                  IN THE SUPREME COURT OF TENNESSEE
                             AT NASHVILLE
                                   June 3, 2010 Session

              KRISTEN COX MORRISON v. PAUL ALLEN ET AL.

           Appeal by Permission from the Court of Appeals, Middle Section
                        Chancery Court for Davidson County
                   No. 05-1489-1 Claudia Bonnyman, Chancellor




                No. M2007-01244-SC-R11-CV - Filed February 16, 2011




W ILLIAM C. K OCH, J R., J., concurring in part and dissenting in part.


        Insurance provides an important hedge against the uncertainties of life. It is a vital
part of any individual’s or family’s financial planning because it provides a mechanism for
spreading the risk of potential future losses. In most circumstances, persons seeking
insurance coverage rely on the expertise of professional insurance agents to assist them in
obtaining the desired and appropriate coverage. This appeal provides an opportunity for this
Court to address and refine the principles applicable to claims against insurance agents for
failure to obtain insurance coverage for their customers.

                                               I.

       J. Howard Morrison and Kristen Cox Morrison were married in 1997. In March 2000,
Mr. Morrison purchased a $300,000 term life insurance policy from First Colony Life
Insurance Company. This policy, like most life insurance policies, contained a standard
incontestability clause stating that the policy would not be contestable “[w]ith respect to
statements made in the application” after the policy had “been in force during the Insured’s
lifetime for a period of two years beginning with the Date of Issue shown in the Schedule.”

       The Morrisons’ son was born on March 18, 2002. The contestability period for Mr.
Morrison’s First Colony policy expired four days later on March 22, 2002. Later in 2002,
Mr. Morrison was arrested and charged with driving while intoxicated. He pled guilty to
driving while impaired in December 22, 2002 and was required to drive with a restricted
license for one year.
       Following the birth of their son, the Morrisons decided that they should prepare a
financial plan to enable them to begin putting money aside for their son’s college education
and for their retirement. They eventually decided to obtain professional assistance from Jody
Roberts, one of Mr. Morrison’s golfing buddies, and Paul Allen. Messrs. Roberts and Allen
worked for Wiley Bros.– Aintree Capital, LLC as financial planners and stockbrokers. They
were also licensed life and health insurance agents, although neither of them had extensive
experience selling life insurance.

        Mr. Morrison met with Messrs. Roberts and Allen for the first time on January 29,
2004. At that time, Mr. Morrison discussed his family’s goals and objectives with them and
informed them that he had purchased a $300,000 term life insurance policy in 2000 and that
he and his wife owned no other life insurance. Following this conversation, Messrs. Roberts
and Allen told Mr. Morrison that they would present their recommendations to the Morrisons
at a later meeting.

       Mr. Roberts met with both Mr. Morrison and Ms. Morrison on February 10, 2004, to
present the financial planning recommendations he and Mr. Allen had prepared. Among
other things, he recommended that Mr. Morrison replace his $300,000 term life insurance
policy with a $1,000,000 term life insurance policy from American General Life Insurance
Company and that the Morrisons also obtain a $250,000 American General term life
insurance policy on Ms. Morrison. The annual premiums for these two policies were
approximately the same as the premiums Mr. Morrison had been paying for his existing
$300,000 life insurance policy. Mr. Roberts cautioned Mr. Morrison against dropping his
existing $300,000 life insurance policy until his new policy was issued.

       The Morrisons decided to obtain the new American General life insurance policies.
Even though Mr. Roberts did not have the applications for the new policies with him at the
February 10, 2004 meeting, he obtained some of the basic information from the Morrisons
that was needed to complete these applications. Mr. Roberts passed along this information
to Mr. Allen who assumed the responsibility for completing the applications for the
Morrisons’ new life insurance policies. According to Mr. Allen, he had separate telephone
conversations with Mr. Morrison and Ms. Morrison to obtain the additional information
needed to complete the applications.

       In late February 2004, Mr. Allen mailed a packet of documents to the Morrisions
containing the completed life insurance applications and a “Notice Regarding Replacement.”
Each application contained an adhesive message flag indicating where the Morrisions were
to sign their applications. Ms. Morrison estimated that she and her husband received these
documents between February 23 and February 25, 2004. Ms. Morrison also testified that she




                                             -2-
and Mr. Morrison signed their applications for insurance on February 27, 2004, without
reading or even scanning the applications or the accompanying documents.1

       Messrs. Roberts and Allen obtained the signed applications for insurance and
forwarded them to American General Life Insurance Company. Unfortunately, Mr.
Morrison’s application contained a significant error. Despite the fact that Mr. Morrison had
been convicted of driving while impaired on December 22, 2002, his application stated that
he had not been charged with or convicted of driving under the influence of alcohol or drugs
or had any driving violations within the past five years.2

        On May 7, 2004, the Morrisions met with a nurse who had been retained by American
General to obtain their personal health information and to collect samples of bodily fluids to
complete Part B of their application for insurance. Part of this process included the
completion of a Clinical Reference Laboratory form.3 In his answer to one of the questions
on this form, Mr. Morrison stated that his driver’s license had been restricted within the past
five years.4 The record does not contain evidence regarding the ultimate disposition of this
form once it was signed by Mr. Morrison and the examining nurse.

       The Morrisons’ new life insurance coverage with American General became effective
on May 11, 2004. On June 8, 2004, the Morrisons acknowledged in writing that they had
received copies of their new American General policies. On June 14, 2004, Mr. Allen


        1
         Despite Ms. Morrison’s testimony, the following certification appears above the Morrisons’
signatures on their applications for insurance:

        I have read the above statements or they have been read to me. They are true and complete
        to the best of my knowledge and belief. I understand that this application: (1) will consist
        of Part A, Part B, and if applicable, related forms; and (2) shall be the basis for any policy
        issued. I understand that any misrepresentation contained in this application and relied on
        by the Company may be used to reduce or deny a claim or void the policy if: (1) it is within
        its contestable period; and (2) such misrepresentation materially affects the acceptance of
        the risk.
        2
           Question 17(E) on the application asked, “In the past five years, have any proposed insureds been
charged with or convicted of driving under the influence of alcohol or drugs or had any driving violations?
(If yes, list proposed insured’s name, date, state, license no. and specific violation.)” The box stating that the
answer was “no” was checked on Mr. Morrison’s application.
        3
         American General had apparently contracted with Clinical Reference Laboratory in Lenexa, Kansas,
to process blood, urine, and oral fluid samples taken from persons applying for insurance.
        4
         Question 3 on the Clinical Reference Laboratory form asked, “In the past 5 years, have you had a
moving violation or your driver’s license restricted, suspended or revoked?” On Mr. Morrison’s form, the
box stating that the answer was “yes” was checked and the word “restricted” was circled.

                                                       -3-
forwarded to American General the Morrisons’ check for the first year’s premiums for both
policies. The Morrisions did not read or review their new policies after they received them.
Both of these policies contained a standard clause relating to contestability that stated:
“Except for nonpayment of premiums, we will not contest this policy after it has been in
force during the lifetime of the insured for two years from the date of issue.”

       Mr. Morrison was seriously injured in a single vehicle accident on July 11, 2004, little
more than one month after receiving his new American General life insurance policy. He
died on July 12, 2004. Messrs. Roberts and Allen assisted Ms. Morrison in filing a claim for
benefits with American General. On October 28, 2004, after investigating the claim,
American General informed Ms. Morrison that it had rescinded Mr. Morrison’s policy
because he had stated on his application for insurance that he had not been charged with or
convicted of driving under the influence of alcohol or drugs or that he had any driving
violations within the past five years, even though he had been convicted of driving while
intoxicated in December 2002.

       On June 9, 2005, Ms. Morrison filed suit in the Chancery Court for Davidson County
against Messrs. Roberts and Allen, American General, and Wiley Bros.– Aintree Capital,
LLC. She filed an amended complaint on June 21, 2005 and a second amended complaint
on March 16, 2006. These complaints asserted claims sounding in negligence, negligent
misrepresentation, breach of contract, breach of fiduciary duty, and violation of the
Tennessee Consumer Protection Act and sought the recovery of $1,000,000 – the amount of
coverage under Mr. Morrison’s American General life insurance policy – and treble damages
and attorney’s fees under the Tennessee Consumer Protection Act.

      In relatively short order, Ms. Morrison agreed to settle all her claims against American
General in return for a payment of $900,000. Ms. Morrison signed a general release on May
2, 2006. On May 17, 2006, the trial court entered an agreed order dismissing all of Ms.
Morrison’s claims against American General with prejudice.

       The claims against Messrs. Roberts and Allen and the remaining defendants 5 were
tried without a jury from January 29 through January 31, 2007. The trial court ruled from the
bench shortly after the close of the proof and the arguments of counsel. The court concluded
that the defendants breached their contract with the Morrisons by failing to procure an
enforceable $1,000,000 life insurance policy on the life of Mr. Morrison. Accordingly, the
court awarded Ms. Morrison $1,000,000 plus prejudgment interest. The trial court also
concluded that the defendants were liable to Ms. Morrison for breach of fiduciary duty,
negligence and misrepresentation for the loss of the coverage under Mr. Morrison’s $300,000

       5
           The other defendants were Allen and Roberts Group and Wiley Bros.– Aintree Capital, LLC.


                                                   -4-
First Colony life insurance policy. Accordingly, the court awarded Ms. Morrison an
additional $300,000. Finally, the trial court determined that the defendants violated the
Tennessee Consumer Protection Act and acted recklessly by submitting “faulty information”
to American General on behalf of the Morrisons. Based on this finding, the trial court
awarded Ms. Morrison her attorney’s fees and doubled6 her recovery for the loss of the
coverage provided by Mr. Morrison’s $300,000 First Colony life insurance policy.

       On March 8, 2007, the trial court entered a final judgment for Ms. Morrison in the
amount of $2,119,541.17. With regard to the breach of contract claim, the trial court
awarded Ms. Morrison $1,000,000 – the amount of coverage that would have been provided
under Mr. Morrison’s American General life insurance policy – and $247,120.94 in
prejudgment interest. With regard to the tort claims (breach of fiduciary duty, negligence,
and negligent misrepresentation), the trial court awarded Ms. Morrison $300,000 – the
amount of coverage that would have been available under Mr. Morrison’s lapsed First
Colony policy – and then doubled this amount after concluding that the defendants’ “tortious
actions . . . were willful and knowingly reckless, and deceptive, and in violation of the
Tennessee Consumer Protection Act.” The court also awarded Ms. Morrison prejudgment
interest on her tort claims in the amount of $74,135.38. Finally, the trial court awarded Ms.
Morrison an additional $198,285.47 in attorney’s fees and costs relating to her tort claims.

      Messrs. Roberts and Allen and the other defendants appealed. On January 30, 2009,
the Court of Appeals filed an opinion affirming the judgment in part and modifying it in part.
Morrison v. Allen, No. M2007-01244-COA-R3-CV, 2009 WL 230220 (Tenn. Ct. App. Jan.
30, 2009). The Court of Appeals affirmed the judgment for breach of contract and the
judgment for the tort claims. However, the Court of Appeals also determined that the
$1,000,000 judgment for breach of contract should be reduced by $900,000 – the amount of
Ms. Morrison’s settlement with American General. Morrison v. Allen, 2009 WL 230220, at
*5-7.

       Messrs. Roberts and Allen and the other defendants filed a Tenn. R. App. P. 11
application with this Court taking issue with the lower courts’ disposition of Ms. Morrison’s
contract, tort, and Tennessee Consumer Protection Act claims. After this Court granted the
application for permission to appeal on October 19, 2009, Ms. Morrison, pursuant to Tenn.
R. App. P. 13(a), raised three additional issues relating to the decision of the Court of



       6
          The Tennessee Consumer Protection Act explicitly permits trebling the damages for willful or
knowing violations of the Act but does not permit doubling the damages. See Tenn. Code Ann. § 47-18-
109(a)(3) (2001); but see Keith v. Howerton, No. E2002-00704-COA-R3-CV, 2002 WL 31840683, at *3
(Tenn. Ct. App. Dec. 19, 2002) (award of less than three times damages permissible based on “such other
relief” language in Tenn. Code Ann. § 47-18-109(a)(3)).

                                                 -5-
Appeals to offset her judgment against the defendants by the amount of her settlement with
American General and to deny her request for additional attorney’s fees on appeal.

        The Court has now upheld the award of $1,000,000 in damages for breach of contract
for the failure of Messrs. Roberts and Allen and the other defendants to procure a policy “not
subject to contest.” However, it has reversed the decision of the Court of Appeals that these
damages should be reduced by the $900,000 recovery Ms. Morrison received from American
General. The Court has also vacated the $872,420.85 judgment awarded to Ms. Morrison
based on her breach of fiduciary duty, negligence, negligent misrepresentation, and
Tennessee Consumer Protection Act claims.

        I concur with the Court’s decision to vacate the portion of Ms. Morrison’s judgment
relating to the loss of the $300,000 coverage that had been available under Mr. Morrison’s
lapsed First Colony insurance policy.

        I do not concur with the Court’s conclusion that Messrs. Roberts and Allen and the
other defendants breached their contract with the Morrisons by failing to procure a life
insurance policy for Mr. Morrison that was “not subject to contest.” I reach this conclusion
because this record contains absolutely no evidence, direct or circumstantial, that the
Morrisons requested or that Messrs. Roberts and Allen offered to obtain immediately
incontestable life insurance policies and because it is undisputed that the Morrisons received
the insurance coverage they requested. However, I have also concluded that Ms. Morrison’s
recovery of $1,000,000 can be sustained based on Mr. Roberts’s and Mr. Allen’s breach of
their fiduciary duties as insurance agents to exercise reasonable skill, care, and diligence in
obtaining insurance coverage for their clients.7

      Finally, like Chief Justice Clark, I do not concur with the Court’s conclusion that Ms.
Morrison’s $1,000,000 judgment against Messrs. Roberts and Allen should not be reduced
by Ms. Morrison’s $900,000 settlement with American General.

                                                       II.

      Messrs. Roberts and Allen were licensed in Tennessee as “insurance producers” which
means that they were authorized to “sell, solicit, or negotiate 8 insurance.” Tenn. Code Ann.

        7
           The Tennessee Supreme Court may affirm a lower court’s judgment that reaches the correct result
even if it is based on different, incomplete, or erroneous grounds. Cont’l Cas. Co. v. Smith, 720 S.W.2d 48,
50 (Tenn. 1986); Hopkins v. Hopkins, 572 S.W.2d 639, 641 (Tenn. 1978); Martin v. Senators, Inc., 220 Tenn.
465, 474-75, 418 S.W.2d 660, 665 (1967).
        8
            Negotiating insurance involves “conferring directly with or offering advice directly to a purchaser
                                                                                                  (continued...)

                                                       -6-
§ 56-6-102(6) (2008). They did not work directly for or on behalf of a particular insurance
company. Rather, they acted as middlemen between the persons seeking insurance coverage
and a number of different insurance companies. In fact, the record shows that Messrs.
Roberts and Allen used a general insurance agent in Florida to obtain quotes from many
different insurance companies and then used these quotes to prepare their recommendations
to their clients. When their clients accepted their recommendations, Messrs. Roberts and
Allen then assisted their clients in obtaining the requested insurance coverage from the
company approved by the client.

       Most transactions in the insurance industry between insurance companies and insureds
are conducted through intermediaries.9 Whether the insurance agent is the agent of the
insurance company, the agent of the insured, or the agent of both, as well as the scope of the
agency relationship, depends on the facts of the particular relationship in question. 1 Jeffrey
E. Thomas & Francis J. Mootz, III, New Appleman on Insurance Law, Essentials of
Insurance Law §§ 2.03[1]-[2], at 2-10 to -12, 2.03[7], at 2-21 to -23 (Library ed. 2010) (“1
New Appleman on Insurance Law”); 1 Leo Martinez et al., New Appleman Insurance Law
Practice Guide, Coverage Analysis Pre-litigation §§ 2.04[1], at 2-19, 2.07[4][a], at 2-26
(2011) (“1 New Appleman Insurance Law Practice Guide”).

        In the typical factual scenario involving a licensed insurance agent and a client
desiring to obtain or maintain insurance coverage, the agent’s obligations may arise from two
distinct sources. First, when an insurance agent agrees to do something with regard to a
client’s insurance coverage, the agent’s obligations are contractual. 3 Lee R. Russ & Thomas
F. Segalla, Couch on Insurance § 46:46, at 46-60 to -61 (3d ed. 2005) (“3 Couch on
Insurance”). Second, insurance agents, like other licensed professionals, owe a duty to their
clients to perform consistent with the standards of care of their profession. See generally 1
New Appleman on Insurance Law § 2.05[1]-[2], at 2-26 to -27; see also 1 New Appleman
Insurance Law Practice Guide §§ 2.01[2], at 2-11, 2.09[1][b][i], at 2-31; 3 Couch on
Insurance §§ 46:30, at 46-35, 46:33, at 46-42.




        8
         (...continued)
or prospective purchaser of a particular contract of insurance concerning any of the substantive benefits,
terms or conditions of the contract; provided, that the person engaged in that act either sells insurance or
obtains insurance from insurers for purchasers.” Tenn. Code Ann. § 56-6-102(14) (2008).
        9
         Treatises often make a distinction between an “agent” and a “broker” under the law of insurance,
but there are no facts in this case that necessitate delving into the differences between brokers and agents.
Thus, this separate opinion uses the term “agent” in the general sense to encompass any insurance
intermediary.

                                                    -7-
        After an insurance agent agrees to obtain insurance for a client, he or she is acting as
the client’s agent.10 Thus, because the agent is generally operating in a representative
capacity, the rights, powers, and responsibilities of the agent are governed and controlled by
the rules and laws of agency. 1 New Appleman on Insurance Law § 2.03[2], at 2-11 to -12.
Agency is a fiduciary relationship that arises when the principal manifests assent to the agent
that the agent shall act on the principal’s behalf and subject to the principal’s control, and the
agent manifests or otherwise consents to act on the principal’s behalf. Restatement (Third)
of Agency § 1.01, at 17; Knox-Tenn Rental Co. v. Jenkins Ins., Inc., 755 S.W.2d 33, 36
(Tenn. 1988) (“An agent is a fiduciary with respect to the matters within the scope of his
agency.”); Miller v. Ins. Co. of N. Am., 211 Tenn. 620, 625, 366 S.W.2d 909, 911 (1963)
(quoting Bouvier’s Law Dictionary’s definition of an agent as “[o]ne who undertakes to
transact some business, or to manage some affair, for another, by the authority and on
account of the latter, and to render an account for it.”). The fiduciary nature of the agent’s
obligations requires the agent to act loyally in the principal’s interest, as well as on the
principal’s behalf. Restatement (Third) of Agency §§ 1.01 cmt. e, at 23; 8.01, at 249.

        An agent’s fiduciary duties to his or her principal vary depending on the parties’
agreement and the scope of their relationship. Restatement (Third) of Agency § 8.01 cmt.
c, at 254. At a minimum, an agent has a duty to act in accordance with the express and
implied terms of any contract between the agent and the principal, Restatement (Third) of
Agency § 8.07, at 334, and to faithfully carry out the instructions of his or her client. 1 New
Appleman on Insurance Law § 2.05[1], at 2-26. “Subject to any agreement with the
principal, an agent has a duty to the principal to act with the care, competence, and diligence
normally exercised by [insurance] agents in similar circumstances.” Restatement (Third) of
Agency § 8.08, at 343 (2006). Thus, if an agent undertakes to perform services as a
practitioner of a trade or profession, the agent “‘is required to exercise the skill and
knowledge normally possessed by members of that profession or trade in good standing in
similar communities’ unless the agent represents that the agent possesses greater or lesser
skill.” Restatement (Third) of Agency § 8.08, cmt. c., at 346 (quoting Restatement (Second)
Torts § 299A, at 73 (1965)).




        10
            An insurance agent may act for and on behalf of both the insurance company and the insured in the
same transaction unless doing so creates a conflict of interest or requires the agent to take on incompatible
duties. Insurance Premium Servs., Inc. v. Wood, 57 Tenn. App. 514, 525-26, 420 S.W.2d 595, 600 (1967);
1 New Appleman on Insurance Law § 2.03[7], at 2-23; 1 New Appleman Insurance Law Practice Guide §
2.07[4][c][ii], at 2-26; Restatement (Third) of Agency § 3.14 cmt. c, at 264-65 (2006). The fact that Tenn.
Code Ann. § 56-6-115(b) (2008) provides that an insurance agent who negotiates an application for insurance
is regarded as an agent of the insurance company does not prevent the agent’s client from pursuing a contract
or a tort claim against the agent. See Campbell v. White & Assocs. Agency, Inc., 197 F. Supp. 2d 1104, 1108-
09 (W.D. Tenn. 2002).

                                                    -8-
       An insurance agent’s agreement to procure insurance for a client gives rise to a legally
enforceable obligation. The agent’s promise to a client to obtain insurance is a contractual
obligation. It also gives rise to a duty to act with reasonable skill, care, and diligence either
by obtaining the requested insurance or by notifying the client in a timely manner that the
insurance cannot be obtained so that the client will not be lulled into a feeling of security or
put to prejudicial delay in seeking the desired insurance elsewhere.11

       An insurance agent who undertakes to procure insurance for a client but fails to do so
may, in proper circumstances, be held liable for the damages resulting from the failure to
procure the insurance. Massengale v. Hicks, 639 S.W.2d 659, 660 (Tenn. Ct. App. 1982);
1 New Appleman on Insurance Law § 2.05[2][e], at 2-33 to -34; 1 New Appleman Insurance
Law Practice Guide § 2.10[1], at 2-37; 3 Couch on Insurance § 46:46, at 46-60. Thus, at the
election of the client, an agent who fails to procure insurance as promised may be sued for
breach of contract or for negligence in the performance of the agent’s professional duties.
Kosloff v. State Auto. Mut. Ins. Co., No. 89-152-II, 1989 WL 144006, at *5 (Tenn. Ct. App.
Dec. 1, 1989) (No Tenn. R. App. P. 11 application filed); 15 Tenn. Jur. Insurance § 15, at
179-80 (2009); 1 New Appleman on Insurance Law §§ 2.05[2][a], at 2-26 to -28, 2.05[e], at
2-33 to -34; 3 Couch on Insurance § 46:43, at 46-57; cf. Glisson v. Stone, 4 Tenn. App. 71,
74-75 (1926).12 Neither the contract nor the tort theory of recovery treats the agent as an
“insurer” that the requested coverage will be procured. Rather, both theories view the agent
as a professional who has breached the duty or obligation to either procure the requested
insurance or to notify the client that the requested coverage has not been obtained. See
generally 1 New Appleman on Insurance Law § 2.05[3][c], at 2-41.

       An insurance agent has no duty to procure insurance for a client in the absence of the
agent’s agreement to do so. Nidiffer v. Clinchfield Ry. Co., 600 S.W.2d 242, 246 (Tenn. Ct.
App. 1980) (noting that “[o]ne is not liable to an insured for failing to procure insurance
where there is no binding contract creating the duty”); see generally 1 New Appleman on
Insurance Law § 2.05[3][a], at 2-35 to -36. An agent will not be held liable for failure to
procure the proper insurance coverage when the client failed to inform the agent about the


        11
         An insurance agent who is unable to obtain the insurance coverage requested by a client has a duty
to make reasonable efforts to inform the client that the agent has not been able to obtain the requested
insurance. See Wood v. Newman, Hayes & Dixon Ins. Agency, 905 S.W.2d 559, 562 (Tenn. 1995); Ezell v.
Assocs. Capital Corp., 518 S.W.2d 232, 234 (Tenn. 1974); 1 New Appleman on Insurance Law § 2.05[3][c],
at 2-41.
        12
          The Court of Appeals has recognized that an insurance agent’s failure to procure insurance
coverage gives rise to both a contractual claim and a negligence claim. See Waddell v. Davis, 571 S.W.2d
844, 848 (Tenn. Ct. App. 1978) (noting that the agent “negligently breached” the contract to obtain uninsured
motorist coverage). The court erred, however, by conflating the two claims. Tennessee does not recognize
a negligent breach of contract claim. Hannon v. Alltel Publ’g Co., 270 S.W.3d 1, 10 n.11 (Tenn. 2008).

                                                    -9-
type of coverage required. Cf. 1 New Appleman on Insurance Law § 2.05[3][a], at 2-35 to
-36. Accordingly, in order to establish the existence of a contract to procure insurance
coverage, the client must produce evidence that establishes with reasonable certainty (1) the
existence of the agent’s legally enforceable agreement to procure the insurance and (2) the
terms and conditions of the agreement. See 1 New Appleman on Insurance Law § 2.05[2][e],
at 2-34 (“[P]roof that [the] prospective insured definitely directed the intermediary to obtain
a particular policy, and the essential elements of the policy to be procured must be
established.”). When it is not clear what insurance coverage the client requested the agent
to obtain, the client may not recover for the agent’s failure to procure insurance. See Coble
Sys., Inc., v. Gifford Co., 627 S.W.2d 359, 364 (Tenn. Ct. App. 1981).

                                             III.

       The Court has affirmed the trial court’s conclusion that Messrs. Roberts and Allen
breached their contract with the Morrison by failing to procure an insurance policy on Mr.
Morrison’s life that was “not subject to contest.” I cannot agree with this conclusion because
the record contains no evidence to support it.

       Ms. Morrison had the burden of proving that the Morrisons requested and that Messrs.
Roberts and Allen agreed to procure an insurance policy on Mr. Morrison’s life that was “not
subject to contest.” There is abundant evidence in the record that Messrs. Roberts and Allen
agreed to obtain a $1,000,000 American General term life insurance policy on Mr.
Morrison’s life. However, the record contains no evidence that the Morrisons requested a
policy that was incontestable. Likewise, absent from the record is any evidence that Messrs.
Roberts and Allen represented to the Morrisons that Mr. Morrison’s American General life
insurance policy would be incontestable.

       The evidence is, however, undisputable that Messrs. Roberts and Allen obtained the
$1,000,000 term life insurance policy they promised to obtain. American General’s policy
on Mr. Morrison’s life took effect on May 11, 2004. Mr. Morrison also acknowledged in
writing that he received and took possession of a copy of his new American General policy
on June 8, 2004. In the absence of an agreement containing continuing responsibilities, an
insurance agent’s obligation to procure insurance for a client ends when the agent obtains the
insurance coverage the client requested. Weiss v. State Farm Fire & Cas. Co., 107 S.W.3d
503, 506 (Tenn. Ct. App. 2001). Upon the delivery of Mr. Morrison’s policy, Messrs.
Roberts and Allen discharged their contractual obligation to the Morrisons to obtain a
$1,000,000 term insurance policy on Mr. Morrison’s life.

       In the absence of an explicit agreement to obtain an incontestable insurance policy,
it would be inappropriate to imply an incontestability feature as a matter of law. It is a
common practice for insurance companies to reserve their right to deny coverage based on

                                             -10-
material misstatements in an application for insurance. However, virtually all states have
enacted statutes defining the grounds for contestability and the period within which these
grounds must be asserted. Today, most life insurance companies, either voluntarily or by
statutory compulsion, include an incontestability clause in their policies that preserves and
defines their right to contest the validity of the policy. Suskind v. N. Am. Life & Cas. Co.,
607 F.2d 76, 80 (3d Cir. 1979); 16 Richard A. Lord, Williston on Contracts § 49:92, at 663
(4th ed. 2000).

       The purpose of the incontestability clause is to protect the rights of purchasers of
insurance and their beneficiaries by requiring insurance companies to act with reasonable
promptness if they wish to deny coverage based on misstatements in an application for
insurance. See Clement v. New York Life Ins. Co., 101 Tenn. 22, 29-30, 46 S.W. 561, 563
(1898) (stating that an incontestability clause “prevents the insurer from lying by and
receiving the premiums during the life of the insured, and after his death . . . contesting the
policy upon the ground that the insurer’s [sic] representations were false”); Norman v.
Plateau Ins. Co., No. 88-242-II, 1989 WL 28775, at *3 (Tenn. Ct. App. Mar. 29, 1989) (No
Tenn. R. App. P. 11 application filed) (holding that incontestability clauses and the statutes
requiring them “are intended to foreclose stale defenses by insurers and to protect the
interests of insurance purchasers and the beneficiaries of insurance policies”); Vulcan Life
& Accident Ins. Co. v. Davidson, 55 Tenn. App. 1, 24, 395 S.W.2d 534, 544 (1965) (quoting
Humpston v. State Mut. Life Assur. Co., 148 Tenn. 439, 448, 256 S.W. 438, 441 (1923))
(noting that the purpose of an incontestability clause is “to create a short statute of limitations
in favor of the insured, within which limited period, the insurer must, if ever, test the validity
of the policy”). Subject to the requirement of the applicable statute, the length of the
contestability period is within the discretion of the insurance company. See Union Cent. Life
Ins. Co. v. Fox, 106 Tenn. 347, 354, 61 S.W. 62, 64 (1901).

      Tennessee, like other states, has enacted a statute governing the right of insurance
companies to contest life insurance policies. Tenn. Code Ann. § 56-7-2307(3) (2008)
provides that no life insurance policy can be issued in this state without a provision stating
that

               the policy . . . shall be incontestable after it has been in force
               during the lifetime of the insured for a specified period, not
               more than two (2) years from its date, except for nonpayment of
               premiums and except for violations of the conditions of the
               policy relating to naval and military services in time of war.

Consistent with this statute, American General included a provision in the insurance policy
covering Mr. Morrison’s life limiting its right to contest the policy on any ground other than



                                               -11-
nonpayment of premiums to two years following the issuance of the policy. The record
contains no evidence that the Morrisons objected to this provision.

        In light of this record, there is no sound legal or factual basis for reading an immediate
incontestability clause into Mr. Morrison’s insurance policy. The Morrisons did not request
or bargain for such a clause.13 There is no evidence that Messrs. Roberts and Allen had the
right to waive American General’s right to contest Mr. Morrison’s policy based on the
misstatements in his application. Reading such a provision into Mr. Morrison’s policy would
be inconsistent with and contrary to the practice of the insurance business.

                                                    IV.

       Even though the record does not support Ms. Morrison’s recovery based on her breach
of contract claim, Ms. Morrison may still recover if her evidence provides a basis for
awarding a judgment on one of the other causes of action alleged in her complaint. Ms.
Morrison’s complaint alleges causes of action against Messrs. Roberts and Allen for
negligence and breach of fiduciary duty. Based on my examination of the record, I would
find that the evidence amply supports a judgment against Messrs. Roberts and Allen for
negligence in the discharge of their fiduciary obligations to the Morrisons.

        When an insurance agent performs his or her services negligently to a client’s injury,
the agent is liable for that negligence just as would be an attorney, architect, engineer, or
other professional who negligently performs services for a client. Cf. 1 New Appleman on
Insurance Law § 2.05[2][a], at 2-26 to -27. A claim based on the breach of fiduciary duty
is a tort claim. Mike v. Po Grp., Inc., 937 S.W.2d 790, 795 (Tenn. 1996). Thus, if an
insurance agent obtains insurance coverage for a client that is subsequently rescinded by an
insurance company because of the agent’s negligence, the client may pursue a tort claim
against the agent. Cf. 1 New Appleman on Insurance Law § 2.05[3][a], at 2-35 (Agent is
“liable if . . . insurance . . . is materially deficient in some way”). This remedy is distinct
from any contract claim the client may have. Cf. 1 New Appleman on Insurance Law §
2.05[2][f], at 2-34.




        13
          The record contains no evidence that American General offered for sale term life insurance policies
that were immediately incontestable or, if it did, that the Morrisons would have been willing or able to pay
the increased premiums that such policies would have required. Had such a policy been available to the
Morrisons, American General would not have agreed to issue the policy until it had thoroughly investigated
Mr. Morrison’s application. This investigation would have produced the same information on which
American General later contested the validity of Mr. Morrison’s policy. Accordingly, American General
would most likely never have agreed to insure Mr. Morrison’s life.

                                                    -12-
       In marked contrast to the absence of contract-related findings of fact in the trial
court’s oral findings of fact, the trial court made numerous, specific findings of fact and
conclusions of law with regard to Ms. Morrison’s negligence and breach of fiduciary claims.
These findings and conclusions include:

       A.     Mr. Allen understood that he was Mr. Morrison’s agent.

       B.     Messrs. Roberts and Allen had a fiduciary relationship with the Morrisons and
              owed them a duty of undivided loyalty.

       C.     Messrs. Roberts and Allen were untruthful when they stated on the agent’s
              report that they personally saw the Morrisons on the date of the application.

       D.     Messrs. Roberts and Allen failed to advise the Morrisons that it could be
              against their interest to let the First Colony policy lapse as soon as the
              American General policy was issued because the American General policy
              could be contested.

       E.     Mr. Allen checked the box on Mr. Morrison’s insurance application stating
              that he had not been charged with or convicted of driving under the influence,
              even though neither he nor Mr. Roberts had posed this question to Mr.
              Morrison.

       F.     Messrs. Roberts and Allen negligently failed to warn the Morrisons of the
              danger that inaccurate answers on their applications could invalidate their new
              insurance policies.

       G.     Messrs. Roberts and Allen failed to explain adequately, truthfully, or
              accurately the characteristics of the new insurance policies, particularly the
              fact that the First Colony policy was incontestable while the new American
              General policy was not.

       H.     Messrs. Roberts and Allen provided “faulty information” to American General
              on behalf of the Morrisons.

       I.     Messrs. Roberts and Allen acted recklessly in processing the Morrisons’
              applications.

       J.     Messrs. Roberts and Allen breached their fiduciary duties to the Morrisons by
              failing to adequately and properly provide Mr. Morrison’s application for
              insurance to American General.

                                            -13-
       K.      The conduct of Messrs. Roberts and Allen fell below the standard of care for
               insurance agents.

The evidence in the record does not preponderate against these findings and conclusions. It
supports a finding that the conduct of Messrs. Roberts and Allen fell below the standard of
care of insurance agents in the following particulars: (1) the manner in which they obtained
the information they included in Mr. Morrison’s insurance application; (2) they placed
inaccurate or unsubstantiated information on Mr. Morrison’s insurance application; (3) they
failed to advise the Morrisons that the First Colony policy was incontestable while their new
insurance policies were subject to being contested for two years after they were issued; (4)
they failed to advise the Morrisons that American General had the right to rescind the new
policies for material misstatements in their applications for insurance; (5) they failed to
advise the Morrisons to review and verify the accuracy of the information on their
applications before they signed them; and (6) they failed to advise the Morrisons to review
their policies after they received them.

       The negligent conduct of Messrs. Roberts and Allen caused erroneous information to
be included on Mr. Morrison’s insurance application, and this materially erroneous
information provided American General with grounds to refuse to honor Ms. Morrison’s
claim following her husband’s death. American General’s contest of her husband’s
insurance policy deprived Ms. Morrison of the benefits that would otherwise have been paid
under the policy. Accordingly, Ms. Morrison has proved all the elements of a negligence
claim.

       Messrs. Roberts and Allen argue that they should be excused from liability for their
negligence because the Morrisons failed to read their applications for insurance before
signing them and because the Morrisons failed to examine their new American General
policies after receiving them. Persons applying for insurance are well-advised to review their
application carefully before signing it and submitting it to the insurance company. Should
an insurance company later seek to contest a policy based on misstatements in the
application, the “I didn’t read it” defense will be of no avail when the application contains
a provision certifying that the statements in the application are correct. See Beasley v.
Metropolitan Life Ins. Co., 190 Tenn. 227, 232, 229 S.W.2d 146, 148 (1950); Smith v.
Tennessee Farmers Life Reassurance Co., 210 S.W.3d 584, 591 (Tenn. Ct. App. 2006).

        However, because of the fiduciary relationship between an insurance agent and a
client, it has traditionally been held that a client’s failure to read the application or the policy
is not a defense to a client’s failure to procure claim against an insurance agent. See Nat’l
Old Line Ins. Co. v. Lane, 323 S.E.2d 707, 710 (Ga. Ct. App. 1984); Aden v. Fortsh, 776
A.2d 798, 802 (N.J. 2001); Insurance Network of Tex. v. Kloesel, 266 S.W.3d 456, 477-78
(Tex. Ct. App. 2008); 3 Couch on Insurance § 46:69, at 101. When a client entrusts and

                                               -14-
relies on an insurance agent to obtain insurance, the client’s failure to read the application
or policy is not fatal to the client’s claim. See Bell v. Wood Ins. Agency, 829 S.W.2d 153,
154 (Tenn. Ct. App. 1992); Glisson v. Stone, 4 Tenn. App. at 79. Thus, while the failure of
a client to read his or her application or policy may be fatal with regard to the client’s claim
against the insurance company, it is not fatal with regard to a failure to procure claim against
the insurance agent.

       The Morrisons did not fill out their own insurance applications. Messrs. Roberts and
Allen took on this responsibility. The Morrisons did not have extensive experience with
obtaining insurance, and so it was not unreasonable, relying on Messrs. Roberts’s and Allen’s
professed expertise, to assume that their agents would properly and completely complete their
applications.14 Thus, when the Morrisons were presented with completed applications with
instructions stating simply to sign them, the fact that they complied with these instructions
without reviewing the applications does not undermine Ms. Morrison’s negligence and
breach of fiduciary claims against Messrs. Roberts and Allen.

                                                     V.

       Finally, the Court has reversed the decision of the Court of Appeals that Messrs.
Roberts and Allen are entitled to a credit against Ms. Morrison’s $1,000,000 judgment
against them in the amount of Ms. Morrison’s $900,000 settlement with American General.
Like Chief Justice Clark, I have concluded that this credit is not only appropriate, it is
required.

       In most jurisdictions, when an agent undertakes to obtain insurance coverage but fails
to do so, the agent becomes liable to the client for the amount that would have been payable
under the requested policy. 1 New Appleman on Insurance Law § 2.05[2][f], at 2-34; 3 Couch
on Insurance § 46:74, at 46-109 to-111. Many courts explain that in failure to procure cases,
the agent, when found liable, steps into the shoes of the insurance company and becomes
liable to pay the uninsured loss. See, e.g., Commercial Ins. Consultants, Inc. v. Frenz
Enters., Inc., 696 So. 2d 871, 873 (Fla. Dist. Ct. App. 1997); Robinson v. J. Smith Lanier &
Co., 470 S.E.2d 272, 273-74 (Ga. Ct. App. 1996); Milgrim v. Royal & Sunalliance Ins. Co.,
906 N.Y.S.2d 572, 574 (N.Y. App. Div. 2010); Kobbeman v. Oleson, 1998 SD 20, ¶ 5, 574
N.W.2d 633, 635.




        14
          Because the evidence does not preponderate against the trial court’s finding that Messrs. Roberts
and Allen did not ask Mr. Morrison whether he had been charged with or convicted of driving under the
influence within the past five years, this case does not involve a circumstance in which the client gave false
information to the agent.

                                                    -15-
       As a general rule, the measure of damages in failure to procure cases, whether the
claim is based on contract or tort, is the amount that the client would have been entitled to
receive under the insurance policy had it been procured. Thus, an insurance agent’s liability
on a failure to procure claim is limited to the amount of the proposed policy. Robinson v. J.
Smith Lanier & Co., 470 S.E.2d at 273-74. There is no dispute in this case that American
General would have been required to pay Ms. Morrison $1,000,000 had Messrs. Roberts and
Allen not breached their duty to fill out the Morrisons’ applications for insurance accurately
and completely.15 Thus, the limit of Messrs. Roberts’s and Allen’s liability of failure to
procure is $1,000,000.

        It is not uncommon in cases of this sort for clients to sue both the insurance company
and the insurance agent. When the client settles with the insurance company for the full
amount of the coverage under the requested policy, the client cannot proceed with a failure
to procure claim against the insurance agent because the client has been fully compensated.
See, e.g., Scheideler v. Smith & Assocs., Inc., 557 N.W.2d 445, 450 (Wis. Ct. App. 1996).
However, when the amount of the client’s settlement with the insurance company is less than
the full amount of the anticipated coverage, the client may pursue a failure to procure claim
against the insurance agent. See, e.g., Schurmann v. Neau, 2001 WI App. 4, ¶ 19, 624
N.W.2d 157, 163-64. When a client obtains a judgment against an insurance agent on a
failure to procure claim, the amount of the client’s recovery from the insurance company
should be deducted from the judgment against the agent. See, e.g., Johnson & Higgins of
Alaska, Inc. v. Blomfield, 907 P.2d 1371, 1375-76 (Alaska 1995).

        Ms. Morrison’s claims against both American General and Messrs. Roberts and Allen
arise from the $1,000,000 policy on Mr. Morrison’s life. Ms. Morrison settled her claim
against American General for $900,000. While the trial court properly concluded that
Messrs. Roberts and Allen were liable to Ms. Morrison on her failure to procure claim, the
trial court should have deducted the amount of Ms. Morrison’s settlement with American
General from the damages awarded against them. Accordingly, I would affirm the Court of
Appeal’s decision on this point.




        15
           Had Mr. Morrison’s $1,000,000 American General term life policy been properly obtained, Ms.
Morrison would not have received $300,000 in benefits under the First Colony policy. The record contains
no evidence that the Morrisons planned to keep both the First Colony policy and the American General
policy in force. To the contrary, it is undisputed that the Morrisons planned to allow the First Colony policy
to lapse after the American General policy was issued. Thus, there is no basis to conclude that Ms. Morrison
would have been entitled to death benefits under the First Colony policy, as well as benefits under the
American General policy.

                                                    -16-
                                             VI.

       In summary, I concur with the Court’s decision in Section I of its opinion that Ms.
Morrison is entitled to recovery on her failure to procure claim, although on different grounds
than those relied upon by the Court. However, I do not concur with the Court’s decision in
Section II of its opinion to reverse the decision of the Court of Appeals that Ms. Morrison’s
judgment against Messrs. Roberts and Allen should be reduced in the amount of Ms.
Morrison’s settlement with American General. I concur with the portion of Section III of the
Court’s opinion finding that Ms. Morrison is not entitled to recover damages for the coverage
under the First Colony policy. I concur with Section IV of the Court’s opinion. I concur
with the Court’s conclusions in Section V of the Court’s opinion, although on different
grounds. Finally, I concur with Section VI of the Court’s opinion.




                                                    ____________________________
                                                    WILLIAM C. KOCH, JR., JUDGE




                                             -17-
