Can You Sue Your Own Insurance Company in Tennessee?

Yes, you can sue your own insurance company in Tennessee. But the available remedies are narrower than they look at first glance, and the rules for bad faith in particular have gotten more restrictive over the past several years.

The single most important thing to understand: Tennessee does not recognize a common-law tort for insurance bad faith. If you want to recover anything beyond the contract amount, you have to fit your case into a specific statutory framework — and recent case law has carved out major exceptions even from that.

Where the Right to Sue Comes From

When you buy an insurance policy in Tennessee, you sign a contract. The insurer agrees to provide certain benefits in certain circumstances; you agree to pay premiums and comply with the terms. If the insurer fails to pay a benefit you’re entitled to under the policy, that’s a breach of contract, and Tennessee courts will enforce it like any other contract.

What’s available beyond the basic contract amount depends on three separate but related sources of law:

1. Tenn. Code § 56-7-105 — Tennessee’s statutory bad-faith penalty
2. The implied covenant of good faith and fair dealing — a contract doctrine that exists in every Tennessee insurance policy
3. The Tennessee Consumer Protection Act — a broader consumer-protection statute that occasionally applies

The Statutory Bad-Faith Penalty

Tenn. Code § 56-7-105 allows a policyholder to recover an additional penalty of up to 25% of the loss amount when an insurer’s refusal to pay was not made in good faith. To recover the penalty, the policyholder must establish:

1. The policy is due and payable — meaning a covered loss has actually occurred under the policy terms
2. A formal demand for payment was made to the insurer
3. At least 60 days have passed since the demand without payment
4. The refusal to pay was not in good faith — and inflicted additional expense, loss, or injury

Each element matters. If the policyholder filed suit before the 60-day window expired, the statutory penalty is unavailable. If no formal demand was ever made, the penalty is unavailable. If there’s a genuine dispute over coverage — even one the insurer ultimately loses — bad faith generally cannot be established. The Tennessee Court of Appeals laid this out in Palmer v. Nationwide Mut. Fire Ins. Co., 723 S.W.2d 124 (Tenn. Ct. App. 1986), and the Tennessee Supreme Court has consistently treated the statute as penal in nature, meaning courts construe it strictly against plaintiffs.

The statute is not a tort. It’s a statutory penalty that gets added on top of the contract recovery. The policyholder bears the burden of proving every element.

The Critical Auto Insurance Caveat

Here’s where things have gotten complicated. The Tennessee Court of Appeals held in Giles v. GEICO that the bad-faith penalties in Tenn. Code § 56-7-105 do not apply to automobile insurance policies. That holding cut against an earlier Tennessee Supreme Court suggestion in Gaston v. Tenn. Farmers Mut. Ins., 120 S.W.3d 815 (Tenn. 2003), that the statutory penalty might apply to underinsured motorist coverage.

The status of the law on this question is still evolving. Different courts in Tennessee have reached different conclusions, and the dispute has not been definitively resolved by the Tennessee Supreme Court. The practical takeaway: if your dispute is with your auto insurer — including over a UM/UIM claim — the statutory bad-faith penalty may or may not be available. Other remedies typically remain.

The First-Party UM/UIM Contract Claim

The most common scenario in which a Tennessean ends up suing their own insurance company is an uninsured/underinsured motorist (UM/UIM) claim after a car accident.

If you’re injured by an uninsured driver, or by a driver whose policy limits aren’t enough to cover your damages, your own UM/UIM coverage steps in. Your insurer’s obligation to pay under that coverage is a contract obligation. If they refuse to pay what your damages are worth — or stall, lowball, or deny — you can sue them for breach of contract to enforce the policy.

Two important points:

• You generally must exhaust the at-fault driver’s liability coverage first before turning to UIM
• Settling with the at-fault driver’s insurer does not automatically release your own UM/UIM carrier — the two claims are legally separate

Our overviews of uninsured motorist claims in Tennessee and what happens when you’ve been hit by a hit-and-run driver walk through the framework.

Breach of the Implied Covenant of Good Faith and Fair Dealing

Tennessee recognizes that every contract — including every insurance contract — contains an implied covenant of good faith and fair dealing. This means an insurer is required to deal with you honestly, fairly, and in good faith so you can receive the benefits the contract promised.

When an insurer breaches that implied covenant, the policyholder may sue for breach of contract. This is a broader theory than the statutory bad-faith penalty because it doesn’t require the strict procedural elements of § 56-7-105 — but it also typically only recovers contract damages, not the statutory 25% penalty.

The Tennessee Supreme Court addressed this in Johnson v. Tennessee Farmers Mutual Insurance Co., 205 S.W.3d 365 (Tenn. Ct. App. 2006), where the court held that an insurer with exclusive control over the investigation and settlement of a claim can be held liable for an excess judgment when its bad faith causes a failure to settle within policy limits. The court defined bad faith as “a disregard of or demonstrable indifference toward the interests of the insured.”

The Tennessee Unfair Claims Settlement Act

Tennessee has an Unfair Claims Settlement Act that lists practices considered unfair or deceptive in the insurance business — for example:

• Misrepresenting policy provisions
• Failing to acknowledge communications promptly
• Refusing to pay claims without reasonable investigation
• Failing to affirm or deny coverage within a reasonable time
• Attempting to settle for less than the amount a reasonable person would believe is owed

The Act itself does not create a private right of action — meaning you can’t sue your insurer just for violating the Act’s standards. But the Act provides important guidance to courts evaluating bad-faith claims, and conduct violating the Act can support a breach-of-contract or breach-of-covenant claim.

The Tennessee Consumer Protection Act Possibility

In Riad v. Erie Ins. Exchange, 436 S.W.3d 256 (Tenn. Ct. App. 2013), the Tennessee Court of Appeals held that Tenn. Code § 56-7-105 does not foreclose liability under the Tennessee Consumer Protection Act (TCPA). In limited circumstances, an insurer’s conduct may give rise to a TCPA claim that can include treble damages and attorney fees.

This is a fact-specific avenue and not available in most insurance disputes, but it’s part of the toolkit.

What Tennessee Doesn’t Recognize

Several theories that exist in other states are not available in Tennessee:

• Common-law tort of bad faith — Tennessee does not recognize an independent tort for insurance bad faith. All bad-faith claims must be brought under § 56-7-105 or as breach of contract.
• Third-party bad faith — A third-party claimant (someone injured by the insured) generally cannot sue the insurer directly for bad faith. The implied covenant runs only between insurer and insured.
• Bad-faith failure to settle as a tort — Some states allow this as an independent tort. Tennessee analyzes it as a contract claim, with the insurer potentially liable for excess judgments under Johnson v. Tennessee Farmers.

Common Scenarios Where Suing Your Own Insurer Makes Sense

1. UM/UIM Claim Denied or Lowballed

The other driver is uninsured (or underinsured), your damages exceed the available liability coverage, and your own carrier refuses to pay your UM/UIM claim or offers a fraction of what the case is worth.

2. Property Damage Claim Denied

A homeowner’s policy or auto-physical-damage policy claim denied without proper investigation, or denied based on a strained interpretation of policy exclusions.

3. Medical Payments Coverage Denied

Med-pay coverage on an auto policy refused without legitimate basis.

4. Failure to Defend

A liability insurer refuses to provide a defense in a covered lawsuit, leaving the policyholder to defend at their own expense.

5. Failure to Settle Within Policy Limits

The classic Johnson v. Tennessee Farmers scenario — an insurer in exclusive control of settlement negotiations refuses a within-limits demand, exposing the insured to an excess judgment.

6. Lowball Settlement Pressure

An insurer pressures a seriously injured policyholder into accepting a small early offer when the actual case is worth significantly more — sometimes leveraging the policyholder’s financial distress to extract a release.

Who Is Most at Risk From Bad-Faith Insurer Conduct

Insurance bad faith disproportionately harms:

• Policyholders with catastrophic injuries — where insurer pressure to settle quickly is greatest
• Policyholders dealing with commercial property losses after fires, storms, or other disasters
• Policyholders pursuing UM/UIM claims against their own carrier in serious-injury auto cases
• Policyholders facing claims with complex causation issues the insurer can use to dispute coverage

Our overview of average car accident settlements in Nashville and our breakdown of how personal injury settlements get paid give context on what an honest valuation looks like — and what insurer lowball offers tend to leave on the table.

Practical Steps Before You File

1. Document everything in writing. All claim correspondence, all phone calls (with dates and the names of adjusters), all denial letters.
2. Make a formal written demand for payment if you haven’t already. The 60-day clock under § 56-7-105 doesn’t start until the demand is made.
3. Comply with all your “duties after loss” under the policy. Insurers will use your failure to cooperate or to produce documentation as a defense.
4. Get all your medical records and bills organized. A clean, complete medical record is the single most important piece of evidence in most first-party injury claims.
5. Don’t sign anything the insurer puts in front of you, including releases, recorded statement consents, or “broad form” medical authorizations, without consulting a lawyer.
6. Don’t let the statute of limitations run. Tennessee’s general personal injury statute of limitations is one year under Tenn. Code § 28-3-104; contract claims under most insurance policies are governed by a longer period, but the underlying tort timeline still matters.

You Don’t Pay Unless We Win

The Higgins Firm represents Tennessee policyholders against their own insurance companies — including UM/UIM disputes, bad-faith claims under § 56-7-105, breach-of-contract suits, and excess-exposure cases under Johnson v. Tennessee Farmers. Free, confidential consultations. Contingency fee — you owe nothing unless we recover for you.

The insurance company you’ve paid premiums to for years is supposed to be on your side when you need it. When it isn’t, Tennessee law gives you tools to enforce the contract — they’re just narrower than you’d hope, and they require knowing exactly which lever to pull.