Tennessee Supreme Court Reverses Appellate Court’s Holding That The Failure To Advise Insurer Of Foreclosure Constituted Increase In Hazard Allowing Insurer To Disallow Coverage

As we reported in the January 2008 newsletter, a Tennessee Appellate court held that a mortgagee’s failure to advise the hazard insurer of the commencement of foreclosure proceedings constituted an increase in hazard allowing the insurer to disclaim coverage. That decision has been mercifully overturned. In U.S. Bank, N.A. v. Tennessee Farmers Mutual Ins. Co., W2006-02536, you may recall, the bank initiated foreclosure proceedings but did not notify the insurance company. Before the foreclosure process was complete, the house was destroyed by a fire. The bank made a claim for the loss which the insurer denied and cancelled coverage. The insurance company asserted that the foreclosure proceedings constituted an increase in hazard of which the bank was required to notify the insurance company. On January 29, 2009, the Tennessee Supreme court reversed the appellate court and held that the initiation of foreclosure proceedings did not constitute an increase in hazard. The court also found that the mortgagee did not have a duty under Tennessee insurance law to notify the insurer of the commencement of foreclosure proceedings. Foreclosure was not an increase of hazard.

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