STATE LAW – TENNESSEE LIBRARY – GUIDE 12
Tennessee Third-Party Failure to Settle & Excess Exposure
When liability and damages may exceed available limits, an insurer’s handling of settlement opportunities can affect both the insured and the insurer.
A liability insurer must protect the insured from unreasonable excess exposure
Johnson v. Tennessee Farmers reinstated a verdict arising from an insurer’s failure to adequately investigate and settle a serious liability claim within limits, leaving the insured exposed to an excess judgment.
Johnson is Tennessee’s central auto-settlement authority
Evaluate the probability and magnitude of an excess verdict, the information available to the carrier, settlement opportunities, communications with the insured, defense evaluation and whether the carrier acted with appropriate diligence.
Investigation quality matters
Preserve demands, offers, authority requests, evaluations, expert materials, defense reports and communications concerning limits and exposure. The sequence often matters as much as the final demand figure.
A failed settlement is not automatically actionable
Tennessee does not impose strict liability every time a claim fails to settle. The question is whether the insurer’s handling, investigation and settlement conduct unreasonably failed to protect the insured in the circumstances.
Current-law review: October 4, 2026. Verify the accident-date policy, current primary authority, later case treatment, and claim-specific deadlines before legal reliance.
PUBLIC-INTEREST LEGAL EDUCATION
VictimsGuide does not provide legal services or create an attorney-client relationship. Insurance requirements, deadlines, remedies and controlling authority can change. Verify current primary authority, policy language and the law applicable to the particular event before legal reliance.
Authorities and source notes
- Johnson v. Tennessee Farmers Mutual Insurance Co. — 205 S.W.3d 365 (Tenn. 2006)
- Additional liability for bad-faith failure to pay promptly — Tenn. Code Ann. § 56-7-105
Registry authority mapping and cited propositions reviewed October 4, 2026. Canonical source preservation and formal subsequent-history review remain maintenance items where noted.
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