                                                                                           04/13/2017




                IN THE COURT OF APPEALS OF TENNESSEE
                            AT NASHVILLE
                                 March 22, 2017 Session

     BRANDI BURGE, ET AL. v. FARMERS MUTUAL OF TENNESSEE

              Direct Appeal from the Circuit Court for Grundy County
                        No. 8650     Justin C. Angel, Judge


                             No. M2016-01604-COA-R3-CV


This appeal involves an insurer’s refusal to pay a claim for a fire loss. The trial court
granted summary judgment in favor of the plaintiffs on the issue of liability and held a
bench trial on the issue of damages only. The trial court ultimately awarded the plaintiffs
$127,500 for their covered losses, prejudgment interest, and a statutory penalty because
the insurer’s refusal to pay the claim was not in good faith. On appeal, the insurer argues
that the plaintiffs are not entitled to any recovery because they failed to sufficiently prove
their damages. The insurer also contends that it did not act in bad faith because it had
substantial legal grounds for denying the claim. The plaintiffs argue that the trial court
should have awarded additional damages. We conclude that the trial court should have
awarded $4,000 in additional damages for the loss of the residence but otherwise affirm
the trial court’s judgment as modified.

 Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court Affirmed as
                             Modified and Remanded

BRANDON O. GIBSON, J., delivered the opinion of the court, in which J. STEVEN
STAFFORD, P.J., W.S., and KENNY ARMSTRONG, J., joined.

Christopher Dunn Heagerty, Knoxville, Tennessee, for the appellant, Farmers Mutual of
Tennessee.

Russell Anne Swafford, Dunlap, Tennessee, for the appellees, Brandi Burge, Daniel
Layne, and Sharon Layne.
                                       OPINION

                          I. FACTS & PROCEDURAL HISTORY

       Brandi Burge resided in a mobile home in Grundy County with her husband and
five children. Mrs. Burge’s parents purchased the mobile home from a mobile home
dealer in 2008, when it was newly manufactured, and sited the home on their family farm
for Mrs. Burge and her family. On July 10, 2013, the mobile home caught fire. The local
fire department responded and attempted to extinguish the fire, but it reignited and
eventually burned the home to the ground. No walls remained standing, and nothing was
salvageable. The only thing saved during the fire was one basket of laundry.


       Mrs. Burge maintained a mobile homeowner’s insurance policy with Farmers
Mutual of Tennessee (“Insurer”). The policy provided coverage for direct physical loss
or damage to the mobile home and her personal property because of fire. As co-owners
of the mobile home, Mrs. Burge’s parents, Sharon and Daniel Layne, were listed as
additional insureds on the policy.


       The day after the fire, Sharon Layne contacted their local insurance agency to
report the fire. Mrs. Burge and Mrs. Layne maintained contact with their local agency
and Insurer over the next few months, submitting numerous documents and participating
in an examination under oath as requested by Insurer. Mrs. Burge and her family could
not afford to rent another home while continuing to pay the promissory note on their
burned mobile home. As a result, the Burge family moved into the home of Mr. and Mrs.
Layne, intending to stay until the matter was settled.


       In August 2013, Insurer granted Mrs. Layne’s request for a $2,000 “advance” on
the personal property claim in order to purchase school clothing for the children. Aside
from that payment, however, Insurer failed to meet the demands for payment under the
policy without any response or explanation as to why it failed or refused to pay.


      On July 7, 2014, almost one year after the fire occurred, Mrs. Burge and Mr. and
Mrs. Layne (collectively “Plaintiffs”) jointly filed this lawsuit against Insurer. They
sought to recover $69,000 for the “face amount” of the policy coverage for the residence,
$34,500 as the limit on coverage for personal property (minus $2,000 for the advanced
payment for school clothing), and $13,800 for additional living expenses, in addition to
prejudgment interest, attorney’s fees, and the statutory “bad faith penalty” set forth at
Tennessee Code Annotated section 56-7-105.
                                           2
       In its answer, Insurer admitted that Plaintiffs sustained a fire loss to their mobile
home and its contents on July 10, 2013. It admitted that the home and contents were
covered by a casualty insurance policy provided by Insurer. It also acknowledged
receiving Plaintiffs’ demand for payment pursuant to the policy. However, Insurer
claimed that it had “significant legal grounds for failing to pay” the claim. Specifically,
Insurer asserted that “Plaintiffs made material misrepresentations in their application for
insurance” in 2008. Insurer did not specify what type of misrepresentation was allegedly
made but suggested that the policy was subject to being declared void ab initio and that
Plaintiffs were not entitled to any recovery under the policy.


       The circuit court judge retired shortly after Insurer’s answer was filed, effective
September 1, 2014, and the case was transferred to a new circuit judge in July 2015. In
the meantime, in November 2014, Plaintiffs propounded discovery requests to Insurer,
and Insurer failed to respond to the discovery for a period of six months. After a motion
to compel and subsequent order were filed with the court, Insurer finally responded in
May 2015. At that time, it disclosed, for the first time, that it denied the existence of
coverage for Plaintiffs’ claim based on an alleged failure to disclose on the application
for insurance the existence of “multiple mortgages on the property.”


       In August 2015, Plaintiffs filed a motion for summary judgment, asserting that no
genuine issue of material fact existed with regard to Insurer’s defense regarding the
existence of multiple mortgages. Plaintiffs submitted affidavits and exhibits in an
attempt to demonstrate that the mobile home was only encumbered by one mortgage.
Insurer filed a response and asked the court to enter summary judgment in its favor.
Insurer insisted that “the insured property was encumbered by two (2) mortgages at the
time the application for insurance was submitted” and that “Plaintiffs did not disclose
both mortgages to [Insurer] in their application.”


       On April 18, 2016, the trial court entered an order granting summary judgment to
Plaintiffs and denying Insurer’s request for summary judgment. The trial court found that
there was only one lien holder on the mobile home and that the bank that held that lien
was specifically listed on the Plaintiffs’ insurance application. Therefore, the court held,
“there was no misrepresentation or failure to disclose by Plaintiff[s] to Defendant” in the
application for insurance.


       On May 19, 2016, a bench trial was held on the issue of damages. The only
witnesses to testify were Plaintiffs (Mrs. Burge and Mr. and Mrs. Layne) and their real
estate valuation expert. Insurer cross-examined three of Plaintiffs’ witnesses but

                                             3
presented no witnesses of its own. The trial court found that Plaintiffs and their expert
were all credible witnesses. It found that Plaintiffs had cooperated with Insurer
“throughout this process” and fulfilled all of their obligations. Ultimately, the trial court
awarded Plaintiffs $65,000 for the value of the residence at the time of the fire, which
was less than the coverage limit of $69,000 that Plaintiffs sought to recover. The trial
court awarded Plaintiffs $34,500 for the loss of personal property, which was the policy
limit they requested. The court awarded $2,500 for additional living expenses (minus the
$2,000 advance already paid), which was also less than the policy limit of $13,800 that
Plaintiffs sought to recover for additional living expenses. The trial court awarded
prejudgment interest at the rate of ten percent and imposed a statutory bad faith penalty
of fifteen percent, noting Insurer’s delays, its failure to pursue its claimed defense in an
efficient manner, and the “harsh and rude treatment” Plaintiffs received from Insurer’s
adjuster and company representative when they sought information from him. All things
considered, Plaintiffs were awarded a total judgment of $127,500. Insurer timely filed a
notice of appeal.


                                      II. ISSUES PRESENTED

       Insurer presents the following issues for review, as slightly reworded, on appeal:

       1.     Whether the trial court erred in entering judgment for Plaintiffs for
       the loss sustained to the mobile home when there was no competent proof
       to support such an award.

       2.     Whether the trial court erred in entering judgment for Plaintiffs on
       their personal property claim when there was no actual proof of the amount
       and value of their personal property loss.


       3.      Whether the trial court erred in granting Plaintiffs recovery under
       Tennessee Code Annotated section 56-7-105, when there were substantial
       legal reasons supporting Insurer’s decision to dispute liability for the claim.

In their posture as appellees, Plaintiffs present the following additional issues, as slightly
reworded, for review:

       4.    Whether the trial court should have awarded the policy limit of
       $69,000 for loss of the mobile home, rather than $65,000.

       5.     Whether the trial court should have awarded the policy limit of
                                              4
      $13,800 for additional living expenses, rather than the net award of $500.

      6.    Whether the trial court should have awarded the statutory maximum
      of twenty-five percent for the statutory bad faith penalty, rather than fifteen
      percent.

For the following reasons, we affirm the decision of the circuit court as modified and
remand for further proceedings.

                                 III. STANDARD OF REVIEW

        A trial court’s findings of fact from a bench trial are presumed to be correct, and
we will not overturn those factual findings unless the evidence preponderates against
them. Tenn. R. App. P. 13(d); In re Estate of Ledford, 419 S.W.3d 269, 277 (Tenn. Ct.
App. 2013). “For the evidence to preponderate against a trial court’s finding of fact, it
must support another finding of fact with greater convincing effect.” Watson v. Watson,
196 S.W.3d 695, 701 (Tenn. Ct. App. 2005) (citation omitted). Appellate courts afford
trial courts considerable deference when reviewing issues that hinge on the credibility of
the witnesses because trial courts are uniquely positioned to observe the witnesses’
demeanor and conduct. Kelly v. Kelly, 445 S.W.3d 685, 692 (Tenn. 2014). We review
the trial court’s resolution of legal questions de novo with no presumption of correctness.
Id.

                                      IV.   DISCUSSION

                            A.     Valuation of the Residence

       We begin with Insurer’s issue regarding whether the trial court erred in entering a
judgment for Plaintiffs for the loss of the mobile home because “there was no competent
proof to support such an award.” Plaintiffs argue that they presented sufficient evidence
and that the trial court should have awarded the policy limit of $69,000 for the value of
the mobile home rather than its award of $65,000.

       The mobile home was purchased in 2008 and was a 2009 model doublewide
home. The total purchase price on the bill of sale was $68,397.74. Mrs. Burge testified
that she and her husband made yearly improvements to the home, including the addition
of large front and back porches, an additional bedroom, updated light fixtures, ceiling
fans, hardwood floors, a closet, a built-in desk, and an archway leading into the living
room. She testified that the home had five bedrooms and two bathrooms. Mrs. Burge
estimated that the total value of the home as of the date of the fire in 2013 was at least
                                            5
$73,000.

       Mrs. Layne testified that she visited the home often and that it was in excellent
condition, well-maintained, and constantly upgraded by the Burge family. She estimated
that the cost of the porches alone exceeded $10,000. Mrs. Layne estimated that the value
of the mobile home was over $75,000 at the time of the fire due to the many
improvements made by the Burges.

       Plaintiffs also called an expert witness, George Hamilton, to testify at trial
regarding the value of the mobile home. Mr. Hamilton owned a land and auction
company. He had been a licensed real estate broker and licensed auctioneer for the past
33 years. Mr. Hamilton also served on the board of directors at a bank, where he
marketed bank-owned properties and consulted with the bank on market values for
properties for purposes of loans. His practice area included eight counties, including
Grundy County. Mr. Hamilton also owned properties and had developments located in
Grundy County. He had served as a special master on numerous occasions to determine
market values of properties in various contexts. His business had sold eighteen mobile
homes in 2015, the year before trial.

       Although Mr. Hamilton was unable to personally inspect the mobile home at issue
due to its destruction by fire, he testified that he had reviewed information and documents
about Plaintiffs’ mobile home and relied on his experience selling mobile homes and
properties in the area. He reviewed a “State of Tennessee Real Estate Appraisal Card”
(“Tax Card”) for the property’s past appraisal, which was dated February 27, 2013. Mr.
Hamilton reviewed pictures of the home, its measurements, and information regarding its
improvements. Based on the Tax Card, Mr. Hamilton testified that this mobile home
contained 2,280 square feet. The Tax Card listed a “Depreciated Value” of $84,348 for
the mobile home. Mr. Hamilton also reviewed the records from the bank that financed
the original loan in 2008 and refinanced the home in 2013, prior to the fire. Those
records contained a document entitled “NADA Appraisal Guides,” dated May 7, 2013,
two months prior to the fire, which estimated the “Total Adjusted (Retail) Value” of the
mobile home at $70,275. Mr. Hamilton testified that he did not “do any comps on listing
prices for properties such as this one” because “[i]t wasn’t available.” However, he said
he relied on his knowledge of actual sales that his company had previously completed in
Grundy County.

      After describing all the information he reviewed, Mr. Hamilton stated his
conclusion as follows:

      Q.    Based on that do you have an expert opinion of the value of this
      mobile home at the time of loss in July 2013?
                                            6
      A.       Yes, ma'am. I do.
      Q.       What is that?
      A.       Would you like one hard figure or somewhere a starting place and a
      stopping place?
      Q.       [However] you usually you do it, [however] best you can present it.
      A.       Typically, when we -- in prior experiences talking to the seller or
      working with the bank on making a loan or a seller selling the place, we
      give them somewhat of a range, and the range with this particular situation
      I feel like somewhere between 70 and $77,000.

At the end of Mr. Hamilton’s testimony, the trial judge asked some questions himself.
The judge said that he was “having a hard time understanding” why Mr. Hamilton did not
value the mobile home at a lesser amount due to “the national depreciation that occur[s]
for mobile homes.” The trial judge noted that Plaintiffs’ mobile home was purchased for
nearly $70,000 in 2008 and that Mr. Hamilton testified that it was worth $70,000 to
$77,000 five years later. He asked Mr. Hamilton how he could explain the home “not
depreciating.” Mr. Hamilton said that “it has to depreciate” and that depreciation has to
be counted in the equation due to the age of the home. But, Mr. Hamilton said he was
provided information that the Burges made “pretty significant improvements” to the
home, including porches, replacing carpet with hardwood and tile, upgraded light fixtures
and ceiling fans, “and that sort of thing.” He explained that such improvements can
offset the amount of depreciation. The trial judge noted that the 2013 tax appraisal card
listed an annual depreciation rate of 3.91% for the mobile home and asked Mr. Hamilton
if that would “sound about right” to him. Mr. Hamilton said it would depend on the
condition and upkeep of the mobile home, because when people take immaculate care of
mobile homes, “they don’t tend to depreciate much.” In sum, Mr. Hamilton testified that
people can improve mobile homes at a rate that exceeds depreciation and actually causes
the home to appreciate in value.

        After the questioning from the trial judge, counsel for Insurer asked Mr. Hamilton
the following additional question:

      Q.     Your evaluation is as of 2015 as we sit here today?
      A.     No. It was 2016.
      Q.     So that’s the day of your evaluation?
      A.     Uh-huh.
      Q.     Is that a yes?
      A.     Yes, sir.

This last line of questioning forms the entire basis for Insurer’s argument on appeal.
Insurer claims that there was “no competent proof” to support any award for the value of
                                            7
the mobile home because, according to Insurer, Mr. Hamilton based his valuation on the
year 2016, not the date of the fire, which was July 10, 2013. We reject this argument. As
previously discussed, Mr. Hamilton was asked directly during his discussion of his
opinion: “do you have an expert opinion of the value of this mobile home at the time of
loss in July 2013?” He responded, “Yes, ma’am. I do.” He then estimated the value at
$70,000 to $77,000. Defense counsel’s isolated question came after the discussion with
the trial judge about other issues. The question was confusing, as it referenced “2015 as
we sit here today,” but the trial occurred on May 19, 2016. It also asked Mr. Hamilton
about “the day of your evaluation,” which could refer to the date he performed the
evaluation. Given the clear testimony by Mr. Hamilton on direct examination about his
“expert opinion of the value of this mobile home at the time of loss in July 2013,” in
addition to the abundance of valuation evidence from other witnesses and exhibits, we
disagree with Insurer’s argument on appeal that the record contains “no competent proof”
to support any award for the mobile home.

       Now, we turn to Plaintiffs’ argument regarding the correct valuation. To
summarize, the only three witnesses at trial who valued the mobile home estimated its
value at $73,000, $75,000, and a range between $70,000 and $77,000. The trial judge
found that all three witnesses were credible and that Mr. Hamilton, in particular, “was a
very credible witness.” The “NADA Appraisal Guides” dated May 7, 2013, just two
months prior to the fire, estimated the “Total Adjusted (Retail) Value” of the home at
$70,275. The 2013 tax appraisal card reviewed by Mr. Hamilton listed the “Depreciated
Value” of the mobile home at $84,348. The policy limit was $69,000, but the trial judge
valued the mobile home at only $65,000. The trial court found, “based on Mr.
Hamilton’s testimony, that mobile homes can appreciate in value if improvements and
additions are made to them.” The court found that the proof “was uncontroverted” that
the Burges made improvements to the home each year. However, the trial court
explained its finding regarding the value of the mobile home as follows:

      Based on the testimony of the witnesses, and model year of the home,
      depreciation, and all improvements made, the court found the value of the
      home to be $65,000 at the time of the loss. Included in this value were the
      porches and decks attached to the home.


We agree with Plaintiffs’ assertion that the evidence preponderates against the trial
court’s finding.

       The trial court apparently valued the home at such a low figure due to general
notions about the concept of depreciation and a misunderstanding as to whether Mr.

                                           8
Hamilton’s valuation opinion was limited to 2016.1 However, the competent evidence
presented at trial does not support such a low valuation. With all of Mr. Hamilton’s
particular knowledge about sales of mobile homes in Grundy County and surrounding
areas, he did not believe that Plaintiffs’ mobile home had depreciated in value in light of
the number of improvements that were made to the home. The trial court found Mr.
Hamilton “very credible.” Furthermore, even the tax card listing an annual depreciation
rate of 3.91% also listed the “depreciated value” of the same mobile home at $84,348.
The record simply contains no testimony or exhibit from the trial to support an award of
only $65,000 for the mobile home because of depreciation. As such, we modify the trial
court’s award of $65,000 to an award of $69,000 in accordance with the policy limit.

                               B.    Valuation of the Personal Property

         Next, we address Insurer’s argument that “there was no actual proof of the amount
or value of [Plaintiffs’] personal property,” and therefore, they were not entitled to any
recovery for their personal property loss. Insurer claims that “[t]he only witness who
testified with regard to the value of the personal property claim, Mrs. Burge, testified that
she did not know the value of her personal property loss.” Having reviewed the evidence
at trial, however, we conclude that this is a gross mischaracterization of the testimony and
exhibits presented.

       Insurer cites to Mrs. Burge’s trial testimony where she admitted that during her
examination under oath after the fire, she stated that she did not know the value of her
property. In addition, Mrs. Burge was asked at trial, “As we sit here today, you don’t

1
    During the court’s oral ruling at the end of the bench trial, the judge stated:
          I had a question or two for Mr. Hamilton because the normal -- I guess the norm is that
          mobile homes are only depreciated and never appreciated. That is something we are
          taught as attorneys, and I asked him about that, and he said in some circumstances they
          can appreciate if certain improvements and additions have been made. Maybe an
          additional bedroom or something. The value of a mobile home can actually appreciate.
          He said that that likely took place in this case.
                   I had a law school professor who said you can dip a mobile home in gold and you
          couldn't cause the value to appreciate. That's why I was asking . . . .
                   . . . . Looking at the value of the structure, I have to subtract from something
          what Mr. Hamilton said because his year he testified was of 2016, so I have to subtract
          some when using the depreciation figures set forth in the tax card of a mobile home and
          looking at all of the improvements and going through the improvements, it was testified
          to that there were additional bedrooms put in there, hardwood flooring, new fixtures,
          closets and [] improvements being done every year on this property. That would be the
          only way that the home could have the value that it has been assessed, and it is
          uncontroverted that these improvements were made. There has been no proof from
          Farmers Mutual saying no, these improvements weren't made or any additional figures[.]
                                                         9
know what the value of your loss is, do you?” Mrs. Burge responded, “I do not know the
actual value.” However, Mrs. Burge also testified at length about the “Personal Property
Inventory Loss Form” that Insurer required her to complete, and Mrs. Layne had
completed a “Sworn Statement in Proof of Loss.” Both documents were introduced into
evidence at trial and appear in the record before us as exhibits. In the Sworn Statement in
Proof of Loss, Mrs. Layne estimated that the actual cash value of the lost personal
property equaled $100,000. The Personal Property Inventory Loss Form spans
approximately 25 pages and contains a detailed list of around 500 entries, describing
specific items of personal property that Mrs. Burge lost in the fire. It includes items of
clothing, sports equipment, electronics, furniture, kitchen furnishings, appliances, and
numerous other assets. The list includes each item’s location in the house at the time of
the fire, how it was purchased or obtained, and its estimated cost, as that information was
requested by Insurer for each item. Mrs. Burge testified that all of her receipts and
photographs were destroyed in the fire. However, she testified that she prepared the list
from memory by visualizing each room in the home. She testified at trial about many
items on the list and many types of personal property items she had in the home for her
and her family. She explained that she did her best to look up the prices of items and
candidly admitted that she had to guess at some costs. Mrs. Burge said she included on
the list everything that she could remember and did the best that she could in compiling
it. She testified that the total value of all of the items listed on the forms at the time of the
fire was probably around $92,000.2 Mrs. Layne testified that she assisted Mrs. Burge
with the preparation of these lists and that they completed it to the best of their
knowledge. The trial court found that Mrs. Burge and Mrs. Layne were credible
witnesses and answered the questions truthfully.

       Considering all this evidence, we conclude without hesitation that the trial court’s
award of $34,500 in accordance with the limit on personal property coverage was
supported by the evidence. The assertion in Insurer’s brief that the record contains “no
proof of the value of the insured’s personal property loss” is meritless. In fact, in
Insurer’s reply brief on appeal, it acknowledged the existence of Mrs. Burge’s testimony
that the property was worth $92,000 (after that testimony was pointed out to this Court in
the appellees’ brief). Insurer then argued that Mrs. Burge’s testimony contradicted her
statement that she did not know the value of her personal property, and therefore the two
contradictory statements “cancel each other out.” We disagree. Contradictory statements
by the same witness regarding a single fact cancel each other and provide no evidence of
the fact sought to be proven if the allegedly contradictory statements are unexplained and
neither statement can be corroborated by other competent evidence. Church v. Perales,
39 S.W.3d 149, 169 (Tenn. Ct. App. 2000). However, Mrs. Burge’s statements, viewed
in context, were not irreconcilably inconsistent. She conceded that she did not know “the
2
 By our calculation, the total of the items listed on the personal property inventory forms exceeds
$100,000.
                                                  10
actual value” of her personal property loss. However, she also discussed in detail the
lengthy Personal Property Inventory Loss Form she completed and explained that the
reason she did not know the actual costs and purchase dates was because she had lost
everything -- including her home, all of her personal property, her receipts, and
photographs -- in the fire. The record contains sufficient evidence to support the trial
court’s award of $34,500 for the personal property loss.

                            C.   Additional Living Expenses

      The insurance policy provided coverage for “Additional Living Expense” under
“Coverage D” of the policy. It provided:

       We pay any necessary and reasonable increase in living expenses you incur
       to maintain the normal standard of living of your household if the insured
       premises or a portion of the insured premises is made unfit for occupancy
       by an insured loss. We pay only for the period of time reasonably required
       to make the insured premises fit for occupancy or to settle your household
       in new quarters, whichever is less.

At trial, Plaintiffs sought to recover the policy limit for this coverage, which was
$13,800. They submitted a receipt demonstrating that the Burge family rented a home for
one month before deeming it unsuitable and moving back into the home of Mr. and Mrs.
Layne. The cost of the rental was $500. The trial court found that this amount was
properly recoverable as additional living expenses and awarded that sum to Plaintiffs.
Insurer does not challenge this award on appeal, and it is accordingly affirmed. The trial
court also classified the $2,000 advance for school clothing as additional living expenses
and noted that it had already been paid. Neither party challenges this ruling on appeal.

        Plaintiffs sought to recover the remainder of the coverage for additional living
expenses by presenting testimony that Mr. and Mrs. Layne incurred additional expenses
as a result of the Burge family moving in with them. As she put it, “We went from a
family of two to a family of nine.” Mrs. Layne testified that she had increased electric
bills, water bills, and wear and tear on appliances. She also testified that they converted
their attic to a bedroom. She estimated that she incurred over $20,000 in additional costs
over the two-year period that the Burges lived with her. Plaintiffs ask this Court to find
that the policy also covered those expenses.

       The trial judge described this as a difficult issue. He noted that Mr. and Mrs.
Layne were designated as additional insureds under the policy but ultimately concluded
that the “additional living expense” coverage was not intended to compensate them for
the type of expenses they incurred. He concluded that the additional living expense
                                            11
provision was intended “to compensate people who are displaced from their home and
that incurred new expenses while litigation is pending.” He noted that the Laynes were
not displaced from their home and therefore concluded that the coverage did not apply to
them. We agree with the trial court’s ultimate conclusion but for slightly different
reasons. The policy contained an endorsement providing that Mr. and Mrs. Layne were
additional insureds under the policy, with the following language:

           The definition of insured includes the person or organization named in this
           endorsement with respect to:
           Coverage A - Residence,
           Coverage B - Related Private Structures on the Premises,
           Coverage L - Personal Liability, and
           Coverage M - Medical Payments to Others

It did not list Coverage D regarding “Additional Living Expense.” We therefore agree
with the trial court’s conclusion that the policy’s coverage for additional living expenses
did not extend to the expenses incurred by Mr. and Mrs. Layne.3

                                        D.     The Bad Faith Penalty

       As noted above, Plaintiffs reported the July 10, 2013 fire to their insurance agency
the day after it occurred. Mrs. Layne testified that she made numerous attempts to
contact the representative of Insurer who was assigned to the claim, but he usually would
not return her phone calls, and when she was able to speak with him, he was very rude to
her. The trial court found that “throughout this process the Plaintiffs have cooperated
with [Insurer] and that the Plaintiffs fulfilled all their obligations by providing
documents, sworn statements, and anything else required of them by the [Insurer].”
Insurer did not pay Plaintiffs’ claim and failed to provide any reason or explanation to
Plaintiffs. Plaintiffs filed suit in July 2014. Mrs. Layne testified that she was forced to
determine “what [Insurer’s] objection was to paying under the policy” based on the
discovery responses provided in this lawsuit in May 2015, nearly two years after the July
2013 fire occurred. Based on Insurer’s discovery responses, Plaintiffs gleaned that
Insurer believed they made material misrepresentations on their insurance application by
failing to reveal the existence of multiple mortgages on the property. At that point,
Plaintiffs sent letters and supporting documentation to Insurer in an attempt to
demonstrate that there was only one mortgage on the insured property, but they never
received a response.

           Plaintiffs filed a motion for summary judgment in August 2015, asserting that no

3
    In fairness, we recognize that no one cited this particular policy language to the trial judge.
                                                         12
genuine issue of material fact existed regarding Insurer’s defense with respect to multiple
mortgages. Insurer filed a response claiming that “the insured property was encumbered
by two (2) mortgages at the time the application for insurance was submitted” and that
“Plaintiffs did not disclose both mortgages to [Insurer] in their application.” Insurer
insisted that there were “two mortgages on the subject property,” including one from
2006, even though the mobile home was bought new in 2008.

        The relevant documents are included in the record before us. The “Mobile-
Homeowner’s Application” for insurance asked for the applicant’s name, the location of
the property, and the “mortgage servicing company/mortgagee loan [number]” and
“address.” When completing the application on March 28, 2008, Mrs. Burge and Mrs.
Layne provided the name and address of Citizens Tri-County Bank in Monteagle,
Tennessee, as that was the entity that was in the process of financing the loan for the
purchase of the mobile home. The second page asked, “Are all of the mortgagees listed
on the front of this application,” and the answer provided was “Yes.” The amount of the
mortgage was listed as $68,500, and no value or entry was listed in the spaces provided
for a second or third mortgage.

       Plaintiffs’ loan with Citizens Tri-County Bank was completed on April 11, 2008.
Aside from the lien on the mobile home, as additional collateral for the loan, Mr. and
Mrs. Layne pledged as security a separate three-acre tract of real property. That property
was also encumbered by a first deed of trust with Citizens Tri-County Bank that
originated in 2006. This 2006 deed of trust on the separate three-acre parcel gave rise to
Insurer’s position that Plaintiffs made material misrepresentations on their application for
insurance (by failing to disclose the 2006 deed of trust). We can discern no basis for such
a position. The mobile homeowner’s insurance application asked for the location of the
property, obviously referring to the mobile home, and the “mortgage servicing
company/mortgagee loan [number]” and “address,” again clearly with reference to the
mortgagee of the mobile home they sought to insure. The only mortgagee, Citizens Tri-
County Bank, was disclosed. We find no support for Insurer’s insistence that “the
insured property [i.e., the mobile home] was encumbered by two (2) mortgages at the
time the application for insurance was submitted.”

       Tennessee Code Annotated section 56-7-105 provides, in relevant part:

       The insurance companies of 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 on the bond, a sum not exceeding twenty-
       five percent (25%) on the liability for the loss; provided, that it is made to
                                            13
       appear to the court or jury trying the case 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 or fidelity bond; and provided, further, that the 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 including
       attorney fees thus entailed.

Tenn. Code Ann. § 56-7-105(a). Basically, the statute “provides for a 25 percent penalty
against an insurance company, in addition to the loss and interest, where the refusal to
pay an insurance claim within 60 days is not in good faith.” Gaston v. Tenn. Farmers
Mut. Ins. Co., 120 S.W.3d 815, 822 (Tenn. 2003).

       The statutory penalty is not recoverable in every instance when an insurance
company refuses to pay a loss. Lance v. Owner’s Ins. Co., No. E2015-00274-COA-R3-
CV, 2016 WL 3092818, at *13 (Tenn. Ct. App. May 25, 2016), perm. app. denied (Tenn.
Oct. 20, 2016) (citing Nelms v. Tenn. Farmers Mut. Ins. Co., 613 S.W.2d 481, 484 (Tenn.
Ct. App. 1978)). In order to recover, the plaintiff must prove the following:

       “(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.”


Id. at *12 (quoting Palmer v. Nationwide Mut. Fire Ins. Co., 723 S.W.2d 124, 126 (Tenn.
Ct. App. 1986)). An insurance company is entitled to assert available defenses and to
refuse payment if “substantial legal grounds” exist indicating that the policy does not
afford coverage for the loss. Id. If the insurer unsuccessfully asserts a defense in good
faith, the imposition of the bad faith penalty is not permitted. Id. “[D]elay in settling a
claim does not constitute bad faith when there is a genuine dispute as to value, no
conscious indifference to the claim, and no proof that the insurer acted from any
improper motive.” Riad v. Erie Ins. Exch., 436 S.W.3d 256, 270 (Tenn. Ct. App. 2013)
(quoting Palmer, 723 S.W.2d at 126).


      Whether the evidence demonstrates bad faith on the part of the insurer is a factual
determination. McColgan v. Auto-Owners Ins. Co., No. W2002-00114-COA-R3-CV,
2002 WL 31322538, at *4 (Tenn. Ct. App. Oct. 11, 2002); see, e.g., Gaston, 120 S.W.3d
at 822 (holding that a reasonable jury could conclude that the insurer’s conduct

                                              14
constituted bad faith in connection with its refusal to pay the claim). However, the
imposition of a statutory penalty on an insurer is discretionary with the trial court and
will not be reversed on appeal absent an abuse of discretion. Marlin Fin. & Leasing
Corp. v. Nationwide Mut. Ins. Co., 157 S.W.3d 796, 812-13 (Tenn. Ct. App. 2004);
Transamerica Ins. Co. v. Koonce, C.A. No. 116, 1986 WL 5246, at *2 (Tenn. Ct. App.
May 6, 1986).

        In the case before us, Insurer argues that it had “substantial legal grounds” for
failing to pay Plaintiffs’ claim and therefore the statutory bad faith penalty was
inappropriate. We disagree. A simple inquiry would have disclosed that only one
mortgage encumbered the insured property, i.e., the mobile home. Insurer did not have
substantial legal grounds supporting its position that Plaintiffs materially misrepresented
the number of mortgages on the insured mobile home. To make matters worse, the
record indicates that the Insurer compounded the problem by failing to process Plaintiffs’
claim in a diligent manner. If Insurer had explained its position to Plaintiffs during the
months after the fire, they could have provided any additional documents that Insurer
needed in order to clarify any confusion about the mortgage. Instead, the proof presented
at trial indicated that the Insurer failed to respond to Plaintiffs’ calls, failed to formally
deny the claim, and failed to provide an explanation for its refusal to pay until its written
discovery responses after the litigation was filed and nearly two years after the fire
occurred. We must therefore agree with the trial court’s conclusion that Insurer’s refusal
to pay the loss was not in good faith. See, e.g., Beeman v. Blue Cross/Blue Shield, C.A.
No. 59, 1988 WL 102757, at *1-3 (Tenn. Ct. App. Oct. 6, 1988) (finding bad faith when
the insurer acted with “conscious indifference” toward the plaintiff’s claim by failing to
request appropriate information, cavalierly ignoring the true facts and plaintiff’s efforts to
communicate, and relying on a bald assumption even in the face of overwhelming proof
to the contrary); Estate of Wilson v. Arlington Auto Sales, Inc., 743 S.W.2d 923, 931-32
(Tenn. Ct. App. 1987) (affirming bad faith penalty where the most rudimentary inquiry
would have revealed the necessary information and put to rest the insurer’s question as to
liability, as the failure to timely investigate “was a clear manifestation of [the insurer’s]
bad faith”); Mason v. Tenn. Farmers Mut. Ins. Co., 640 S.W.2d 561, 567-68 (Tenn. Ct.
App. 1982) (affirming the penalty where the insured was treated unfairly in many
respects sufficient to justify the bad faith award). We disagree with Insurer’s assertion
that the bad faith penalty was unwarranted due to the existence of substantial legal
grounds for its defense.4

4
 We note that Insurer listed a separate issue in its reply brief regarding the bad faith penalty, arguing that
the trial court erred in considering Insurer’s actions during the course of the litigation that allegedly
demonstrated bad faith. Insurer suggests that the statute only extends to an insurer’s acts of bad faith
before litigation. However, we decline to consider the merits of this issue because Insurer cites no
authority in support of its position and also failed to raise the issue in its initial brief on appeal. See Sneed
v. Bd. of Prof'l Responsibility of Sup.Ct., 301 S.W.3d 603, 615 (Tenn. 2010) (“It is not the role of the
                                                       15
       Plaintiffs argue on appeal that the trial court should have awarded the statutory
maximum penalty of twenty-five percent rather than only fifteen percent. A finding that
an insurance company’s failure to pay was in bad faith does not automatically require a
twenty-five percent penalty. Ray v. Shelter Ins. Companies, No. 01A01-9208-CV-00324,
1993 WL 15151, at *2 (Tenn. Ct. App. Jan. 27, 1993). “The bad faith penalty statute
allows for recovery of an amount up to twenty-five percent of the amount of loss[.]”
McColgan, 2002 WL 31322538, at *5 (quoting Tenn. Code Ann. § 56-7-105). The
statute provides that “the 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 including attorney fees thus entailed.” Tenn. Code Ann. § 56-7-105(a).
In other words, “[t]his so-called penalty is not simply a punitive award but allows for the
recovery of the additional damages caused by a breach of the insurance policy.”
McColgan, 2002 WL 31322538, at *5. The burden is on the plaintiff to show the
additional expense, loss, or injury. Id.; Ray, 1993 WL 15151, at *2.

        When announcing his oral ruling regarding the amount of the statutory penalty, the
trial judge noted that Plaintiffs had incurred around $16,000 in attorney’s fees. The
statutory penalty of fifteen percent equated to an award of $15,300. We find no abuse of
discretion in the trial court’s ruling.

                                        E.     Remaining Issues

        Plaintiffs seek an award of attorney’s fees on appeal and post-judgment interest.
Plaintiffs cited no basis for an award of attorney’s fees on appeal, and their request is
respectfully denied. “Postjudgment interest, on the other hand, is mandatory pursuant to
Tennessee Code Annotated § 47-14-122.” Raines Bros., Inc. v. Chitwood, No. E2015-
01430-COA-R3-CV, 2016 WL 3090902, at *4 (Tenn. Ct. App. May 24, 2016) (no perm.
app. filed) (citing Vooys v. Turner, 49 S.W.3d 318, 321 (Tenn. Ct. App. 2001)). The
statute provides:

        Interest shall be computed on every judgment from the day on which the
        jury or the court, sitting without a jury, returned the verdict without regard
        to a motion for a new trial.

Tenn. Code Ann. § 47-14-122. “The failure of a trial court’s judgment or decree to
specify post-judgment interest does not abrogate the obligation imposed by the statute.”

courts, trial or appellate, to research or construct a litigant’s case or arguments for him or her, and where a
party fails to develop an argument in support of his or her contention or merely constructs a skeletal
argument, the issue is waived.”); Owens v. Owens, 241 S.W.3d 478, 499 (Tenn. Ct. App. 2007) (“A reply
brief is a response to the arguments of the appellee. It is not a vehicle for raising new issues.”).
                                                         16
State v. Thompson, 197 S.W.3d 685, 693 (Tenn. 2006) (citation omitted). The trial court
may address any unresolved issues regarding the calculation of post-judgment interest on
remand if necessary.

                                    V. CONCLUSION

       For the aforementioned reasons, the decision of the circuit court is hereby affirmed
as modified and remanded for further proceedings. Costs of this appeal are taxed to the
appellant, Farmers Mutual of Tennessee, and their surety, for which execution may issue
if necessary.



                                                 _________________________________
                                                 BRANDON O. GIBSON, JUDGE




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