Hayes Family Partnership ET AL. v. Tennessee Farmers Mutual Insurance Company

This is an insurance policy coverage dispute between Tennessee Farmers Mutual Insurance
Company (“Tennessee Farmers”) and its insured, Hayes Family Partnership (“Hayes”). At
issue is property damage to a commercial building owned by Hayes and insured by
Tennessee Farmers. The damage, which was in excess of two hundred thousand dollars,
was caused by a third-party tortfeasor, George Hardey, who drove his vehicle into the
insured building. Shortly after the accident and without the knowledge or consent of
Tennessee Farmers, Hayes executed a release of all claims against Hardey and his insurer,
Allstate Property & Casualty Company (“Allstate”), in consideration for the $25,000 policy
limits paid by Allstate. After Hayes submitted its claim to Tennessee Farmers for benefits
under its policy, Tennessee Farmers denied Hayes’ claim based on Hayes’ violations of
material provisions in the insurance policy, including the provision that required Hayes to
“do everything necessary to secure [Tennessee Farmers’] rights” and “do nothing after loss
to impair them.” The trial court denied Tennessee Farmers’ Motion for Summary Judgment
based, in part, on the “made whole” doctrine, and it ruled that “the release executed by
Hayes in favor of the third-party tortfeasor George Hardey does not foreclose Hayes’ right
to pursue recovery from Tennessee Farmers.” The trial court also reasoned that Tennessee
Farmers may not avoid coverage “on the basis of breach of the insurance policy condition
that its insured must do everything necessary to secure its rights and nothing to impair those
rights, and Hayes[’] release of Hardey.” The trial court then granted Tennessee Farmers’
motion for permission to file an interlocutory appeal, which we also granted. The
dispositive issue on appeal is whether Hayes forfeited its right to coverage under the
Tennessee Farmers’ policy by, inter alia, releasing all of Hayes’ claims against the thirdparty
tortfeasor and his insurance company without the knowledge or consent of Tennessee
Farmers. We have determined that Hayes materially breached the insurance policy by
releasing the third-party tortfeasor and his insurer from liability without the consent of Tennessee Farmers; therefore, Tennessee Farmers was entitled to summary judgment as a
matter of law. Accordingly, we reverse the decision of the trial court and remand with
instructions to summarily dismiss the complaint.