# F I LED

F e b r u a r

y 7, 1996 C e c i l W

. C r o w s o n A p p e l l a t e Co u r t C l e r k 

## IN THE COURT OF APPEALS OF TENNESSEE MIDDLE SECTION AT NASHVILLE

UNITED PH YSICIANS IN SURANCE ) RISK R ETENTION

GROUP, by and ) through DOUGLAS M. SIZEMORE, ) Commissioner of Commerce and Insurance ) for the S tate of T ennessee and Liquida tor ) for Unite d Physicia

ns Risk Ret

ention Gr oup, )

) Plaintiff /Appella nt, ) Davidson Chancery ) No. 94-1889-III VS. ) ) Appeal N o. UNITED AMERICAN BANK OF ) 01 -A-01-9 5 03-CH-00 096 MEMPHIS, ) ) Defendant/Appellee. )

APPEAL FROM THE CHANCERY COURT FOR DAVIDSON COUNTY

AT NASHVILLE, TENNESSEE THE HONORABLE ROBERT S. BRANDT, CHANCELLOR
For the Plaintiff/

Appellant : For the Defendant/Appellee : William B. Hubbard Ronald Lee Gilman W eed, H ubb ard, B erry & Do ugh ty Farri s, Mathews, Gil man, Branan & Hellen Nashville, Tennessee Memphis, Tennessee John Knox Wa

lkup Gu llett, Sanfo rd, Ro binso n & M artin Nashville, Tennessee



## AFFIRMED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE 

## O P I N I O N1 United American Bank’s brief points out that the parties do not agree that the funds used to pay off the United American Bank loan were UPI’s funds. For the purposesof the moti on to dismiss, we must assume the truth of the commissioner’s allegation that the fundswere, in

fact, UPI’s funds. See Dobbs v. Guenther , 846 S.W.2d 2 70 , 273 (Tenn. Ct. App. 1992) (must take all well-pleaded, material factual allegations as true for purposes of motion to dismiss).

-2- This appeal ar

ises from the liquida

tion of an in solvent cap ti ve insura nce comp any. The Commiss ioner of Commerce and Insurance, acting as the insurance company’s liquidator, filed a petition in the Chancery Court for Davidson

County seeking to avoid an $800,000 transfer made by the insurance company to pay off
an outstanding bank loan. The bank moved to dismiss the commissioner’s petition because t he challenged transfer

occurre d outside of the avoidan ce period in Tenn. Code A n n. § 56-9- 317(a)(2) (B) (1994 ). The trial cour

t granted t

he motion, and the com mission er has appea led. We affirm the trial court’s decision.

I.

In 1989, Unit

ed Physicians Association, Inc. (“United Physicians”) established a captive

insurance

companycalled United Physic ians Insuranc e Risk Retention Group (“ UPI”) to pr o vide medic al malpra ctice insu

rance to i ts members. It satisfied the statutory c apitaliza tion requir

ements by pr

oviding the Departm ent of Comme

rce and Insuranc e with le tt ers of cr edit in the a

mount of $1,000,0 00. Two yea

rs later , United

Physician s borrowe d $1,000,00 0 from the Unit ed Americ an Bank of Memphis an d then deposi ted the money wit h th e departmen t to replace the letters of credit.
United Physician s later re duced the ba lance of i ts United A

merican Bank loan to $800,000. On Dec ember 19, 1991, as pa rt of a reinsurance

transact ion, United Physicians caused $2,945,858 to be paid from the “L. I.O.N . Trust

Account for U.P.I.” to Anchorage F

ire andCasualty Insurance Company (“Anchorage”). 1 On the same d ay, Anc horage use d part of t he funds to r

etire var ious UPI debt s , including the $800,00 0 United American Bank loan. In r et urn for the payment, United Americ an Bank ass igned th e United Phy sicians' n ote to Anch orage.2 When more cur rent fina ncial i nformation became available, UPI filed updated documents with the department showing its insolvency to be $2,264,668. -3- UPI’s 19 91 an nual state ment showe d that it w as insolvent by $764,102. 2 On March 9, 1992, the Commissioner of Comm erce and I nsurance placed UPI unde r ad ministrat

ive supervi sion and dire cted the c ompany to de vise a plan to correct its capita l and surplus impairmentwithin thir ty days. When UPI failed to present an accep table plan, the commissioner filed a petition in the Chancery Courtfor Dav idson County o n April 10, 1992, requesting the appointment of a
rece iver for th e purpose of rehabilitating UPI. On May 1, 1992, the trial court entered a consent o rder plac ing UPI i nto recei vership and appointing t he commissi oner as UPI’s re ceiver for th e purpose of rehabil itation

.
UPI’s financi al condit ion cont inued to deteriorat e. On June 19, 1992, the commissi onerfiled a petition in the trial cour t seeking toliquidate U

PI becau se its financia

l statement

showed tha

t the compa

ny’s insolve ncy had incr eased to app roximatel y $13,400,000. On July 16, 1992, the trial court entered an order appointing the commissioner as UPI’s liquidator.

On J un e 22, 1994, the commi ssioner, acting as U PI’s liqui dator, f

iled a complaint

against United American Bank seek ing to avoid A

nchorage’ s $800,000 payment to the bank as a voidable preference. United American Bank moved

to dismiss the compla

int because

the challenged payme nt didnot occur w ithin four months of the fil ing of the petition for l iquidation as required by Tenn. Code Ann. § 56-9-317(a

)(2)(B) . The tr

ial court granted the

motion and di smissed the commissi oner’s comp laint.

II.
The sole issue on this appea l is whethe r the four -month avoi dance per iod in Tenn. C ode Ann. § 56-9-317(a)(2)(B) should be me asured fr om the date

of the filing of the peti tion for re habilitati on or from

the date of

the filingof the peti tion3 State v. Turner, App. No. 01-S-01-9502-CC-00028, slip op. at 5, 21 T.A.M. 2-2 (Tenn.

Dec. 28, 1995) (Opinion designated "For Publication"). -4- for liquidation. The comm

issioner a sserts that it should be m easured f rom the filing of the peti tion for re habilitati on, if re

habilitati on is sought p rior to liquidation. United American Ba nk argues t hat the sta tute requires the f

our-month avoidance period to be

measure d from the

filing of t

he petition for li quidati on regardless of whether reh abilitat ion was firs t sough t.
A. Our resp onsibilitywhen const ruing a sta

tute is to give the fu llest possibl e effect to th e statute’ s purpos e. Wilson v. Johnson County , 879 S.W .2d 807, 809 (Tenn. 1994); Carso n Creek Vacation R esorts, I

nc. v. State , 865 S.W.2d 1, 2 (Tenn. 1993). In ascertaining a statute’s purpose, we must take c are not to u nduly restrict th e statute’s application or to expand its coverage beyond its intended scope. Storey v. Bradford F urniture Co. (In re Storey), 910 S.W. 2d 857, 859 (Tenn. 1995); Tibbals Fl ooring Co. v. Huddleston , 891 S.W .2d 196, 19 8 (Tenn. 1994); Roseman v. Rose man , 890 S.W .2d 27, 29 ( Tenn. 199 4); State v . Sliger , 846 S.W.2d 2 62, 263 (Ten n. 1993).
The search f

or a statut e’s purpose

begins wit

h the words of the statute itself. Neff v. Chero kee Ins. Co. , 7 04 S .W.2d 1, 3 (Tenn. 1986). W e construe these words u sin g their nat ural and or dinary mean ing. State ex rel. Metro. Gov’t v. Spicewood

Creek W atershed D ist. , 848 S.W.2d 60 , 62 (Tenn. 19 93). W e also construe them in th e context of the enti re statute , McClain v . Henry I. Siege l Co. , 834 S.W.2 d 295, 296 (T enn. 1992) , and in lig ht of the sta tute’s ove rall purposes. State v. Turne r, ___ S.W. 2d ___ , ___ (Tenn. 1995); 3 West Am. Ins. Co. v

. Mon tgomery , 861 S.W. 2d 230, 231 ( Tenn. 199 3); Dorrier v . Dark , 537 S .W.2 d 888, 892 (Tenn. 1976). We may also construe a statute with reference to other related statutes when it is part of a group of s tatutes de aling with a common subject m atter. Lyons v. Rasar , 872 S.W.2d 895, 897 (Tenn. 1994).

An unambiguous statute requires the courts to do nothing more than to enforce the statu te as written

. Middleton v . Alleg heny Elec. Co. , 897 S.W .2d 695,-5-

698 (Tenn. 1995); McClain v . Henry I. Siege l Co. , 834 S.W.2d at 296; Neff

v. Cherokee Ins. Co

. , 704 S.W .2d at 3. If, how ever, a statute is ambiguous or unclear, we may r

esort to the

various ru les of stat

utory constr

uction to as certain its purpose and the scope of its applicat ion. No single r ule of cons truction is prefera ble to the other s, and thus we should b ring all applic able rule s of constructi on to bear in order to a scertain astatute’s meaning an d applica tion. O. H. May Co. v. Ande rson , 1 56 Tenn. 216, 219-20, 300 S.W. 12, 14 (1927); Davenport

v. Chrys ler Credit

Corp. , 818 S.W .2d 23 , 27 (Tenn. Ct. App. 1991).

B.
The Insurers Rehabilit ation and L iquidation A ct, Te nn. Code A nn. §§ 56-9- 101 to -510 (1994 ), vests broad autho rity in the Commissione r of Comm

erce and Insurance to protect

the intere sts of

insureds, claimants, creditors, and the general public. Tenn. C ode Ann. § 56-9-101( d). The Act conta

ins “ a co mprehensi ve scheme for the rehabilit ation and liquida tion of in surance com panies,” Ten n. Cod e Ann. § 56-9 -101(d )(7), a nd promotes the “[e] quitable a pportionme nt of any unavoidable loss[es].” Tenn. Code Ann. § 56-9-101(d)(4).

The Act per

mits the co mmissi oner eit her to rehabilitate or to liquidate an ins u rance company w hen its fina ncial condi tion imper

ils the inte

rests of i ts policyholder s, creditor s, or the public. The commissioner has broad d

iscretion to decidewhether

to rehabil itate or t

o liquidate an insuranc e company and need not attempt to rehabil itate a comp any before s eeking to liquida te it. See Tenn. C ode Ann. § 56-9-306(1) (1994). The commissioner must, however , obta in judicial approval to rehabil itate or to liquida te an insu rance compan y.
If the co urt grants the commissioner’s petition for an orderof liquidat ion, the commissioner becomes the insurance company’s “liquidator” with broad powers to wind up th e busine ss. The comm issioner ta

kes title to all the company’s real and personal pr operty. Tenn. Code Ann. § 56-9-307(a) (1994). In order to m

inimize th e company’ s losses, t he commiss ioner may (1) collect a ll4 Tenn. Code Ann. § 56-9-310(a)(8) (1994).

5 Tenn. Code Ann. § 56-9-310(a)(14).

6 Tenn. Code Ann. § 56-9-310(a)(15).

7 Tenn. Code Ann. §§ 56-9-310(a)(21), -315.

8 Tenn. Code Ann. §§ 56-9-310(a)(21), -317.

9 If a rehabilitation proc eeding preceded the liquidation petition, the transaction must have occurred within oneyear before the filingof the petition for rehabilitation or within two years before the liquidation petition, whichever time is shorter. Tenn. Code Ann. § 56-9-317(a )(1).

10 Tenn. Code Ann. § 56-9-317(a)(2)(A) (transfers made while the company is insolvent); Tenn. Code Ann. § 56-9-31 7(a)(2 )(C) (c reditorswho have

reasona ble caus e to believe that

the company is insolvent or about to become insolvent); Tenn. Code Ann . § 56-9-317(a)(2)(D) (trans fers to office

rs, cer tain employees and

shareho lders, a

nd other p ersons w ith whom th e company did not deal at arm’s length).
-6- debts and mon eys due and c laims belo nging to the c ompany, 4 (2) institute, continue, or abandon l awsuits or other lega

l proceed ings involving the

company, 5 (3) institute appropriate legal proceedi ngs against t he company ’s offic ers, 6 (4) file suit to set aside fraudule nt transfe rs, 7 and (5) f

ile suit to avoid pre ference s. 8 This appeal involves a suit to avoid a preference.

Not all trans actions ar

e within a

liquidator ’s reac h. In orde r to be considered a prefe

rence, the transa

ction must oc cur withi n one year before t he filing of a successf

ul liquidation p etition. 9 Only four types of transactions occurrin g within this period are subjectto avoid ance. Three types of transfers are colored with impr

opriety of

some sort. 10 One type of transa ction, the type of transact ion at issue in this case, is subject t o avoidance

solely bec ause of its proximity tothe commencement of the liquida

tion procee dings.

The specificavoidance

provision at

issue in th is ca se is Tenn . Code Ann. § 56-9-317(a

)(2)(B) which p r ovides that a “prefe rence ma y be avoided

by the liquida tor if . .

. [t]he transfer w as made w ithin four (4) months be fore the filing of the petition.” There is no question that a prefere nce occurrin g within fo ur11 The doctrine of in pari mate ria permits the consideration of all statutes involving the

samesubject matter whenthe mean ing of one

of the sta tutes is am

biguous. Stevens v. Linton, 190 Tenn. 351, 354, 229 S.W.2d 510, 512 (1950).

-7- months before the filing of a petiti on for liqui dationis voidable . The que stion on this appeal is whether a p referent ial tr ansaction entered int o more tha

n four months before t

he filing of a petit

ion for liqu idation is voi dable under Tenn. C ode Ann. § 56-9-31 7(a)(2)(B) if i t is made wi thin f our months before the filing of a petition for reha bilitation. Thus, w e must dete rmine the meaning o f

the phrase “the petit ion” in Ten n. Code Ann. § 56-9-317 (a)(2)(B).
C.

The propermeaning of

"the petit ion" as it a

ppears in T enn. Code

Ann. § 56- 9-317(a)(2)(B) can best be determin ed by conside

ring thephrase in t

hree cont exts. The first cont

ext is the l anguage of

Tenn. C ode Ann. § 56-9-317( a) itself . The second is the broader context of all the relat ed statutes pe rtaining tothe rehabilit ation and li quidation of failin g insurance

companies . The third context consists of the gene

ral purpos es and goals of the Insurers Rehabilit ation and Liquidati on Act.

I N THE C ONTEXT OF T ENN . C ODE A NN . § 56-9-317(a)

The meaning of

ambiguous st atutory w ords and phrases may be illuminated by considering their relationship with associated words and phrases in the same statuteor portion of a statute. See Hammer v. Fran klin Inter urban Co ., 209 Tenn. 399, 403, 354 S.W.2d 241, 242 (1962). The doctrine of noscitur a soc iis permits courts to modify and limit subordinate words and phrases in order to harmonize them with eac h other and with the evident p urpose of

the statu te. Scopes v. State, 154 Tenn. 10 5, 110, 289 S.W. 363, 364 (19 27). It opera tes as a r

ule of constructi on for words, phrases, and sentences in very much the same w ay that the doctrine of in pari mate ria 11 applies to statutes involving the same subject matter. 2A Norman J. Sing er, Statutes and Statutory Con struction § 47.16 (5th ed. 1992).12 A transacti on will ordinarily be considered a preferenc e if it occurs within one year

beforethe filing

of the pe tition for liquidatio n. If, how ever, th e liquid ation proc eeding was preceded by a rehabilitation proceeding, then the transaction must have occurred within one year beforethe filing of the rehabilitation petition or within two years before the liquidation petition, whichever time is shorter. See Tenn. Code Ann. § 56-9-317(a)(1).
-8- The crit eria f

or determ

ining wheth er a tra

nsaction is a prefer

ence and whether the prefer

ence is one

that may be

avoided app ear in T enn. Code Ann. § 56-9-317(a). This subse ction includes six references to liqu idation proc eedings and one refe

rence to r

ehabilita tion proceed ings. The definition of the term “preference” in Tenn. Code Ann. § 56- 9-317(a)( 1) is frame d chiefly i n the conte xt of a liquidati on proceedin g. The sec tion immedi ately foll owing, T enn. Code Ann. § 56-9-31 7(a)(2) , sets out t he four circumstanc es wherein a pref erence “ may be avoided by the liquida

tor.” T he only ref

erence t o a rehabi litation pr

oceeding appears in Tenn. Code Ann. § 56-9-317( a)(1) in the context of definin g the time within which a transaction must occur in order t o be considered a preference. 12

The gener al reference to “the petition” i n Tenn. C ode Ann. § 56-9- 317(a)(2)(B) should be constru ed in ligh t of the ent ire text of Ten n. Code Ann. § 56-9-317(a). From this vantage point, it be comes evident that the commissioner may move to set aside aprefer ence only i n the contex t of a liqui dation proc eeding and that only the “liquid ator” ma y file the petitions a

uthorized i n Tenn. Code Ann. § 56-9-317(a

)(2). T herefor e, the phrase “the p etition” in Tenn. C ode Ann. § 56-9- 317(a)(2) (B) can only refe r to a peti tion for liq

uidation.

I N THE C ONTEXT OF THE I NSURERS R EHABILITATION AND L IQUIDATION A CT
The construct

ion of “the

petition” b ased solel y on Tenn. C ode Ann. § 56-9- 317(a) is confirmed when the phrase is considered in the context of the other relate d s tatutes dealing with the rehabilitation and liquidation of insurance companies

. Thesestatutes c ontain two other ref erences to transac tions occur ring-9-

within four months of thefiling of t he petition

for liquidation. The first appears in Tenn. C ode Ann. § 56-9-317( j) which p ermits the

liquidator

to recove r excess attorney’s fees paid by an in surance c ompany “w ithin four (4) months be fore the filing of a successful petition for liquidation.” The second reference appears in Tenn. Code An n. § 56-9-317(k)(1) which imposes personal liability on an insurance company’s officer s andemployees who enter into a preferential transfer “wit hin f our (4) mo nths before

the date of

filing of t

he success ful petitio n for liquida tion.”

The meaning o f Tenn. Code Ann

. §§ 56-9-31 7(j), - 317(k)(1) are not in doubt. Statutes forming part of the sam

e statutor y scheme s hould be construed in
a way that perm its them t o be appli ed unifor mly. See Coleman v. Ac uf f, 56 9 S.W.2 d 459, 461 (T enn. 197 8); Gal lagher v. Butler, 214 Tenn. 129, 137, 3 78 S.W.2 d 161, 16 4-65 (1964) ; Pritchar d v. Carter Co unty Moto r Co., 197 Tenn. 222, 224, 270 S.W. 2d 642, 643 ( 1954). In order to c onstrue T enn. Code Ann. § 56-9-317(a)(2)(B) consistently with Te nn. Code A nn. §§ 56-9-317(j), -317(k)(1), the ph r ase “the p etition” in Tenn. C ode Ann. § 56-9-317( a)(2)(B ) must be construed t

o refer to a petiti on for liqui dation.

The Act’s provisions r

elating to f

raudulent conveyanc es also demonstrate thatthe le gisl ature unde rstood the di fferenc e between rehabili tation and liquidation

proceedings and that it intentionally drafted Tenn. Code Ann. § 56-9- 317(a)(2)(B) to exclude

petitions for reha

bilitation. Since both

rehabilit ators and liquidators may set aside fraudulent transfers, the definition of “ fr audulent transfer” in Tenn. Code Ann. § 56-9-3 15(a) (1) includ es transf ers made “within
o ne (1) year

prior to the

filing of a

successf ul petition f

or rehabi litation o r liquidation

under this chapter.” In contrast, Ten n. Code Ann. § 56-9-317(a)(1)’s definition of “preference” includes only transactions made “within one (1) ye ar before the filing of asuccessf ul petition

for liquida

tion.” T he General Assem

bly couldhave drafted Tenn. Code Ann. § 56-9-317(a)(2)(B) to include petitions for
r ehabilita tion had it desired to do so, but it chose language that limited th e statute’s reference to peti tions for li quidation.

I N THE C ONTEXT OF THE P URPOSES OFTHE13 Tenn. Code Ann. § 56-9-303(c) (1994) authorizes “suc h action as the re h abilitator deems necessary or appropriate to re form and revitalize the insurer.”

14 Tenn. Code Ann. § 56-9-317(a)(1) defines a pre fere nce as a tra nsaction that has the effect of enabling “the creditor to obtain a greater pe rcentage of [its] debt than another creditor of the same class would receive.”
-10-

I NSURERS R EHABILITATION AND L IQUIDATION A CT Finally, construing “the petition” in Tenn. Code Ann. § 56-9-317(a)(2)(B) to refer o nly to pet itions for l iquidation is consistent with the pu rposes of t

he Insurers Rehabilit ation and L iquidation A ct. The

purpose of rehabi li tating an insurance company is to preser

ve it as an on- going business

. 13 A rehabilitator’s autho rity is strictl y statutory. Tenn. C ode Ann. § 56-9-303( c) vests in a rehabilit ator

“all of the powers of the [insurance compan y’s] dire ctors, of ficers, and manager s,” but doe s not specif ically em power a r

ehabilita tor to avoid preferences. Since officers and employees of on-going insurancecompanies do not have the author

ity to avoid pr

eferenc es, reha

bilitators likewise

do not have this authority.

Not authorizi ng the comm

issioner toavoi d preferences is entirely cons istent withthe rehab ilitator’ s role of pr eserving t he on-going bu sine ss. A preferential transact ion is one that circumvents the stat utory prior

ity provision s thereby permittin g a creditor to obtain more than its fair share of an insurance company’s estateupon dissoluti on. 14 Since cr editors of an on-going i nsurance company have
no claims against the insurance company’s “estate,” rehabil itators ne ed not
concern themselve s with pre ference s or with the priori ty of cre ditors’ cl aims. In the absence o f priorit

y concerns , prefer

ential tr ansfers, by their

very natur

e, have no releva nce in a r ehabilita tion procee ding.
The Insurers Reha

b ilitation a

nd Liquidat

ion Act doe s not permi t the commissionerto act sim

ultaneous ly as a rehabilitator and liquidator. The entry of an order t

o liquidate pursuant to Tenn. Code Ann. § 56- 9-307 brings the rehabilit ation proceeding to an end and vests in the commissioner the expanded authorityof

a liquidator. The complexion of the proceeding changes from one o f preserva tion to one of dissolution. Its two-fold goals are t o wind up the15 See Tenn. Code Ann. § 56-9-101(d)(4).
-11- company’s business and to disburse its rem a ining assets in accord ance wit h the statutory pr

ocedures and priori ties.

The first sta

tutory ment

ion of the po wer to avoid preferences appears i n the delineati on of a liquidator’s duties in Tenn. Code Ann. § 56 -9-310(a) (21). It is only in the contextof

a liquidation proceeding that the avoidance of preferences makes sense. The commissioner is empowered to avoid preferences only to assure thatany losses r

emaining a

fter the dissolution o f th e insurance company are apportioned equitably. 15 Avoiding pr eferenc es accom

plishes this p urpose by enabling the liquida

tor to prevent c reditors f

rom avoidin g their fa

ir share of losses.

III.

We hold that the ph rase “the petition” i n Tenn. C ode Ann. § 56-9- 317(a)(2)(B) refers only to petit ions for liq

uidation. Con sequently for a preference to be voidabl e under this s ection, it must have been made

within fou

r months before t

he filing of

the petitio n for liqui dation. The tra nsfer of $800,000 to United American Bank on December 19, 1991, is not a voidable prefer en ce under Te nn. Code A

nn. § 56-9- 317(a)(2) (B) beca use thepetition fo r liquidati on was not filed until June 19, 1992, more than seven months late r. Thus , we affirm the dismissal o f

the commi ssioner’s petition to a void this transf

er and remand the
case to the trial cour

t for wha tever fur ther proc eedings ma

y be requir

ed. We also tax the costs of this appeal to the Commissioner of Commerce and Insurance.

________ __________

_______________

_ WILLIAM C. KOCH, JR., JUDGE

CONCUR:

_________________

_________________ SAMUEL L. LEWIS, JUDGE_________________ _________________ BEN H. CANTRELL, JUDGE