Tennessee Insurance Guaranty Association v. Centre Insurance Company ( 2005 )

IN THE COURT OF APPEALS OF TENNESSEE
AT NASHVILLE
February 10, 2005 Session
TENNESSEE INSURANCE GUARANTY ASSOCIATION v. CENTRE
INSURANCE COMPANY
Appeal from the Chancery Court for Davidson County
No. 00-03667-II(IV) Carol McCoy, Chancellor
No. M2003-02647-COA-R3-CV - Filed June 10, 2005
Tennessee Insurance Guaranty Association, a statutory agency created to meet certain obligations
of insolvent insurance companies relative to workers’ compensation, sued Centre Insurance
Company seeking exoneration of certain workers’ compensation obligations assumed by the agency
upon the insolvency of Commercial Compensation Insurance Company. The trial judge granted
summary judgment to Centre, and we affirm the action of the trial court.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed
WILLIAM B. CAIN , J., delivered the opinion of the court, in which PATRICIA J. COTTRELL and FRANK
G. CLEMENT , JR., JJ., joined.
Julie Murphy Burnstein, William Daniel Leader, Jr., Nashville, Tennessee, for the appellant,
Tennessee Insurance Guaranty Association.
Tyree Bryson Harris, IV, Alfred H. Knight, Nashville, Tennessee, for the appellee, Centre Insurance
Company.
OPINION
Prior to December 18, 1998, Superior National Insurance Group, Inc. was the parent
corporation to several wholly-owned subsidiaries, including Commercial Compensation Insurance
Company, Superior National Insurance Company and Business Insurance Company. Each of these
subsidiary corporations was authorized to, and did, write workers’ compensation insurance for
employers in Tennessee and in other states during and prior to 1998. On December 18, 1998,
Superior National Insurance Group, Inc. sold all of the stock in Business Insurance Company to
Centre Solutions Holdings (Delaware), Ltd. The corporate name of Business Insurance Company
was then changed to Centre Insurance Company.
Relevant to this case are four policies of workers’ compensation insurance issued by
Commercial Compensation Insurance Company to four separate employers. The history of each
policy is essential to an understanding of this controversy.
I. Lee Adcock Construction Company, Inc. – – Employer
For the period September 24, 1997, to September 24, 1998, Business Insurance Company
(“BICO”) issued its policy number W979164585 providing coverage to Lee Adcock Construction
Co., Inc. (“Adcock”) for workers’ compensation. Simultaneously, BICO filed with the Tennessee
Department of Labor a Form I-1 certifying this coverage with the certification providing that BICO
“hereby certifies that it has insured the employer named above in compliance with T.C.A. Sections
50-6-408 and 50-6-409 (Tennessee Workers’ Compensation Law).” This Form I-1 identified the
policy as number W979164585.
When the time came to renew this policy for the period September 24, 1998, to September
24, 1999, the renewal policy was issued, not by BICO, but by Commercial Compensation Insurance
Company. The information page of the policy disclosed that it was policy number W989164585 and
further disclosed that it was a renewal of policy number W979164585. Simultaneously with this
renewal, a Form I-1 was filed with the Tennessee Department of Labor reflecting the issuing of
policy number W989164585 and showing that it was a renewal of policy number W979164585.
While the actual renewal policy was issued by Commercial Compensation Insurance Company, the
Form I-1, filed contemporaneously with the renewal, still stated the name of the insurance carrier as
BICO.
While the renewal policy was in effect, Adcock employee Timothy Davis, on May 11, 1999,
suffered a work-related injury.
II. Architectural Surfaces, LLC – – Employer
On October 12, 1997, BICO issued its policy number W97A165932 insuring Architectural
Surfaces, LLC for workers’ compensation insurance, the policy period being from October 12, 1997,
to October 12, 1998. This was a new policy. Contemporaneously with this policy, BICO filed Form
I-1 with the Tennessee Department of Labor reflecting the issuing of its policy number
W97A165932.
When the time came for renewal of this policy on October 12, 1998, the renewal policy was
issued, not by BICO, but by Commercial Compensation Insurance Company. The policy reflected
that it was policy number W98A165932 and that it was a renewal of policy number W97A165932.
The policy period was October 12, 1998, to October 12, 1999. Contemporaneously, an I-1 form was
filed with the Tennessee Department of Labor reflecting the issuing of policy number W98A165932
as a renewal of policy number W97A165932. The Form I-1 asserted, however, that the carrier was
not Commercial Compensation Insurance Company, but BICO.
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While this renewal policy was in effect, Architectural Surfaces, LLC employee Virgil W.
Uren, on August 19, 1999, suffered a work-related injury.
III. C.W. Nunley and Larry Nunley d/b/a Nunley Poultry – – Employer
On November 8, 1998, Commercial Compensation Insurance Company issued a new policy,
number W98B185313, to Nunley Poultry providing workers’ compensation insurance with the
policy period being November 8, 1998, to November 8, 1999. Simultaneously, Form I-1 was filed
with the Tennessee Department of Labor showing the issuing of new policy, number W98B185313,
but listing the carrier, not as Commercial Compensation Insurance Company, but rather as BICO.
While the policy was in effect, Nunley Poultry employee John Wesley Wiggins, on May 20,
1999, suffered a work-related injury.
IV. Dickson County Nursing Home – – Employer
On September 1, 1998, Commercial Compensation Insurance Company issued a new policy,
number W987179170, to Dickson County Nursing Home providing workers’ compensation
insurance with the policy period being July 1, 1998 to July 1, 1999. Simultaneously, Form I-1 was
filed with the Tennessee Department of Labor reflecting new policy number W987179170 but listing
the carrier, not as Commercial Compensation Insurance Company, but instead as BICO.
While the policy was in effect, Dickson County Nursing Home employee Tammy Uptegraw,
on May 21, 1999, suffered a work-related injury.
All four of the above workers’ compensation claims were filed with Commercial
Compensation Insurance Company and were thereafter administered, and compensation was paid
to the respective employees, by Commercial Compensation Insurance Company.
On September 26, 2000, the Los Angeles County Superior Court of California ordered
Commercial Compensation Insurance Company into liquidation.
Commercial Compensation Insurance Company was a member of the Tennessee Insurance
Guaranty Association (“TIGA”) at all times relevant to this case. TIGA was created by statute, with
its purpose being “to provide a mechanism for the payment of covered claims under certain insurance
policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders
because of the insolvency of an insurer, and to provide an association to assess the cost of such
protection among insurers.” Tenn. Code Ann. § 56-12-102 (2000).
Commercial Compensation Insurance Company is an “insolvent insurer” within the meaning
of the act, which provides in pertinent part:
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(8) “Insolvent Insurer” means an insurer authorized to transact insurance in
this state, either when the policy was issued or when the insured event occurred, and
against whom a final order of liquidation has been entered after March 31, 1999, with
a finding of insolvency by a court of competent jurisdiction in the insurer’s state of
domicile; . . . .
Tenn. Code Ann. § 56-12-104(8) (2000).
The duties of TIGA include the duty to “pay the full amount of any covered claim arising out
of a worker’s compensation policy. In no event shall the association be obligated to a policyholder
or claimant in an amount in excess of the obligation of the insolvent insurer under the policy from
which the claim arises; . . . .” Tenn. Code Ann. § 56-12-107(a)(1)(A) (2000).
TIGA filed a Motion for Partial Summary Judgment seeking a declaration that TIGA had no
obligation to provide workers’ compensation benefits to the four injured workers. This Motion was
based on the fact that all of the Form I-1 documents filed with the Department of Labor stated that
BICO (now Centre Insurance Company) filed the Form I-1 in each case; therefore, BICO, now
Centre, was liable for the worker’s compensation coverage as to these four employees.
Centre Insurance Company filed a Motion for Summary Judgment on the basis that the record
conclusively established that all four of the policies of insurance were issued by Commercial
Compensation Insurance Company and that the record conclusively established that Centre Insurance
Company was a corporation separate and apart from Commercial Compensation Insurance Company.
On June 27, 2003, these Motions for Summary Judgment were heard by the Chancellor, after
which an Order was entered sustaining the Motion of Centre Insurance Company based on specific
findings of fact:
1. that Centre Insurance Company acquired all outstanding shares of Business
Insurance Company on or about 18 December 1998;1
2. that the name of Business Insurance Company appears on a Form I-1
Certificate of Insurance for the four companies named in the cause of action
of the Plaintiff, Tennessee Insurance Guaranty Association;
3. that the name of Business Insurance Company appears in error on each of the
four Form I-1 Certificates of Insurance in that policies of worker’s
compensation insurance had actually been issued by Commercial
Compensation Insurance Company;
1
This finding was later amended to provide “that on or about 18 December 1998, Centre Holdings (Delaware)
Limited acquired all outstanding shares of Business Insurance Company and at some point thereafter, changed the name
of Business Insurance Company to that of Centre Insurance Company,”.
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4. that each of those policies issued by Commercial Compensation Insurance
Company were in full force and effect at the time of the work-related injuries
embodied within the cause of action of the Plaintiff, Tennessee Insurance
Guaranty Association;
5. that each such policy issued by Commercial Compensation Insurance
Company was both valid and in place for each of the employers to cover the
claims of the work-related injuries in question;
6. that Tennessee Insurance Guaranty Association has admitted that all of the
policies of workers’ compensation insurance issued to the employers in
question were not issued by Business Insurance Company but rather issued
by Commercial Compensation Insurance Company;
7. that Commercial Compensation Insurance Company had accepted and
administered each of the workers’ compensation claims embodied within the
cause of action of Tennessee Insurance Guaranty Association until its
involuntary insolvency whereupon Tennessee Insurance Guaranty
Association stepped into the shoes of Commercial Compensation Insurance
Company and continued in the administration of those claims;
These findings of fact are not disputed on appeal, and the only issue presented, as stated by
TIGA, is:
WHETHER THE TRIAL COURT ERRED IN GRANTING CENTRE’S MOTION
FOR SUMMARY JUDGMENT AND DENYING TIGA’S MOTION FOR
PARTIAL SUMMARY JUDGMENT BY HOLDING THAT THE FORM I-1
CERTIFICATES OF INSURER FILED BY BUSINESS INSURANCE COMPANY
DO NOT TAKE PRECEDENCE OVER THE CONTRACT BETWEEN THE
INSURER AND THE EMPLOYER.
Standards governing appellate review on summary judgment are familiar and well-settled.
Since only issues of law are presented and no disputed fact questions are involved, review on appeal
is de novo with no presumption as to the correctness of any findings of the trial court. Gonzales v.
Alman Const. Co., 857 S.W.2d 42 (Tenn.Ct.App.1993). The moving party on summary judgment
has the burden of showing to the court that there are no disputed material facts creating a genuine
issue for trial and that he is entitled to judgment as a matter of law. The court must take the strongest
legitimate view of the evidence in favor of the non-moving party, allow all reasonable inferences in
favor of that party, discard all countervailing evidence, and, if there is a dispute as to any material
fact or if there is any doubt as to the existence of a material fact, summary judgment cannot be
granted. Byrd v. Hall, 847 S.W.2d 208 (Tenn.1998); EVCO Corp. v. Ross, 528 S.W.2d 20(Tenn.1975).
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Appellant, TIGA, does not dispute any of the findings of fact of the trial court including the
finding that Form I-1 documents identifying BICO as the insurer were filed by mistake. Resting its
entire appeal on Kartsens v. Wheeler Millwork, Cabinet and Supply Co., Inc., 614 S.W.2d 37(Tenn.1981), Appellant states its case in its brief:
The holding in Karstens, is dispositive of this case. BICO filed Form
I-1s for the Insureds certifying that BICO provided workers’ compensation insurance
to the Insureds. (Motion Exhs. A, B, C, D, U pp. 6, 27, 32-34, 43). No notices of
termination were ever filed. (Motion Exh. AA). The filings control BICO’s (now
Centre’s) obligation to provide workers’ compensation benefits to the Insureds
irrespective of the status of the contract of insurance. Accordingly, under Karstens,
Centre, as BICO’s successor, is obligated to provide workers’ compensation
insurance to the Insureds for the time periods reflected on the Form I-1s. Because
Mr. Davis, Mr. Uren, Mr. Wiggins and Ms. Uptegraw suffered work related injuries
during these time periods, Centre, not TIGA, should be responsible for the claims.
In granting Centre’s Motion for Summary Judgment and dismissing
TIGA’s complaint, the Trial Court focused on the existence of the CCIC policy. (R.
136) (App. 6). The Trial Court erred, however, in holding that the “Form I-1
Certificate of Insurance did not create a binding policy of insurance enforceable
against Business Insurance Company, now Centre Insurance Company, when there
was valid workers’ compensation insurance in place” for each of the Insureds and the
injured employees. (R. 136). Nothing in Karstens, limits its holding in the manner
contemplated by the Trial Court. In fact, the holding of Karstens demonstrates just
the opposite: an insurer remains liable for the policy period reflected on the Form I-1
unless the I-1 is terminated by notice to the Workers’ Compensation Division
irrespective of the status of the contract of insurance.
....
Examination of the Supreme Court’s rationale in Karstens
demonstrates that the Trial Court erred and ignored the public policy of this state.
In holding that the filing with the Workers’ Compensation Division takes precedence
over the contract between the employer and the insurer, the Supreme Court, quoting
an earlier decision by the Tennessee Court of Appeals, recognized that an employee
has the right to know the identity of the insurer with whom the employee must deal
if injured. Id. at 41. Accordingly, as the Supreme Court recognized, the status of the
Form I-1 filing controls the insurer’s obligations irrespective of the status of the
contract. The trial Court’s ruling ignores the important policy recognized by the
Supreme Court in Karstens: employees have the right to know the identity of their
employer’s insurer. The Trial Court’s holding that the Form I-1 does not obligate
BICO, now Centre, to provide insurance coverage because another policy of
insurance existed denies injured workers this right.
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The public policy issues undergirding Karsten bear little resemblance to the issues before the
Court in the case at bar. First of all, TIGA is not an employee seeking worker’s compensation
benefits. It is the statutory successor to an insolvent insurance carrier that it admits issued policies
of insurance that were in effect at the time of each of the losses in issue and that this insurer, prior
to its liquidation, administered these claims, collected the premiums on these policies and paid the
claims. Each of the policies in issue showed on its opening Information Page that it was issued by
Commercial Compensation Insurance Company and not by BICO.
Karstens was an action by Karstens against his employer and American Insurance Company
seeking to recover workers’ compensation benefits for an undisputed on-the-job injury. American
Insurance Company filed its Form entitled Employers Proof of Insurance of Liability to Pay
Compensation on November 1, 1977, reflecting worker’s compensation coverage from September
16, 1977, through September 16, 1978. The policy was renewed by American Insurance Company,
and a second such form was filed on July 17, 1978, covering the period September 16, 1978, to
September 16, 1979. On October 10, 1978, realizing that the business was failing, the employer
advised American to cancel the policy retroactive to September 16, 1978. On December 11, 1978,
American sent the Division of Worker’s Compensation a Notice of Termination of Insurance
Coverage, which was received on December 13, 1978, and which advised that coverage was
terminated effective September 6, 1978. Karstens was an employee of Wheeler, and on December
4, 1978, nine days before the Notice of Insurance Termination was received by the Division of
Worker’s Compensation, he had a work-related accident.
In that action between the employee, on the one hand, and the employer together with his
insurance carrier on the other, American Insurance Company insisted that the policy controlled, and
that, since it was cancelled as of September 16, 1978, the insurer could not be held liable. The
employer insisted that, since he did not employ five employees at the time of the accident, he was
not subject to the Workers’ Compensation Act. Alternatively, he asserted that the insurance carrier
should be liable in that it had failed to notify the Department of Labor that the insurance had been
terminated prior to the accident.
In addressing the insurance company’s liability to the injured worker because of the accident
of December 4, 1978, the supreme court analyzed the same statutory scheme that is now in existence.
The supreme court held:
We are of the opinion that the foregoing workers’ compensation statutes and
cases cited require that we give precedence to the status of the proof of insurance as
filed with the Division of Workers’ Compensation over the contractual status
between the employer and the insurance carrier.
The facts of this case demonstrate the fallacy of allowing the contractual
status between the employer and insurance carrier to determine the date insured’s
coverage may be terminated. Wheeler asserts that its lawyer advised on October 10,
1978, that it was not covered and did not require workers’ compensation insurance.
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Its request to cancel the insurance was not communicated to the agent until on or
about November 21, 1978. On that date the request to terminate was sent to
American Insurance Company. The commercial line supervisor with American
Insurance Company testified that a request for cancellation of insurance made more
than thirty days after the policy had gone into effect (impliedly without payment of
any premium) required his approval, which he gave in this case. This was obviously
a discretionary decision and the record is silent as to the factors that influence the
exercise of that discretion. We cannot sanction an interpretation of the workers’
compensation statutes that would permit the rights of employees to enforce claims
against insurance carriers to be retroactively terminated by an arbitrary act of a
company supervisor allowing an employer to retroactively cancel without payment
of any premium.
We hold that an insurance carrier remains liable for the policy period shown
on any initial or renewal filing of an Employer’s Proof Of Insurance Of Liability To
Pay Compensation filed with the Division of Workers’ Compensation unless
terminated by notice thereof filed with the Division and the effective date of
termination cannot precede the date such notice is received by the Division.
Karstens, 614 S.W.2d at 41-42.
Far from being an employee seeking compensation benefits, TIGA is the statutory successor
in interest to the insurance carrier of the employer. Commercial Compensation Insurance Company
knew that it had issued the policies in this case and knew that it had collected from the employer the
premiums therefor prior to going into liquidation. TIGA is a creature of statute established for the
express purpose of avoiding “financial loss to claimants or policyholders because of the insolvency
of an insurer.” Tenn. Code Ann. § 56-12-102 (2000). It is supported in its mission by assessment
against all insurers who are required to be members of TIGA in order to transact business in
Tennessee. Tenn. Code Ann. § 56-12-105 (2000). Among its duties are to “pay the full amount of
any covered claim arising out of a workers’ compensation policy.” Tenn. Code Ann. § 56-12-
107(a)(1)(A) (2000). The statutes also provide that TIGA “[b]e deemed the insurer to the extent of
its obligation on the covered claims and to such extent shall have all rights, duties, and obligations
of the insolvent insurer as if the insurer had not become insolvent.” Tenn. Code Ann. § 56-12-
107(a)(2) (2000).
TIGA insists that it is entitled to the benefit of the policy underlying the filing of the Form
I-1, that policy being that “employees have the continuing right to know at all times that financial
responsibility exists to compensate them for work injuries and the identity of the insurance carrier
they must deal with if injured.” Wilson v. French, 601 S.W.2d 919, 923 (Tenn.1980). TIGA is not
the employee, and the Karstens policies protecting the employee are obviously not available to one
who is, in fact, the insurer of the employer by statutory succession.
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It is a long settled principle of contract law that an assignor cannot transfer to his assignee
any greater rights in the subject matter of the contract than the assignor possesses under the contract.
Kennedy v. Woolfolk, 4 Tenn. (3 Hayw) 195 (1817). That the statutory scheme places TIGA in the
position of an assignee, both as to obligation and as to rights, is clear. TIGA is deemed “the insurer
to the extent of its obligation on the covered claims and to such extent shall have rights, duties, and
obligations of the insolvent insurer as if the insurer had not become insolvent.” Tenn. Code Ann.
§ 56-12-107(a)(2) (2000).
As this Court has held:
The trial court held, and we agree, that Southern’s right to recover under the
Sales Listing Agreement is entirely derivative from and dependent upon the rights of
its assignor, the Binswanger Company. An assignee of a non-negotiable chose in
action, such as a contract, steps into the shoes of his assignor and takes his assignor’s
rights subject to all defenses which may be asserted against the assignor in an action
to enforce the right. Third Nat’l Bank v. Capitol Records, Inc., 60 Tenn.App. 189,
445 S.W.2d 471 (1969). Southern’s right to recover under the Agreement in this case
is determined by the rights of the Binswanger Company. If the Binswanger Company
is barred from recovery, so too is Southern. In other words, if the Binswanger
Company does not have shoes, Southern has nothing to step into. We have, after our
review of this record, determined that Binswanger was shoeless.
Binswanger Southern v. Textron, 860 S.W.2d 862, 865-66 (Tenn.Ct.App.1993).
The rights of the employee are not involved, as all four of these employees were admittedly
suffering from work-related injuries; they properly filed their claims against the insurer, Commercial
Compensation Insurance Company; and, up until liquidation, all of their claims were administered
and paid by Commercial Compensation Insurance Company. As to the other parties in this
controversy, all of the employers knew who their insurance carrier was, and, as between BICO and
Commercial Compensation Insurance Company, both of these corporations knew who the insurer
was. Under these circumstances, what possible right could Commercial Compensation Insurance
Company have against BICO that it could, by assignment, transfer to TIGA? Commercial
Compensation Insurance Company “has no shoes.”
Whether the Form I-1 for these policies was filed by mistake, oversight or deliberation is of
little materiality. Karstens provides no policy that is applicable to a case not involving the rights of
the employee. Summary judgment was properly granted to Centre Insurance Company, and we
affirm the action of the trial court.
Costs of appeal are assessed against Appellant, Tennessee Insurance Guaranty Association,
for which execution may issue if necessary.
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___________________________________
WILLIAM B. CAIN, JUDGE
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