                   IN THE COURT OF APPEALS OF TENNESSEE
                                AT KNOXVILLE
                           September 20, 2004 Session

FRED SIMMONS TRUCKING, INC., v. UNITED STATES FIDELITY AND
 GUARANTY COMPANY and its successors in interest, HARTFORD FIRE
                 INSURANCE COMPANY

                 Direct Appeal from the Circuit Court for Hamilton County
                 No. 98C0774     Hon. Jacqueline E. Schulten, Circuit Judge



               No. E2003-02892-COA-R3-CV - FILED NOVEMBER 29, 2004



In this breach of contract action based on a policy of insurance, the Trial Court determined defendant
had breached the contract and awarded compensatory damages, as well as punitive damages. On
appeal, we reverse in part, affirm in part, vacate and remand.

Tenn. R. App. P.3 Appeal as of Right; Judgment of the Circuit Court Affirmed in Part,
Reversed in Part, Vacated and Remanded.

HERSCHEL PICKENS FRANKS, P.J., delivered the opinion of the court, in which CHARLES D. SUSANO ,
JR., J., and SHARON G. LEE, J., joined.

Melinda Meador and Erica Taylor Greene, Knoxville, Tennessee and
Thomas Hickey, of Counsel, Chattanooga, Tennessee, for Appellant, Hartford Fire Insurance
Company.

Robert L. Widerkehr, Jr., Chattanooga, Tennessee, for Appellee.


                                             OPINION

                Fred Simmons Trucking Co., Inc. (“Simmons”), brought an action for breach of
contract against United States Fidelity and Guaranty Company (“USF&G”) and its successor in
interest, Hartford Insurance Group (“Hartford”), seeking damages for breach of contract and punitive
damages.

             At trial undisputed evidence established that USF&G issued an assigned risk policy
to Simmons covering Simmons’ employees for workers compensation benefits, and that Charles
McGeorge, an employee of Simmons, sustained on the job injuries, and was initially paid workers
compensation benefits under the State of Tennessee workers compensation coverage. In February
of 1997, Hartford quit paying benefits in Tennessee, and McGeorge hired Kentucky counsel who
brought an action in Kentucky under Kentucky’s workers compensation law. Defendants refused
to defend the Kentucky action and Simmons hired an attorney who represented the employer in the
Kentucky action, which resulted in workers compensation benefits being awarded to McGeorge
under the Kentucky statute, which were being paid by Simmons.

                 Following an evidentiary hearing, the Trial Court filed a Memorandum Opinion
stating that the punitive damage claim had been bifurcated, and that the remaining claims were for
breach of contract and bad faith. The Court found that McGeorge was an employee of Simmons,
who lived in Kentucky and was injured in Kentucky. The Court found that Simmons was insured
through USF&G, and that Hartford later bought the risk. The Court concluded that the policy
purporting to afford coverage in Tennessee only was ambiguous and construed the policy against the
insurance company which had drafted the policy.

               The Court found that Hartford initially paid benefits pursuant to the Tennessee Act
to McGeorge, until his physician (Tutt) opined that he had reached maximum medical improvement
in February of 1997. The Court found that Tutt sent two updates in March and asked for a second
opinion, but Hartford took this to mean he was not reversing his earlier finding of MMI, but Hartford
“ignored the recommendation of the treating physician.”

                The Court found that Simmons had paid over $250,000.00 in medical expenses to
date, plus attorney’s fees and permanent benefits. Essentially, the Court found Hartford breached
its duty under the contract to pay benefits, and in bad faith cut off payments, and she awarded
punitive damages. Compensatory damages in the amount of $240,694.90 were awarded, along with
punitive damages in the sum of $250,000.00 against defendant Hartford.

               The Trial Court noted that the evidence of bad faith on Hartford’s part was
“egregious”, and that there was an effort get rid of the claim, and then conceal that fact.

               Hartford raises these issues on appeal:

               1.      Did the Trial Court err in holding that the policy was ambiguous?

               2.      Did the Trial Court err in allowing evidence of Hartford’s termination of
                       benefits in Tennessee, when this was not pled in the Complaint?

               3.      Did the Trial Court err in holding that Hartford acted in bad faith in
                       terminating benefits in Tennessee?

               4.      Did the Trial Court err in assessing punitive damages against Hartford, and
                       in awarding prospective relief to Simmons that was not prayed for in the
                       Complaint?


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                5.      Did the Trial Court deny Hartford a fair trial?

               The Trial Court’s findings of fact are accorded a presumption of correctness in this
Court, unless the evidence preponderates against the finding. However, questions of law decided
by the Trial Court come to this Court without a presumption of correctness, Tenn. R. App. P. 13(d).

                 As to the Trial Court’s finding that the policy was ambiguous, Hartford argues this
is in error, and the policy clearly states that it applies only to Tennessee. The policy, in part one and
on its declaration page, states that workers compensation coverage is afforded for the state listed in
3A, which is only Tennessee. Part three of the policy, which extends coverage to other states,
expressly provides that it only applies if the insured began work in another state after the effective
date of the policy, or if the insured already worked there and notified the insurance company of that
fact within 30 days of the effective date. Neither of these events occurred in this case.

                 Simmons admitted at trial that he had deliveries running through and to Kentucky
since 1974. There was no dispute on this point. Thus, Simmons did not begin working in Kentucky
after the effective date of this policy, and there was also no contention that Simmons ever notified
USF&G or Hartford that Kentucky needed to be included in the policy. As such, part three of the
policy and 3C on the declaration page never came into play. The policy unambiguously states that
it only applies to Tennessee unless certain conditions were met. The Trial Court erred in finding that
the policy was ambiguous. This holding was not the only basis for the Court’s Judgment, however,
and the remaining issues must be addressed.

                Hartford asserts that it was error for the Trial Court to allow evidence regarding
Hartford’s handling of the Tennessee claim, because Simmons failed to plead this issue. The
Complaint filed by Simmons, however, states that McGeorge was paid benefits in Tennessee by
Hartford, but Hartford later denied those benefits, which resulted in McGeorge consulting an
attorney and filing a claim in Kentucky.

                As the Supreme Court has recently explained:

                However, as we reaffirmed in White, "[a] complaint 'need not contain in minute
                detail the facts that give rise to the claim,' so long as the complaint does 'contain
                allegations from which an inference may fairly be drawn that evidence on these
                material points will be introduced at trial.' "

Givens v. Mullikin ex rel. Estate of McElwaney, 75 S.W.3d 383, 399 (Tenn. 2002).



                As stated in Tenn. R. Civ. P. 8, a complaint shall contain “a short and plain statement
of the claim showing that the pleader is entitled to relief”. The Trial Court found the Complaint
sufficiently stated a cause of action for breach of contract and bad faith in the handling of the


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Tennessee claim. We agree, and this issue is without merit.

                The Trial Court awarded Simmons a judgment based on its finding that Hartford
breached the insurance contract and acted in bad faith. As we have previously recognized in
Chandler v. Prudential Ins. Co., 715 S.W.2d 615 (Tenn. Ct. App. 1986), there is no tort of bad faith,
but an insured can seek the statutory bad faith penalty when an insurance company refuses to pay,
and the court finds that the “refusal to pay the loss was not in good faith, and that such failure to pay
inflicted additional expense, loss, or injury including attorney fees upon the holder of the policy”.
Tenn. Code Ann. § 56-7-105.

                The issue thus becomes whether Hartford breached its duties under the insurance
contract, such that damages for breach of contract were appropriate.1

                Hartford’s duties under the contract include that it “will pay promptly when due the
benefits required of [Simmons] by the workers compensation law” of Tennessee. There is no dispute
that Hartford paid McGeorge temporary disability payments until Dr. Tutt placed him at MMI. At
this point, Hartford ceased paying temporary disability benefits, and offered to settle the case for
$15,000.00, but it did not establish that this offer was ever communicated to McGeorge, and no
settlement was reached or approved pursuant to Tenn. Code Ann. § 50-6-206.

               Tenn. Code Ann. § 50-6-234 provides that “after temporary disability payments have
commenced, when the injured employee reaches maximum medical improvement, a permanent
impairment rating is given and the compensability of the injury has not been contested by the
employer, then payments shall continue until the earlier of the following events: the injured
employee accepts or rejects a job offered by the employer at a wage equal to or greater than the
employee’s pre-injury wage . . .; the parties agree to waive the holding of a benefit review
conference; or a benefit review conference is held and the report is filed pursuant to §50-6-240.”

                 Thus, Hartford’s argument that it rightfully terminated benefits because Dr. Tutt said
McGeorge was at MMI does not comport with the statute, since there was no proof that any of these
requirements contained in the statute were met such that temporary disability benefits could be
terminated. Moreover, as the Trial Court found, Hartford had reason to suspect that Dr. Tutt might
well be rescinding his finding of MMI, since he asked for a second opinion and reinstatement of
benefits, but they chose to “let it be” and not to ask Dr. Tutt if his findings had changed. The
evidence does not preponderate against the Trial Court’s finding that Hartford breached its contract
with Simmons and acted in bad faith. The remaining issue is the type and amount of damages the
plaintiff is entitled to recover from Hartford.

        1
          Regarding Hartford’s argument that the Tennessee worker’s compensation statutes are the
exclusive remedial scheme for Simmons’ claims, Tenn. Code Ann. §50-6-108 clearly provides that
“rights and remedies herein granted to an employee . . . shall exclude all other rights and remedies
of such employee, such employee’s personal representative, dependents or next of kin” - thus, this
exclusivity provision does not apply to the employer.

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                     As this Court has previously recognized:

              Under the general law, remedies available for breach of contract are damages,
              specific performance, and restitution. Corbin on Contracts (1964 Ed.), s 1102.

              The purpose of the remedy of damages is to put the party in as good a position as he
              would have been had the contract been completed, and accordingly a plaintiff may
              recover for the promised performance as well as consequential damages. Corbin, s
              1102.

Chambliss, Bahner and Crawford v. Luther, 531 S.W.2d 108, 110 (Tenn. Ct. App. 1975). In this
case, the proof established that Hartford breached its contract with Simmons to pay benefits to
McGeorge, as discussed above, and Simmons is entitled to be awarded the amount that Hartford
would have had to pay McGeorge under Tennessee law which the parties’ contract provided, since
Simmons has now been ordered to pay McGeorge’s benefits. McGeorge was found to be
permanently and totally disabled in the Kentucky action.2 Tenn. Code Ann. § 50-6-207 provides:

              (4)(A)(I) PERMANENT TOTAL DISABILITY. For permanent total disability as
              defined in subdivision (4)(B), sixty-six and two-thirds percent (66 2/3%) of the
              wages received at the time of the injury, subject to the maximum weekly benefit and
              minimum weekly benefit; provided, that if the employee's average weekly wages are
              equal to or greater than the minimum weekly benefit, the employee shall receive not
              less than the minimum weekly benefit; provided further, that if the employee's
              average weekly wages are less than the minimum weekly benefit, the employee shall
              receive the full amount of the employee's average weekly wages, but in no event shall
              the compensation paid be less than the minimum weekly benefit. This compensation
              shall be paid during the period of the permanent total disability until the employee
              is, by age, eligible for full benefits in the Old Age Insurance Benefit Program under
              the Social Security Act; provided, that with respect to disabilities resulting from
              injuries which occur after 60 years of age, regardless of the age of the employee,
              permanent total disability benefits are payable for a period of two hundred sixty (260)
              weeks. Such compensation payments shall be reduced by the amount of any old age
              insurance benefit payments attributable to employer contributions which the
              employee may receive under title II of chapter 7, title 42 of the Social Security Act,
              42 U.S.C. § 401 et seq., as amended.

       2
        We think Hartford is bound by the findings of fact made by the Kentucky Court. Hartford
had the opportunity to defend under a reservation of rights and contest the amount and award of
damages, which they declined to do.

      But the Trial Court erred in saying the employee was “forced to file in Kentucky after
Tennessee had stopped all coverage.”


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                The issue of the amount of compensatory damages is remanded to the Trial Court for
determination of the amount that Hartford would have been liable for under the Tennessee workers
compensation statute, which is the proper amount to award to Simmons based on Hartford’s breach
of the Tennessee policy. The Trial Court is instructed to utilize the findings of fact as to the type and
extent of workers compensation benefits as found by the Kentucky Court and utilize these findings
to establish the amount of benefits to reimburse McGeorge under the Tennessee policy. In other
words, the Trial Court is directed to enter a Judgment to the extent of coverage under the Tennessee
policy, as factually determined by the Kentucky Court.

                As previously stated, in Tennessee there is no tort action for bad faith, but Tenn. Code
Ann. § 56-7-105 provides that the insurance company “shall be liable” to pay “a sum not exceeding
twenty-five percent (25%) on the liability for the loss” if a bad faith failure to pay is proven.
Punitive damages are inappropriate3 in a case such as this because the statutory penalty is applicable,
and also because such damages are not generally awarded in cases of breach of contract. See
Chandler v. Prudential Ins. Co., 715 S.W.2d 615 (Tenn. Ct. App. 1986); B. F. Myers & Son of
Goodlettsville, Inc. v. Evans, 612 S.W.2d 912 (Tenn. Ct. App. 1980).

                Bad faith has been defined as the failure of the insurance company to deal in good
faith, and to be diligent in its investigation, negotiation, defense, and settlement of claims brought
against its insured. State Auto. Ins. Co. of Columbus v. Rowland, 427 S.W.2d 30 (Tenn. 1968).
Thus, “the insurer cannot escape liability by considering only what appears to be for its own interest.
It must consider also the impact of its decision upon its insured and deal fairly and in good faith.
This duty arises not so much under the terms of the contract but is said to arise because of the
contract and to flow from it.” Id. at 34. The question of the insurer’s good faith is for the fact finder.
Id.

               The Trial Court’s finding of bad faith was proper, and on remand, the Trial Court will
determine the proper penalty under Tenn. Code Ann. § 56-7-105.

              For the foregoing reasons, we reverse the Trial Court’s finding that the policy was
ambiguous, vacate the award of damages, and remand to establish damages in accordance with this
Opinion. The cost of the appeal is assessed to Hartford Fire Insurance Company.


                                                         ______________________________
                                                         HERSCHEL PICKENS FRANKS, P.J.

        3
          The specific punitive damage award in this case would require reversal even if it was a
proper remedy, because the trial court failed to “clearly demonstrate a consideration of all relevant
factors”, and the court’s findings failed to explicitly refer to the factors set out in the Supreme
Court’s opinion in Hodges v. S.C. Toof & Co., 833 S.W.2d 896 (Tenn. 1992). Culbreath v. First
Tennessee Bank Nat. Ass’n, 44 S.W.3d 518 (Tenn. 2001).

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