Tennessee Supreme Court Rules a Contractor Has No Right to Sue an Insurance Company for Violating a Statute Intended to Avoid Delayed Payments to Contractors

April 26, 2021

The Tennessee Supreme Court has unanimously ruled that a general contractor has no private right of action against an insurance company for a violation of a Tennessee statute requiring the insurance company to include the contractor as a payee on the insurance payment to the property owner. 

Under Tennessee Code Annotated section 56-7-111, when an insured property owner has a loss of more than $1,000 to a home or other structure under a policy of property or casualty insurance, the insurance company must name the general contractor of an uncompleted construction contract as a payee on the insurance proceeds check. 

Owners Insurance Company insured property owned by Grand Valley Lakes Property Owners Association in Saulsbury, Tennessee. After severe weather damaged the property, the Association hired Affordable Construction Services, Inc. as the general contractor to make repairs. Owners Insurance paid the Association for its property loss, but failed to include Affordable Construction on the check as required by the statute. After the Association failed to pay Affordable Construction, it sued the Association in the Hardeman County Circuit Court to collect for the repair work. The circuit court dismissed the lawsuit because there was no enforceable contract between Affordable Construction and the Association. Affordable Construction then sued Owners Insurance in the Hardeman County Chancery Court, claiming Owners Insurance violated Tennessee Code Annotated section 56-7-111 by not including Affordable Construction on the check to the Association. 

The case was removed to the United States District Court for the Western District of Tennessee, and Owners Insurance moved for judgment in its favor. The federal court asked the Tennessee Supreme Court to answer certain questions of state law to help resolve the case. The primary question was whether the Tennessee Legislature provided a general contractor with a private right of action under the statute. There was no express grant of a right to sue in the statute. Thus, the Court had to determine whether the contractor had proven that the Legislature intended to imply a private right of action based on the structure of the statute, legislative history, and a series of factors. The Tennessee Supreme Court held that although the Legislature intended for the statute to benefit general contractors, it did not give a contractor the right to sue an insurance company for noncompliance. The Legislature intended for the statute to be enforced through a criminal penalty and made no mention of a private right of action in a civil suit. Thus, Affordable Construction had no right to sue Owners Insurance Company for violating the statute.

To read the unanimous opinion of the Court in Affordable Construction Services, Inc. v. Auto-Owners Insurance Company, written by Justice Sharon G. Lee, please visit the Opinions section of TNCourts.gov.