view of the

evidence in favor of the opponent of the motion, and allow all reasonable inferences in

favor of that party. Beske v. Opryland USA, Inc., 923 S.W.2d 544, 545 (Tenn. Ct. App.



                                               4
1996); Dobson v. Short, 929 S.W.2d 347, 349-50 (Tenn. Ct. App. 1996); Wadlington v.

Miles, Inc., 922 S.W.2d 520, 522 (Tenn. Ct. App. 1995); Hurley v. Tennessee Farmers Mut.

Ins. Co., 922 S.W.2d 887, 891 (Tenn. Ct. App. 1995); Bills v. Lindsay, 909 S.W.2d 434,

438 (Tenn. Ct. App. 1993); Daniels v. White Consolidated Indus., Inc., 692 S.W.2d 422,

424 (Tenn. Ct. App. 1985). The court must discard all countervailing evidence, and if there

is then any dispute as to any material fact, or any doubt as to the conclusions to be drawn

from the whole evidence, the motion must be denied. Wharton v. Transport Corp. v.

Bridges, 606 S.W.2d 521, 525 (Tenn. 1980); Crosslin v. Alsup, 594 S.W.2d 379, 380

(Tenn. 1980); Holmes v. Wilson, 551 S.W.2d 682, 685 (Tenn. 1977) Beske, 923 S.W.2d

at 545; Dobson, 929 S.W.2d at 349-50; Hurley, 922 S.W.2d at 891; Bills, 909 S.W.2d at

438; Flynn v. Shoney’s, Inc., 850 S.W.2d 458, 459-50 (Tenn. Ct. App. 1992); Tennessee

Farmers Mut. Ins. Co. v. Hinson, 651 S.W.2d 235 (Tenn. Ct. App. 1983). A directed verdict

cannot be sustained if there is any material evidence in the record which would support a

verdict for the plaintiff under any of the theories plaintiff has advanced. Wharton Transport

Corp. v. Bridges, 606 S.W.2d 521 (Tenn. 1980); Hurley, 922 S.W.2d at 891.



       T.C.A. § 56-7-105(a) provides as follows:

              The insurance companies of this state, and foreign insurance
              companies and other persons or corporations doing an
              insurance or fidelity bonding business in this state, 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 or fidelity bond on which the loss occurred, shall be
              liable to pay the holder of the policy or fidelity bond, in addition
              to the loss and interest thereon, a sum not exceeding twenty-
              five percent (25%) on the liability for the loss; provided, that it
              is made to appear to the court or jury trying the case that the
              refusal to pay the loss was not in good faith, and that such
              failure inflicted additional expense, loss, or injury upon the
              holder of the policy or fidelity bond; and provided further, that
              such additional liability, within the limit prescribed, shall, in the
              discretion of the court or jury trying the case, be measured by
              the additional expense, loss, and injury thus entailed.

The foregoing statute is penal in nature and must be strictly construed. St. Paul Fire and

Marine Ins. Co. v. Kirkpatrick, 164 S.W. 1186 (Tenn. 1914); Hurley, 922 S.W.2d at 894;

Walker v. Tennessee Farmers Mut. Ins. Co., 568 S.W.2d 103 (Tenn. Ct. App. 1977).



       In Palmer v. Nationwide Mut. Fire Ins. Co., 723 S.W.2d 124 (Tenn. Ct. App. 1986),


                                               5
this Court stated:

              Under the holding 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 (citations omitted).



       In assessing the four requirements necessary for Plaintiff to recover a bad faith

penalty against the Defendant, we note that there is no evidence in the record indicating

that Plaintiff made a formal demand for payment after the Defendant denied Plaintiff’s

claim in writing in a letter dated August 24, 1994. Although Plaintiff initially completed all

of the forms required by the Defendant and cooperated fully in answering questions

regarding the theft, this does not meet the statutory requirement that a formal demand for

payment must be made. See Kirkpatrick, 164 S.W. at 1189-1190; Walker, 568 S.W.2d at

106. T.C.A. § 56-7-105 is penal in nature and must be strictly construed; therefore, it is

incumbent upon Plaintiff to show compliance therewith. Thus, because there is no proof

in the record indicating that Plaintiff complied with the statutory requirements contained in

T.C.A. § 56-7-105, the trial court should have directed a verdict in favor of the Defendant

on Plaintiff’s bad faith penalty claim. We, therefore, reverse the jury’s verdict of $4,575.00

for the Defendant’s bad faith.




       The judgment of the trial court is hereby reversed as to Plaintiff’s award of

$4,575.00

for the Defendant’s bad faith refusal to pay under the terms of the insurance contract.

Costs of appeal are assessed against the Appellee for which execution may issue if

necessary.


                                              6
                           HIGHERS, J.



CONCUR:




CRAWFORD, P.J., W.S.




LILLARD, J.




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