F ILED

F e b ru a ry 7, 1996

C e c il W . C ro w s o n

A p p e lla t e Co u rt

C le rk

IN THE COURT OF APPEALS OF TENNESSEE

MIDDLE SECTION AT NASHVILLE

UNITED PHYSICIANS INSURANCE )

RISK RETENTION GROUP, by and )

through DOUGLAS M. SIZEMORE, )

Commissioner of Commerce and Insurance )

for the State of Tennessee and Liquidator )

for United Physicians Risk Retention Group, )

)

Plaintiff/Appellant, ) Davidson Chancery

) No. 94-1889-III

VS. )

) Appeal No.

UNITED AMERICAN BANK OF ) 01-A-01-9503-CH-00096

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

Weed, Hubbard, Berry & Doughty Farris, Mathews, Gilman, Branan & Hellen

Nashville, Tennessee Memphis, Tennessee

John Knox Walkup

Gullett, Sanford, Robinson & Martin

Nashville, Tennessee

AFFIRMED AND REMANDED

WILLIAM C. KOCH, JR., JUDGE

O P I N I O N
1United 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 purposes of the motion to

dismiss, we must assume the truth of the commissioner’s allegation that the funds were, in fact,

UPI’s funds. See Dobbs v. Guenther, 846 S.W.2d 270, 273 (Tenn. Ct. App. 1992) (must take

all well-pleaded, material factual allegations as true for purposes of motion to dismiss). 

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This appeal arises from the liquidation of an insolvent captive insurance

company. TheCommissioner 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 the challenged transfer occurred outside of the avoidance period

in Tenn. Code Ann. § 56-9-317(a)(2)(B) (1994). The trial court granted the

motion, and the commissioner has appealed. We affirm the trial court’s decision.

I.

In 1989, United Physicians Association, Inc. (“United Physicians”)

established a captive insurance company called United Physicians Insurance Risk

Retention Group (“UPI”) to provide medical malpractice insurance to its

members. It satisfied the statutory capitalization requirements by providing the

Department of Commerce and Insurance with letters of credit in the amount of

$1,000,000. Two years later, United Physicians borrowed $1,000,000 from the

United American Bank of Memphis and then deposited the money with the

department to replace the letters of credit. 

United Physicians later reduced the balance of its United American Bank

loan to $800,000. On December 19, 1991, as part of a reinsurance transaction,

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

for U.P.I.” to Anchorage Fire and Casualty Insurance Company (“Anchorage”).1

On the same day, Anchorage used part of the funds to retire various UPI debts,

including the $800,000 United American Bank loan. In return for the payment,

United American Bank assigned the United Physicians' note to Anchorage. 
2When more current financial information became available, UPI filed updated

documents with the department showing its insolvency to be $2,264,668.

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UPI’s 1991 annual statement showed that it was insolvent by $764,102.2

On March 9, 1992, the Commissioner of Commerce and Insurance placed UPI

under administrative supervision and directed the company to devise a plan to

correct its capital and surplus impairment within thirty days. When UPI failed to

present an acceptable plan, the commissioner filed a petition in the Chancery

Court for Davidson County on April 10, 1992, requesting the appointment of a

receiver for the purpose of rehabilitating UPI. On May 1, 1992, the trial court

entered a consent order placing UPI into receivership and appointing the

commissioner as UPI’s receiver for the purpose of rehabilitation. 

UPI’s financial condition continued to deteriorate. On June 19, 1992, the

commissioner filed a petition in the trial court seeking to liquidate UPI because

its financial statement showed that the company’s insolvency had increased to

approximately $13,400,000. On July 16, 1992, the trial court entered an order

appointing the commissioner as UPI’s liquidator.

On June 22, 1994, the commissioner, acting as UPI’s liquidator, filed a

complaint against United American Bank seeking to avoid Anchorage’s $800,000

payment to the bank as a voidable preference. United American Bank moved to

dismiss the complaint because the challenged payment did not occur within four

months of the filing of the petition for liquidation as required by Tenn. Code Ann.

§ 56-9-317(a)(2)(B). The trial court granted the motion and dismissed the

commissioner’s complaint. 

II.

The sole issue on this appeal is whether the four-month avoidance period

in Tenn. Code Ann. § 56-9-317(a)(2)(B) should be measured from the date of the

filing of the petition for rehabilitation or from the date of the filing of the petition
3

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").

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for liquidation. The commissioner asserts that it should be measured from the

filing of the petition for rehabilitation, if rehabilitation is sought prior to

liquidation. United AmericanBank argues that the statute requires the four-month

avoidance period to be measured from the filing of the petition for liquidation

regardless of whether rehabilitation was first sought. 

A.

Our responsibility when construing a statute is to give the fullest possible

effect to the statute’s purpose. Wilson v. Johnson County, 879 S.W.2d 807, 809

(Tenn. 1994); Carson Creek Vacation Resorts, Inc. v. State, 865 S.W.2d 1, 2

(Tenn. 1993). In ascertaining a statute’s purpose, we must take care not to unduly

restrict the statute’s application or to expand its coverage beyond its intended

scope. Storey v. Bradford Furniture Co. (In re Storey), 910 S.W.2d 857, 859

(Tenn. 1995); Tibbals Flooring Co. v. Huddleston, 891 S.W.2d 196, 198 (Tenn.

1994); Roseman v. Roseman, 890 S.W.2d 27, 29 (Tenn. 1994); State v. Sliger,

846 S.W.2d 262, 263 (Tenn. 1993). 

The search for a statute’s purpose begins with the words of the statute itself.

Neff v. Cherokee Ins. Co., 704 S.W.2d 1, 3 (Tenn. 1986). We construe these

words using their natural and ordinary meaning. State ex rel. Metro. Gov’t v.

Spicewood Creek Watershed Dist., 848 S.W.2d 60, 62 (Tenn. 1993). We also

construe them in the context of the entire statute, McClain v. Henry I. Siegel Co.,

834 S.W.2d 295, 296 (Tenn. 1992), and in light of the statute’s overall purposes.

State v. Turner, ___ S.W.2d ___, ___ (Tenn. 1995);3 West Am. Ins. Co. v.

Montgomery, 861 S.W.2d 230, 231 (Tenn. 1993); Dorrier v. Dark, 537 S.W.2d

888, 892 (Tenn. 1976). We may also construe a statute with reference to other

related statutes when it is part of a group of statutes dealing with a common

subject matter. 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 statute as written. Middleton v. Allegheny Elec. Co., 897 S.W.2d 695,
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698 (Tenn. 1995); McClain v. Henry I. Siegel Co., 834 S.W.2d at 296; Neff v.

Cherokee Ins. Co., 704 S.W.2d at 3. If, however, a statute is ambiguous or

unclear, we may resort to the various rules of statutory construction to ascertain

its purpose and the scope of its application. No single rule of construction is

preferable to the others, and thus we should bring all applicable rules of

construction to bear in order to ascertain a statute’s meaning and application. O.

H. May Co. v. Anderson, 156 Tenn. 216, 219-20, 300 S.W. 12, 14 (1927);

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

B.

The Insurers Rehabilitation and Liquidation Act, Tenn. Code Ann. §§ 56-9-

101 to -510 (1994), vests broad authority in the Commissioner of Commerce and

Insurance to protect the interests of insureds, claimants, creditors, and the general

public. Tenn. Code Ann. § 56-9-101(d). The Act contains “a comprehensive

scheme forthe rehabilitation and liquidation of insurance companies,” Tenn. Code

Ann. § 56-9-101(d)(7), and promotes the “[e]quitable apportionment of any

unavoidable loss[es].” Tenn. Code Ann. § 56-9-101(d)(4).

The Act permits the commissioner either to rehabilitate or to liquidate an

insurance company when its financial condition imperils the interests of its

policyholders, creditors, or the public. The commissioner has broad discretion to

decide whether to rehabilitate or to liquidate an insurance company and need not

attempt to rehabilitate a company before seeking to liquidate it. See Tenn. Code

Ann. § 56-9-306(1) (1994). The commissioner must, however, obtain judicial

approval to rehabilitate or to liquidate an insurance company. 

If the court grants the commissioner’s petition for an order of liquidation,

the commissioner becomes the insurance company’s “liquidator” with broad

powers to wind up the business. The commissioner takes title to all the

company’s real and personal property. Tenn. Code Ann. § 56-9-307(a) (1994).

In order to minimize the company’s losses, the commissioner may (1) collect all
4Tenn. Code Ann. § 56-9-310(a)(8) (1994).

5Tenn. Code Ann. § 56-9-310(a)(14).

6Tenn. Code Ann. § 56-9-310(a)(15).

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

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

9

If a rehabilitation proceeding precededthe liquidation petition, the transaction must have

occurred within one year before the filing of the petition for rehabilitation or within two years

before the liquidation petition, whichever time is shorter. Tenn. Code Ann. § 56-9-317(a)(1).

10Tenn. Code Ann. § 56-9-317(a)(2)(A) (transfers made while the company is insolvent);

Tenn. Code Ann. § 56-9-317(a)(2)(C) (creditors who have reasonable cause to believe that the

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

(transfers to officers, certain employees and shareholders, and other persons with whom the

company did not deal at arm’s length).

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debts and moneys due and claims belonging to the company,4

 (2) institute,

continue, or abandon lawsuits or other legal proceedings involving the company,5

(3) institute appropriate legal proceedings against the company’s officers,6

 (4) file

suit to set aside fraudulent transfers,7

 and (5) file suit to avoid preferences.8

 This

appeal involves a suit to avoid a preference.

Not all transactions are within a liquidator’s reach. In order to be

considered a preference, the transaction must occur within one year before the

filing of a successful liquidation petition.9 Only four types of transactions

occurring within this period are subject to avoidance. Three types of transfers are

colored with impropriety of some sort.10 One type of transaction, the type of

transaction at issue in this case, is subject to avoidance solely because of its

proximity to the commencement of the liquidation proceedings.

The specific avoidance provision at issue in this case is Tenn. Code Ann.

§ 56-9-317(a)(2)(B) which provides that a “preference may be avoided by the

liquidator if . . . [t]he transfer was made within four (4) months before the filing

of the petition.” There is no question that a preference occurring within four
11The doctrine of in pari materia permits the consideration of all statutes involving the

same subject matter when the meaning of one of the statutes is ambiguous. Stevens v. Linton,

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

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months before the filing of a petition for liquidation is voidable. The question on

this appeal is whether a preferential transaction entered into more than four

months before the filing of a petition for liquidation is voidable under Tenn. Code

Ann. § 56-9-317(a)(2)(B) if it is made within four months before the filing of a

petition for rehabilitation. Thus, we must determine the meaning of the phrase

“the petition” in Tenn. Code Ann. § 56-9-317(a)(2)(B). 

C.

The proper meaning of "the petition" as it appears in Tenn. Code Ann. § 56-

9-317(a)(2)(B) can best be determined by considering the phrase in three contexts.

The first context is the language of Tenn. Code Ann. § 56-9-317(a) itself. The

second is the broader context of all the related statutes pertaining to the

rehabilitation and liquidation of failing insurance companies. The third context

consists of the general purposes and goals of the Insurers Rehabilitation and

Liquidation Act.

IN THE CONTEXT OF TENN. CODE ANN. § 56-9-317(a)

The meaning of ambiguous statutory words and phrases may be illuminated

by considering their relationship with associated words and phrases in the same

statute or portion of a statute. See Hammer v. Franklin Interurban Co., 209 Tenn.

399, 403, 354 S.W.2d 241, 242 (1962). The doctrine of noscitur a sociis permits

courts to modify and limit subordinate words and phrases in order to harmonize

them with each other and with the evident purpose of the statute. Scopes v. State,

154 Tenn. 105, 110, 289 S.W. 363, 364 (1927). It operates as a rule of

construction for words, phrases, and sentences in very much the same way that the

doctrine of in pari materia11 applies to statutes involving the same subject matter.

2A Norman J. Singer, Statutes and Statutory Construction § 47.16 (5th ed. 1992).
12A transaction will ordinarily be considered a preference if it occurs within one year

before the filing of the petition for liquidation. If, however, the liquidation proceeding was

preceded by a rehabilitation proceeding, then the transaction must have occurred within one year

before the 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).

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The criteria for determining whether a transaction is a preference and

whether the preference is one that may be avoided appear in Tenn. Code Ann. §

56-9-317(a). This subsection includes six references to liquidation proceedings

and one reference to rehabilitation proceedings. The definition of the term

“preference” in Tenn. Code Ann. § 56-9-317(a)(1) is framed chiefly in the context

of a liquidation proceeding. The section immediately following, Tenn. Code Ann.

§ 56-9-317(a)(2), sets out the four circumstances wherein a preference “may be

avoided by the liquidator.” The only reference to a rehabilitation proceeding

appears in Tenn. Code Ann. § 56-9-317(a)(1) in the context of defining the time

within which a transaction must occur in order to be considered a preference.12

The general reference to “the petition” in Tenn. Code Ann. § 56-9-

317(a)(2)(B) should be construed in light of the entire text of Tenn. Code Ann. §

56-9-317(a). From this vantage point, it becomes evident that the commissioner

may move to set aside a preference only in the context of a liquidation proceeding

and that only the “liquidator” may file the petitions authorized in Tenn. Code Ann.

§ 56-9-317(a)(2). Therefore, the phrase “the petition” in Tenn. Code Ann. § 56-9-

317(a)(2)(B) can only refer to a petition for liquidation.

IN THE CONTEXT OF THE 

INSURERS REHABILITATION AND LIQUIDATION ACT

The construction of “the petition” based solely on Tenn. Code Ann. § 56-9-

317(a) is confirmed when the phrase is considered in the context of the other

related statutes dealing with the rehabilitation and liquidation of insurance

companies. These statutes contain two other references to transactions occurring
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within four months of the filing of the petition for liquidation. The first appears

in Tenn. Code Ann. § 56-9-317(j) which permits the liquidator to recover excess

attorney’s fees paid by an insurance company “within four (4) months before the

filing of a successful petition for liquidation.” The second reference appears in

Tenn. Code Ann. § 56-9-317(k)(1) which imposes personal liability on an

insurance company’s officers and employees who enter into a preferential transfer

“within four (4) months before the date of filing of the successful petition for

liquidation.”

The meaning of Tenn. Code Ann. §§ 56-9-317(j), -317(k)(1) are not in

doubt. Statutes forming part of the same statutory scheme should be construed in

a way that permits them to be applied uniformly. See Coleman v. Acuff, 569

S.W.2d 459, 461 (Tenn. 1978); Gallagher v. Butler, 214 Tenn. 129, 137, 378

S.W.2d 161, 164-65 (1964); Pritchard v. Carter County Motor Co., 197 Tenn.

222, 224, 270 S.W.2d 642, 643 (1954). In order to construe Tenn. Code Ann. §

56-9-317(a)(2)(B) consistently with Tenn. Code Ann. §§ 56-9-317(j), -317(k)(1),

the phrase “the petition” in Tenn. Code Ann. § 56-9-317(a)(2)(B) must be

construed to refer to a petition for liquidation.

The Act’s provisions relating to fraudulent conveyances also demonstrate

that the legislature understood the difference between rehabilitation and

liquidation proceedings and that it intentionally drafted Tenn. Code Ann. § 56-9-

317(a)(2)(B) to exclude petitions for rehabilitation. Since both rehabilitators and

liquidators may set aside fraudulent transfers, the definition of “fraudulent

transfer” in Tenn. Code Ann. § 56-9-315(a)(1) includes transfers made “within

one (1) year prior to the filing of a successful petition for rehabilitation or

liquidation under this chapter.” In contrast, Tenn. Code Ann. § 56-9-317(a)(1)’s

definition of “preference” includes only transactions made “within one (1) year

before the filing of a successful petition for liquidation.” The General Assembly

could have drafted Tenn. Code Ann. § 56-9-317(a)(2)(B) to include petitions for

rehabilitation had it desired to do so, but it chose language that limited the

statute’s reference to petitions for liquidation.

IN THE CONTEXT OF THE PURPOSES OF THE
13Tenn. Code Ann. § 56-9-303(c) (1994) authorizes “such action as the rehabilitator

deems necessary or appropriate to reform and revitalize the insurer.”

14Tenn. Code Ann. § 56-9-317(a)(1) defines a preference as a transaction that has the

effect of enabling “the creditor to obtain a greater percentage of [its] debt than another creditor

of the same class would receive.”

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INSURERS REHABILITATION AND LIQUIDATION ACT

Finally, construing “the petition” in Tenn. Code Ann. § 56-9-317(a)(2)(B)

to refer only to petitions for liquidation is consistent with the purposes of the

Insurers Rehabilitation and Liquidation Act. The purpose of rehabilitating an

insurance company is to preserve it as an on-going business.

13 A rehabilitator’s

authority is strictly statutory. Tenn. Code Ann. § 56-9-303(c) vests in a

rehabilitator “all of the powers of the [insurance company’s] directors, officers,

and managers,” but does not specifically empower a rehabilitator to avoid

preferences. Since officers and employees of on-going insurance companies do

not have the authority to avoid preferences, rehabilitators likewise do not have this

authority.

Not authorizing the commissioner to avoid preferencesis entirelyconsistent

with the rehabilitator’s role of preserving the on-going business. A preferential

transaction is one that circumvents the statutory priority provisions thereby

permitting a creditor to obtain more than its fair share of an insurance company’s

estate upon dissolution.14 Since creditors of an on-going insurance company have

no claims against the insurance company’s “estate,” rehabilitators need not

concern themselves with preferences or with the priority of creditors’ claims. In

the absence of priority concerns, preferential transfers, by their very nature, have

no relevance in a rehabilitation proceeding.

The Insurers Rehabilitation and Liquidation Act does not permit the

commissioner to act simultaneously as a rehabilitator and liquidator. The entry

of an order to liquidate pursuant to Tenn. Code Ann. § 56-9-307 brings the

rehabilitation proceeding to an end and vests in the commissioner the expanded

authority of a liquidator. The complexion of the proceeding changes from one of

preservation to one of dissolution. Its two-fold goals are to wind up the
15See Tenn. Code Ann. § 56-9-101(d)(4).

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company’s business and to disburse its remaining assets in accordance with the

statutory procedures and priorities.

The first statutory mention of the power to avoid preferences appears in the

delineation of a liquidator’s duties in Tenn. Code Ann. § 56-9-310(a)(21). It is

only in the context of a liquidation proceeding that the avoidance of preferences

makes sense. The commissioner is empowered to avoid preferences only to assure

that any losses remaining after the dissolution of the insurance company are

apportioned equitably.15 Avoiding preferences accomplishes this purpose by

enabling the liquidator to prevent creditors from avoiding their fair share of losses.

III.

We hold that the phrase “the petition” in Tenn. Code Ann. § 56-9-

317(a)(2)(B) refers only to petitions for liquidation. Consequently for a

preference to be voidable under this section, it must have been made within four

months before the filing of the petition for liquidation. The transfer of $800,000

to United American Bank on December 19, 1991, is not a voidable preference

under Tenn. Code Ann. § 56-9-317(a)(2)(B) because the petition for liquidation

was not filed until June 19, 1992, more than seven months later. Thus, we affirm

the dismissal of the commissioner’s petition to avoid this transfer and remand the

case to the trial court for whatever further proceedings may be required. 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