United States: Tennessee Insurance Legal News - May 2014 • Volume 3, Number 2


by John E. Anderson, Sr.

On May 28, 2014, Governor Haslam signed legislation revising the State's Holding Company Act ("Act"). The Act revisions include a provision in Section 13 of the bill that requires the ultimate controlling officer of every insurer file an annual Enterprise Risk Report to the Tennessee Department of Commerce and Insurance ("Department").

Section 13 of the bill, T.C.A. § 56-11-105(l), states as follows:

(l) ENTERPRISE RISK FILING. The ultimate controlling person of every insurer subject to registration shall also file an annual enterprise risk report. The report shall, to the best of the ultimate controlling person's knowledge and belief, identify the material risks within the insurance holding company system that could pose enterprise risk to the insurer. The report shall be filed with the lead state commissioner of the insurance holding company system as determined by the procedures within the Financial Analysis Handbook adopted by the National Association of Insurance Commissioners.

The Commissioner of the Department, Julie Mix McPeak, issued a memorandum dated April 10, 2014 ("Memorandum"). The purpose of the Memorandum was to inform applicable insurance companies that the Department will not penalize them if they are not able to file the report by April 30, 2014. The Commissioner explained that the Department found that in the absence of rules implementing the new legislation that specify the form to be used by the Enterprise Risk Filing, companies may not be able to make the Enterprise Risk Filing with the Department by April 30, 2014. "The Department, therefore, takes the position that just cause exists under § 56-11-111(a) for companies not to file the Enterprise Risk Filing as required by PC583. The Department will not penalize a company under § 56-11-111(a) for non-compliance with the Enterprise Risk Filing provision in calendar year 2014." The memorandum notes that the Department encourages companies to make this filing by October 31, 2014. It concluded by stating that it applied only to the Enterprise Risk Filing under the Holding Company Act revisions and only for calendar year 2014.


by James M. Burns

Legislation was recently introduced by Representative John Conyers (D. Michigan) that would permit healthcare providers to negotiate jointly with health insurers concerning contract terms without running afoul of the antitrust laws. The bill, the "Quality Health Care Coalition Act of 2014," (H.R. 4077), has been referred to the House Judiciary's Subcommittee on Regulatory Reform, Commercial and Antitrust Law for further action.

In introducing the legislation, Representative Conyers stated that "over the last several decades, the health insurance market has become exceedingly concentrated, dominated by a few large insurers offering a limited number of health insurance plans. This has occurred in large part because of insurers' immunity from federal antitrust laws. In contrast, our nation's physicians and health care providers are afforded no comparable protections. This unbalanced playing field ultimately means consumers lose out with higher healthcare costs and poorer care. H.R. 4077 allows for physicians to negotiate with insurers on a level playing field, ensuring heightened quality standards for patient care."

Notably, Representative Conyers has introduced similar legislation in the past, without success. However, the legislation enjoys a degree of bipartisan support this Congress, with Republicans in both the House and Senate having also introduced legislation containing provisions similar to those in Representative Conyers's bill. Specifically, H.R. 2300, which was introduced by Representative Tom Price (R. Georgia) last June, would permit healthcare providers to negotiate jointly with insurers, as does S. 1851, which was introduced by Senator John McCain (R. Arizona) last December. However, both H.R. 2300 and S. 1851 are much larger bills that also seek to repeal the Affordable Care Act, and thus those bills are unlikely to garner Democrat support in the House or Senate.

Nonetheless, the fact that these Republican-sponsored bills contain language that is virtually identical to that in Representative Conyers's bill suggests that the prospects for H.R. 4077 are probably brighter this year than they have been at any time since 2000, when similar legislation was passed in the House but failed to get acted upon in the Senate. Will Representative Conyers's legislation finally "cross the finish line" this Congress? Time will tell; stay tuned.


by Autumn L. Gentry

As the number of data breaches and disclosure of personally identifiable information ("PII") increases, courts are being asked to decide whether such claims for data breach and disclosure of PII are covered by traditional commercial general liability (CGL) policies. Most often, companies who have only traditional CGL policies, argue that such claims should fall under their policies' coverage for "personal and advertising injury," which is typically defined as injuries arising out of the oral or written publication of material that violates a person's right of privacy.

Sony made this same argument in the recent case of Zurich American Insurance v. Sony Corporation of America. Sony argued that coverage for a consumer class action filed against Sony for a 2011 data breach of Sony's Playstation network should fall under its CGL policy's coverage for "personal and advertising injury" which included the typical definition.

A New York trial judge disagreed, finding that the definition required "some kind of act or conduct by the policyholder in order for coverage to be present." Because the data breach was committed by third-party hackers who broke into Sony's security system, rather than by an "act or conduct perpetuated by Sony," the trial court held that the policy did not provide coverage for the data breach claims against Sony.

Courts in other jurisdictions have held otherwise, finding that coverage under a CGL policy extended to claims for data breach and disclosure of PII based upon each policy's definition of "personal injury." See e.g. Netscape Communications Corp. v. Federal Ins. Co., 343 Fed.Appx. 271 (9th Cir. 2009);Tamm v. Hartford Fire Ins. Co., 16 Mass.L.Rptr. 535, 2003 Mass. Super. LEXIS 214 (Mass. Super. Ct. 2003).

In response to the rising number of claims for data breach and cyber coverage being filed, Insurance Services Offices, Inc. (ISO) filed in many jurisdictions a new set of exclusionary endorsements. These exclusionary endorsements, which effect provisions under a CGL's policy for "Bodily Injury and Property Damage" (Coverage A) and "Personal and Advertising Injury Liability" (Coverage B), are scheduled to take effect this month.

Insurers who issue these exclusionary endorsements will likely argue that these provisions apply to and, therefore, exclude coverage for any cyber liability or data breach claims. However, insurers will have to prove that they do so. If insurers do not issue these exclusionary endorsements, policyholders will likely argue that their traditional CGL policies cover such claims, otherwise their insurers would have issued the exclusionary endorsements based upon the ISO's guidance. Only time will tell how the varying jurisdictions will decide these issues.


by Kelly M. Telfeyan

Can an individual who is not named as an insured on a health insurance policy, under which benefits are presumably available, assign his/her rights in favor of a healthcare provider? This question was recently answered by the Tennessee Court of Appeals in Action Chiropractic Clinic, LLC v. Hyler, No. M2013-01468-COA-R3-CV, 2014 Tenn. App. LEXIS 73 (Tenn. Ct. App. Feb. 12, 2014).

In Hyler, Prentice Hyler ("Hyler") and William Burnette, Jr. ("Burnette") were involved in an automobile collision that was caused by Burnette. At the time of the accident, Burnette's automobile was insured by Erie Insurance Exchange ("Erie"). Following the accident, Hyler received medical treatment at Action Chiropractic Clinic, LLC ("Action"). As consideration for the healthcare provided and in order to satisfy any payment owed, Hyler executed an Assignment of Rights (the "Assignment") to Action for medical expense benefits allowable and otherwise payable to Hyler from his "Health Insurance, Auto Insurance, or any other party involved." When Hyler's treatment ended, Action sent Erie a copy of the Assignment.

When Erie did not remit payment, Action filed a civil warrant in Davidson County General Sessions Court. Erie removed the case to Circuit Court, where it filed a motion for summary judgment. The Circuit Court granted Erie's motion, holding that: (1) Hyler had no vested rights against Erie when he executed the Assignment to Action; (2) the insurance policy required written consent to the assignment of any rights thereunder and there was no evidence of such consent; (3) there was no contractual privity between Action and Erie; (4) Action was not a third-party beneficiary of the policy; and (5) the suit was a direct action against an insurance company and, hence, prohibited by Tennessee law.

On appeal, Action argued: (1) that the Assignment was valid under Tenn. Code Ann. § 56-7-120(a)(1) and Tennessee common law; (2) that Hyler could assign his rights to Action despite the language regarding assignments in the automobile insurance policy; (3) that public policy favored the assignment of benefits to a health care provider by an injured party; (4) that the Assignment was valid despite a lack of contractual privity with Erie; and (5) that it could sue Erie directly even though Tennessee is not a direction action state.

The Tennessee Court of Appeals first addressed whether the Assignment to Action was valid under Tenn. Code Ann. § 56-7-120(a) (1), which states, in pertinent part, as follows:

Notwithstanding any law, rule, or regulation to the contrary, whenever any policy of insurance issued in this state provides for coverage of health care rendered by a provider covered under title 63, the insured or other persons entitled to benefits under the policy shall be entitled to assign these benefits to the healthcare provider and such rights must be stated clearly in the policy. Notice of the assignment must be in writing to the insurer in order to be effective; provided, however, such notice can be provided by other means if so stated in the policy.

Tenn. Code Ann. § 56-7-120(a)(1).

In determining whether the Assignment from Hyler to Action was valid under the foregoing statutory provision, the Tennessee Court of Appeals stated that the dispositive question was whether, Hyler, who was not a named insured under the policy, otherwise qualified as a "person entitled to benefits under the policy." After evaluating the portion of the policy identifying the persons protected under the policy and determining that there was nothing to suggest that Hyler was such a person, the Court held that the Assignment was not valid under Tenn. Code Ann. § 56-7-120(a)(1).

Having determined that the Assignment was not valid under Tenn. Code Ann. § 56-7-120(a)(1), the Court addressed whether the Assignment was valid under Tennessee common law. In this regard, the Court ultimately concluded that, while Hyler had a common law right to assign the proceeds of his claim against Burnette to Action to pay for his treatment, Action's rights were no greater than Hyler's. Because Hyler was not a named insured or otherwise within the class of persons protected by the policy and because there was no evidence that Burnette, who was the named insured, had taken any action to assign his benefits under the policy to Hyler, it followed that Hyler had no rights against Erie that he could assign to Action. For that reason, while holding that Hyler had a common law right to assign his proceeds to Action, the Court ruled that Erie was not obligated to honor the Assignment.

The Court next addressed Action's argument that the Assignment was valid and, hence, enforceable against Erie despite the lack of contractual privity between Action and Erie. Action argued that because there will never be privity between a healthcare provider and the insurance company, lack of privity should not serve as a basis for refusing to honor the Assignment. The Court of Appeals disagreed, stating that insurance contracts are, by their very nature, personal contracts between the insured and the insurer. The Court further reiterated that Hyler had no claim or right to performance against Erie and, therefore, nothing to assign relative to Erie.

The Court then turned to Action's assertion that the trial court erred in holding that Action could not bring suit against Erie because Tennessee is not a "direct action" state. The Court of Appeals found Action's contention unavailing, stating that, because Action's lawsuit against Erie sought to enforce a duty arising from the policy, it indisputably amounted to a direct action.

Lastly, the Court addressed Action's argument that the language in the policy requiring Erie's consent to any assignment of benefits did not apply to Hyler because Hyler was not a party to the contract of insurance and, hence, not bound the policy's consent requirement. In response, the Court stated that, while it agreed the Hyler's ability to assign the proceeds of his claim against Burnette were not constricted by the language of the policy, it disagreed with Action's contention that, as a result, Erie was bound to honor the Assignment. In explaining the reason for its decision, the Court stated that because Hyler was not a named insured or otherwise protected or entitled to benefits under the policy, Erie was not obligated to honor Hyler's Assignment to Action.

For the foregoing reasons, the Court of Appeals affirmed the judgment of the trial court.

There are two points that insurance companies should take away from this decision. First, it would be advisable for insurance companies to include language in their policies stating that assignments executed by individuals who are not either named insureds or otherwise protected or entitled to benefits under the policy will not be honored by the insurer. Second, even when no such language is included in the policy, there is now precedent clearly establishing that such an assignment will not be enforceable against the insurer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

John E. Anderson, Sr.
Autumn L. Gentry
Kelly M. Telfeyan
Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions