TN Supreme Court Rules on Potential Liability of Home Inspector for Damages Sustained by House Warming Party Guest

The Tennessee Supreme Court recently decided that, in theory, a home inspector could be liable to third-party house guests for defects not discovered during a home inspection.

Mr. Charles Grogan was a social guest of a recent home buyer when he learned the hard way that the second-story deck rail had been built with finishing nails rather than galvanized nails. When the rail gave way and Mr. Grogan fell off the deck, he sustained damages and sued the new home owner, the previous home owner, the contractor who worked on the deck, the home builder, and the home inspector.

The trial court granted summary judgment to the home inspector, which found that Mr. Grogan could not establish crucial elements of his claim for negligence against the home inspector. The Court of Appeals agreed, so Mr. Grogan appealed to the Tennessee Supreme Court.

The Tennessee Supreme Court granted the appeal to discuss the potential liability of a home inspector to a guest of the home buyer. Although the Court noted that one who assumes a contractual duty to inspect the property of another may be liable for physical injuries suffered by a third-party, the facts of this case precluded such a finding.

The Tennessee Supreme Court first noted that it is a “well-worn” principle under Tennessee law that one who assumes to act, even though gratuitously, may thereby become subject to the duty of acting carefully. The Court noted that this principal was the “underpinning” of the Restatement of Torts (Second) Section 324A, which provides that “One who undertakes . . . to render services to another which he should recognize as necessary for the protection of a third person, or his things, is subject to liability to the third person for physical harm resulting from his failure to exercise reasonable care to protect his undertakings.”

The Court noted that several other jurisdictions have applied this section to home inspectors who negligently conduct their inspections.

With regard to Mr. Grogan’s claims, however, the Court held that the agreement between the home inspector and the new home purchaser expressly limited the scope of services rendered to exclude any opinion on compliance with building codes. Therefore, the fact that the railing used finishing nails rather than galvanized nails fell outside the scope of the inspection. Further, and more compelling, was the express limitation in the agreement that it was “only for the benefit of the Client and may not be relied upon by any other person.” Going one step further, the Court noted that the applicable statutes and regulations governing home inspectors make clear that the duty of care is owed to the home purchaser—not to any third parties.

Therefore, the Court held that based on the terms of the agreement and the applicable statutes and regulations, the home inspector did not owe a duty to Mr. Grogan. As such, summary judgment was proper, and the home inspector could not be held liable for Mr. Grogan’s damages.

The important lesson here is that under Tennessee law, a person performing services can under certain circumstances be liable for damages sustained by third parties. Therefore, it is crucial to define the scope of the services, the intended beneficiaries, and limitations on third-party liability in the services contract.

If you need assistance drafting or reviewing a service contract, please call Meridian Law at (615) 229-7499.


By Miles T. Martindale

         Meridian Law recently successfully defended a will contest and challenge to a payable-on-death bank account designation. Meridian represented the daughter and primary caregiver of the decedent (who suffered from numerous chronic health conditions) and was named as the sole payable-on-death (“POD”) beneficiary on multiple bank accounts and who received more favorable treatment under the decedent’s second will. Her brother objected and argued that the decedent lacked capacity at the time of execution of the second will and the POD forms. The Probate Court appointed an administrator ad litem to investigate whether the POD account funds paid to the daughter should be recovered by the Estate. The dispute regarding the POD account and the validity of the second will revolved around whether the decedent had the capacity to name his POD beneficiary and update his will several months prior to his death. Ultimately, the administrator ad litem filed a Petition to Recover Assets of the Estate in an attempt to recover the funds from the POD accounts for the benefit of the Estate.

            When the administrator ad litem and the sibling’s attorney took the depositions of two of the decedent’s medical providers, it became apparent that although decedent was chronically ill and getting worse over time, they could not say he did not know who his heirs were or ever lost his orientation to self. One of decedent’s providers stated that he had no indication that the decedent did not know the extent of his property or how it should be disposed of. Based on their testimony, Meridian moved for summary judgment on behalf of its client and argued there was no evidence that the decedent lacked capacity at the moment he changed the POD form or executed his second will. Meridian emphasized that his providers were allowing the decedent to make his own medical decisions until shortly before his death. Ultimately, the trial court agreed and held: “It was apparent that the decedent was seriously and chronically ill and suffering from confusion and memory loss in his old age; however, there was no indication that as of December 2014 the decedent did not know: the extent of his property; disposition of his property; his heirs; or his self. Therefore, the court is of the opinion that reasonable minds could not justifiably reach a different conclusion on whether the decedent possessed the required mental capacity required to execute a contract based on the evidence at hand.” (emphasis added)

            This decision was a significant victory for Meridian’s client, allowing her to retain the funds she received from the POD accounts and the property she received under his second will.

            Meridian cannot guarantee that the same results could be obtained for other clients in similar matters. Results may vary based on the specific factual and legal circumstances of each client's case.

            If you need assistance with a probate matter or will contest, please contact Meridian Law, PLLC at (615) 229-7499.

Tennessee Supreme Court Maintains Status Quo on Medical Expenses in Personal Injury Actions

By Robert D. Martin

The Tennessee Supreme Court issued its long-awaited decision in Dedmon v. Steelman, a case that could have had a potentially sweeping impact on personal injury actions statewide. The primary issue to be decided was whether the monetary value of “reasonable medical expenses” recoverable by a plaintiff are the dollar-amount billed by a health care provider, or the discounted amount ultimately accepted by that provider as payment in full. The Tennessee Supreme Court, upholding the status quo, held that the undiscounted, billed amounts were reasonable, and that the discounted amounts accepted by the providers were inadmissible altogether.

To understand the implications of the Dedmon decision, it is important to understand the backdrop under which it was decided. First, in personal injury actions in Tennessee, injured plaintiffs typically may recover their past medical expenses as part of their damages, so long as those medical expenses are both “necessary and reasonable.” Traditionally, the focus has been on the “reasonable value” of necessary services rendered to the plaintiff.

Tennessee, along with most other states, follows the “collateral source rule”, which prohibits the admission of evidence that a third-party (the “collateral source”) paid an injured party’s medical expenses. Most often, the collateral source rule is invoked to prohibit the admission of evidence relating to a plaintiff’s insurance. The justification for the rule has been that the existence of insurance, or any other third-party payment, should not benefit the “tortfeasor” or defendant. To allow this evidence would essentially deprive the plaintiff of the advantage of having insurance. The collateral source rule helps ensure that “[t]he tortfeasor is held responsible for the harm he caused, regardless of the ‘net loss’ of the injured party,” according to the Court. Additionally, the rule seeks to prevent juries from discounting the harm done to the plaintiff, simply because he had insurance.  Under Tennessee law, the “reasonable medical expenses” incurred by plaintiffs in most personal injury actions[1] has been essentially limited to the full, undiscounted amounts billed.

Hospitals, by statute, are entitled to a lien on their patients’ tort recoveries in the amount of “all reasonable and necessary charges” if their treatment arose from the negligence of another. In other words, if a hospital is not paid for its treatment of an injured plaintiff, it will have a lien on any recovery by that plaintiff by way of judgment or settlement, to recover the fees it is owed. In 2015, the Tennessee Supreme Court issued a monumental decision in West v. Shelby County Healthcare Corporation, holding that the “reasonable and necessary charges” are the discounted amounts paid by the patient’s private insurance. The practical effect of the decision was that hospitals are now prohibited from accepting a reduced payment from a patient’s insurance company, and then seeking recovery of any “written off” amount from the plaintiff’s judgement or settlement. “The [hospital’s] lien can exist only as long as the patient owes a debt to the hospital.”

Following the West decision, defense lawyers argued that the Court’s definition of “reasonable and necessary charges” in hospital lien cases should also apply in personal injury actions. After all, over the last several decades, health care in the United States has become increasingly complex, with billing structures becoming even more convoluted. Health insurance companies negotiate with hospitals to determine the value of various services, and the government sets such rates without negotiation for Medicare and Medicaid payments. With the overwhelming majority of Americans carrying at least some health insurance, “virtually no public or private insurer actually pays full charges.” As most insurers, scholars, and laypeople understand, the full, unadjusted rates of most health care charges are dramatically inflated well beyond the market rate for those services. Why should an injured plaintiff be entitled to a windfall recovery based on inflated hospital rates that have little or no actual relation to the market value of the services received by the plaintiff?

In 2011, the California Supreme Court implemented a West-type limitation to medical-expense damages in personal injury actions in that state, declaring “although the collateral source rule precludes certain deductions against otherwise recoverable damages, it does not expand the scope of economic damages to include expenses the plaintiff never incurred.” The Federal Courts in the Western and Middle Districts of Tennessee, and several state circuit courts, including courts in Davidson and Hamilton County, applied the West decision to personal injury actions, capping the amount of a plaintiff’s medical expenses at the amount paid by their insurance provider. This was precisely the issue that led the Dedmon case to the Supreme Court.

Dedmon arose from a motor vehicle accident, in which the plaintiff incurred total medical expenses of $52,482, and her health insurer paid $18,255.42, or roughly only one third of the total charges billed. Prior to trial, the defendants filed a pre-trial motion, seeking to exclude evidence of “unreasonable medical charges.” The defendants relied on West, arguing that evidence of the plaintiff’s full, undiscounted medical charges must be excluded because the amounts of those bills were, as a matter of law, unreasonable. The defendants insisted that granting the motion would not violate the collateral source rule, because no evidence of insurance payment would be submitted to the jury; rather, the jury would simply be given a number of the plaintiff’s medical bills, which would be the discounted amount actually paid.

The trial court granted the defendants’ motion and excluded all evidence of the plaintiff’s full, undiscounted medical bills. The plaintiff appealed, and the Court of Appeals reversed the trial court’s decision. According to the Court of Appeals, the West decision was limited to cases arising under the Hospital Lien Act, and was not expanded to all personal injury actions. The defendants appealed to the Supreme Court, who agreed to hear the case and consider two issues: whether the West court intended to apply the definition of “reasonable medical charges” to personal injury actions, and if not, whether that definition should be adopted in personal injury actions anyway.

In a unanimous decision by Justice Holly Kirby, the Tennessee Supreme Court first held that “West was not intended to apply in personal injury cases.” The Court distinguished West from other personal injury, medical malpractice, or workers’ compensation cases, explaining:

West was intended only to construe the phrase “reasonable charges” in the context of determining the maximum amount of a hospital’s HLA lien. Certainly there is some overlap in that the word “reasonable” is used in connection with the valuation of medical expenses in many types of cases, such as those based on work-related injuries, medical malpractice injuries, and generic personal injuries . . . However, those types of claims involve different public policies than the policies underlying the HLA, and they are governed by different statutory schemes and common law rules. . . . West interpreted the HLA in a manner consistent with the Legislature’s intent and purpose for that statute. . . . Application of the West holding to personal injury cases would transform what would be a factual finding on damages into a legal holding by the court.

The Court also declined to extend the West definition of “reasonable medical charges” to personal injury actions, primarily relying on the collateral source rule. “The rule has served important public policies, namely, that a tortfeasor’s responsibility is to compensate for all the harm he causes, not limited to the net loss that the injured party receives, and that a benefit directed to the injured party should not become a windfall for the tortfeasor.”

The “amount actually paid” standard creates a “disparity that results in cases where the victim is insured as opposed to those where the victim is uninsured” according to the Court. In other words, the defendant’s liability is reduced where “the victim is prudent and buys insurance, but is increased when the victim has no insurance,” overlooking the fundamental purpose of the collateral source rule, which is “to prevent a tortfeasor from deriving any benefit from compensation or indemnity that an injured party has received from a collateral source.”

The Court acknowledged that in some instances, the “full-bill” approach could lead to overcompensation for the plaintiff, but it determined this possibility did not matter: “The law contains no rigid rule against overcompensation.” The Court also reasoned that “the negotiated rate differential is ‘as much of a benefit for which [the plaintiff] paid consideration as are the actual cash payments made by his health insurance carrier to the health care providers.’”

In addition to simply upholding the collateral source rule, the Tennessee Supreme Court went a step further, holding that “reasonable medical expenses” are not definitionally analogous to “fair market value.” Not only did it reject the comparison, it said such an analogy was “simplistic at best and misleading at worst.” This criticism (and accusation) of the defendant’s position is somewhat surprising, considering that the Court held literally the exact opposite two years ago.

The Court of Appeals, seeking to find a middle ground, had held that while plaintiffs could offer their full, undiscounted medical bills as proof of their damages, defendants could also offer discounted amounts accepted as payments by the providers. Under this approach, a jury would decide whether the full amounts or the discounted amounts were the reasonable measure of damages.

The Supreme Court rejected this middle-ground approach, holding that such an approach would “most surely allow a jury to infer the existence of a plaintiff’s insurance. . . and ultimately lead to the demise of the collateral source rule itself.”

The Dedmon decision, while not entirely unexpected, is still disappointing. Under the current system now explicitly endorsed by the Tennessee Supreme Court, plaintiffs may recover the full amount billed by a hospital for services rendered, despite the widely recognized fact that these amounts are often two or three times greater than the actual value of those bills, and defendants are left without any real possibility to rebut the reasonableness of those bills. Theoretically, defendants could enlist the services of an expert witness to testify as to what the reasonable value of the services rendered would be, but any discussion of that value would almost certainly require a discussion of insurance adjustments, which would be prohibited by the Court’s decision.

And on top of medical expenses and other “economic damages,” plaintiffs can also recover “non-economic damages,” such as “pain and suffering.” Since these damages are difficult or impossible to actually measure, plaintiffs typically use a multiple of the economic damages to value their noneconomic damages. The Tennessee Supreme Court acknowledged this early in Dedmon, but it failed to consider it in its analysis.

The Dedmon decision not only enables the possibility of a windfall for plaintiffs in the calculation of their economic damages, but it allows them to multiply that windfall through their non-economic damages. Thankfully, Tennessee has caps on non-economic damages.

In short, the unanimous Dedmon decision maintained the status quo in such a way that it seems unlikely the Tennessee Supreme court will reconsider in the near future, absent legislative action. The silver lining of the decision is that it imposes no new burdens on defendants in personal injury actions. However, in a time with skyrocketing health care costs, Dedmon could lead to higher verdicts bearing less resemblance to the injury actually sustained by plaintiffs.

[1] The collateral source rule does not apply in medical malpractice or workers compensation actions.

New Legislation Proposes Employees' Choice of Comp Time in Lieu of Overtime

By: Robert D. Martin, Esq.

New legislation proposed in the United States House of Representatives seeks to offer hourly employees more choices in maintaining work-life balance. The Working Family’s Flexibility Act of 2017, H.R.1180, sponsored by the Representative Martha Roey (R-AL) amends the Fair Labor Standards Act and authorizes employers to offer employees the option to either receive time-and-a-half pay for every hour worked over forty, or to accumulate those time-and-a-half paid time off hours worked over forty to be used as paid time off (“comp time”) at some other point during the year. Like all other overtime provisions in the FLSA, this option would only apply to hourly workers who do not fall under one of the Act’s recognized exemptions.

The bill does prohibit an employee from accruing more than 160 hours of this comp time, or four weeks. In the event that the employee does not use comp time by the end of the calendar year, the employer is required to pay the original overtime that would have been due to the employees.

In the event that an employer decides to discontinue the comp time program, the employer must give employees 30 days’ notice. Likewise, the employee can withdraw from an agreement to receive comp time at any time.

The crucial point here is that the decision to take comp time in lieu of overtime pay is left solely to the employee. Employers may not force the employee to make such a determination and may not terminate an employee for deciding to take overtime pay instead of comp time.

Several private and government employers already use a comp time or flex time program for their FLSA exempt employees.

The comp time is not accrued on an hour for hour basis; rather, it is accrued on a time and a half basis. For instance, if an employee works fifty hours in a week under the act, he would be either entitled to forty hours of regular pay, and ten hours of time and a half pay, or regular hourly pay for fifty hours, and fifteen hours of comp time.

Critics of the measure say that the bill offers a false choice, in that employees would not actually have the ability to make the determination of whether to accept comp time or overtime, and that the employer reserves the right to deny use of the comp time if it would interfere with business. However, the bill explicitly prohibits employees from requiring comp time rather than overtime as a condition of employment. Furthermore, under current law, employees already have the right to approve or deny time off, with the exception of FMCA.

In this writer’s estimation, this bill balances the needs of employers and employees to bring the working environment into the 21st century without taking a hit to productivity or work-life balance. Additionally, the bill has a sunset provision which will cause the Act to expire after 5 years if it is not renewed by Congress. That way, if the act does not have the impact as planned, it can be retired without an act of Congress.

The legislation was passed the House and is awaiting a vote in the Senate.

If you are an employer and would like to know more about how the Working Families Flexibility Act of 2017 will or could affect your business, call Robert Martin at Meridian Law at 615-647-0645.

Meridian Law Attorney Gives Presentation on Wedding Law

Meridian Law attorney and somewhat-recently-married-man, Robert D. Martin, recently presented a seminar on tort and contract issues that often arise in wedding planning. The presentation was a part of the Tennessee Bar Association’s Wedding CLE held on March 29, 2017.

Robert spoke to a room full of attorneys about how to deal with conflict that may arise when a parent or guardian is paying the bill for services provided for the benefit of the bride and groom. His presentation also addressed the legal requirements to officiate weddings in Tennessee, liability issues that may arise from serving alcohol to wedding guests at home weddings, and how to deal with vendors who do not perform their contractual obligations satisfactorily, or wedding parties who refuse to pay for services after the matter. Robert gave severalexamples of specific provisions to include in vendor contracts to prevent issues down the road.

If you are a vendor in the wedding industry and need advice on how to structure your contracts or have issues dealing with your clients, contact Meridian Law at 615-229-7499.

There Is No Private Right of Action for Violation of the Tip Statute

By: Robert D. Martin, Esq.

Hardy v. Tournament Players Club at Southwind, Inc. d/b/a “TPC Southwind,” No. W2014-02286-SC-R11-CV (Tenn. March 8, 2017). 

The Tennessee Supreme Court recently held that a server may not sue her employer for violation of the Tennessee Tip Statute. The Court’s opinion overturned the decision of the Court of Appeals, who in 2015 declared that the tip statute contained an “implied right of action.”

Kim Hardy was a server and bartender at the Tournament Players Club (“TPC”) at Southwind golf course in Memphis. TPC customarily added a mandatory service charge to every bill at its bars and restaurants, in addition to allowing customers to pay optional tips. The Mandatory Service Charges were placed in a pool and were paid out to employees on their regular paychecks. The traditional tips were also not paid to employees until their regular paychecks. Ms. Hardy alleged in her Complaint that the service charges were distributed to non-service employees, which would have violated the tip statute. The tip statute requires that restaurants which automatically add a gratuity onto a customers’ bills distribute the tips only among employees who have rendered the service. The statute makes a violation of the law a misdemeanor, but does not specifically state than an employee may sue their employer for a violation. 

The trial court dismissed the case for failure to state a claim, after it determined that the Tip statute did not allow a private right of action, meaning that an employee could not sue its employer if the employer violated the statute. The Court of Appeals reversed, relying on a 1998 Court of Appeals decision that found an implied private right of action under the tip statute.

The Supreme Court disagreed, overturning the Court of Appeals. The Court held that the Tennessee General Assembly, in passing the tip statute, gave no indication that it intended for a private citizen to file a lawsuit for a violation of the statute. The statute is criminal in nature since it provides that a violation of the statute is a misdemeanor. This means that if the employer broke the law, it was up to the government to hold the employer accountable, not the employee.

The tip statute is different than other wage and hour laws. For instance, the Fair Labor Standards Act, the federal wage law, not only provides for a private right of action for violations of the statute, but also provides that an employee may file a “collective action,” remarkably similar to a class action, on behalf of fellow employees who were also not paid in accordance with the law.

If you are an employer in the food service industry, and you have questions regarding how to compensate or handle tips for your employees, contact Meridian Law for a consultation.