The Sixth Circuit has upheld the dismissal of an insurance fraud lawsuit filed by a subcontractor against a general contractor and its executives, finding the plaintiff failed to allege an injury directly caused by the alleged fraud, as required under Tennessee law.
In a decision published April 7, 2025, the court affirmed that US Framing International LLC could not recover under the Tennessee Insurance Fraud Act after accusing Continental Building Company and six of its executives of making material misrepresentations and omissions in an insurance claim submitted to Steadfast Insurance Company under a subguard policy. The appellate panel concluded that US Framing had not plausibly alleged any “economic damages directly resulting from” the claimed fraud, a statutory prerequisite to recovery.
The dispute began with a subcontract between Continental and US Framing to provide framing services for two student housing projects—one in Knoxville, Tennessee, and the other in Ann Arbor, Michigan. Work began in 2017, but disagreements quickly emerged over delays on the Knoxville project. In December 2017, the parties amended the subcontract, agreeing to abandon any delay-related claims against one another. In January 2018, US Framing agreed to leave the Knoxville project, and a new “change order” confirmed that the contract would be deemed complete, with no further payments or recourse by either side.
In February 2018, Continental issued a formal notice terminating the Knoxville subcontract for default. It also stopped making payments to US Framing on the Ann Arbor project. Several weeks later, Continental filed a claim under its subguard insurance policy with Steadfast, initially seeking around $2.8 million. The claim was later amended to allege more than $6 million in damages. Steadfast ultimately paid Continental more than $3.1 million.
US Framing filed the underlying suit in Tennessee state court in 2023 under Tenn. Code Ann. § 56-53-101 et seq., asserting that Continental’s insurance claim was fraudulent and unlawful. The suit named Continental and six of its officers and alleged that the subguard claim falsely blamed US Framing for Continental’s losses. After removal to federal court, the district court granted a motion to dismiss, finding that US Framing had not pleaded any economic injury that directly resulted from the alleged fraud. The Sixth Circuit affirmed.
The court examined the statutory language of § 56-53-107(b)(1)(C), which limits recoverable damages to “economic damages directly resulting from” a fraudulent insurance act. It found that the harms alleged by US Framing—including withheld payments on the Ann Arbor project and litigation expenses in prior disputes—were either not caused by the alleged fraud or were too remote to support a statutory claim.
The court noted that Continental had stopped paying US Framing on the Ann Arbor project before filing its subguard claim, making the fraud irrelevant to that alleged injury. US Framing also claimed it incurred greater litigation costs because Steadfast’s insurance proceeds enabled Continental to prolong litigation. But the court held that such expenses were not the “direct[] result[]” of the alleged fraud. Even if some expenses were indirectly related, they were derivative of harm suffered by Steadfast—not by US Framing—and therefore too remote to satisfy the statute’s causation requirement.
The opinion clarified that regardless of whether Tennessee courts would interpret “directly resulting” to require immediate causation or merely proximate cause, the statute does not permit recovery for contingent or third-party-based injuries. Citing Tennessee precedent on common law and statutory fraud, the court emphasized that purely derivative claims fall outside the boundaries of proximate cause under state law.
The court also rejected US Framing’s claim for treble damages, which are available under Tenn. Code Ann. § 56-53-107(c) only when economic damages have been plausibly alleged. Because no such damages were adequately pleaded, the court found US Framing could not claim enhanced remedies. Further, the court ruled that US Framing did not plead entitlement to a statutory penalty under § 56-53-107(b)(1)(E), as the complaint only referred generally to “damages” and did not mention a penalty.
Finally, the court held that US Framing was not eligible to recover attorneys’ fees because, under Tennessee law, such fees are available only to a prevailing party. Since US Framing failed to state a claim, it could not obtain a substantial measure of relief and was not a prevailing party.
In sum, the Sixth Circuit concluded that US Framing failed to allege a direct, statutory injury under the Tennessee Insurance Fraud Act. Without that injury, it could not pursue claims for damages, penalties, or fees—even in the face of serious allegations of misrepresentation in an insurance claim.
The case is US Framing International LLC v. Continental Building Company, et al., No. 23-6001, in the U.S. Court of Appeals for the Sixth Circuit, decided April 7, 2025.
