### IN THE COURT OF APP EALS OF TENNESS EE AT NAS HVILLE A ugus t 16 , 200 5 S es sio n LI PMAN BROTHE RS, INC. v. ARET E AGENCI ES, I NC. Direc t Appeal from the Chancer y Court for Davidson Cou nty No. 99-1557-II Car ol McCoy, C hancellor

No. M2004- 02073-COA-R 3-CV- F iled Dece m ber 7, 2005

Plaintiff L ipman Br others, Inc. purc hased 1,156 c ases of Fr ench w in e an d h i re d I talia Di Na vig a zion e , S. p. A. (“ I ta lia ” ) t o ship the wi ne to the Un ite d Stat e s fr om Franc e . Ita lia su bs e qu e ntl y hir e d D e fe nd a nt A re te Ag e nc ie s, I nc . ( “ Are te ” ) t o tr a ns po rt the wi ne to P la int if

f’ s N a sh vil le war ehouses. Ar ete plac ed the wine on a tra in bound for Na shville but, after r eac hing its destination, the wine wa s never

delivere d to Plaintiff and ultimately spoiled afte r sitti ng outside in the summer heat for thirty -six day s. Are te’s insurance provider, The Hartford Insuranc e Company (“H artfor d”), denied covera g e for

the incident. Plaintiff later obtained a judg ment ag ainst Arete and, af ter lea rning that Are te was una

ble to pay , issued a writ of g arnishment ag ainst Hartfo rd

. The trial c ourt su bsequ entl y

qu a sh e d Pl a int if

f’ s w ri t a ft e r c on c lud ing that th e de bt w a s “ c on tin g e nt” be c aus e Plaintiff failed to first institute a dec l ar at o ry judgme nt action to interpre t the disputed insurance contra ct bef

ore se eking g arnishment. We re verse . Te nn. R . A pp. P . 3 App e al a s o f Rig ht ; J udgm e nt of t he Cha nc e r y C our t R e ve r se d; and Rem anded D AVI D R. F ARMER , J. , d e li v e r e d th e o p in io n o f th e c o u r t, in w h ic h W. F RAN K C RAW FORD , P.J ., W.S ., and W I L L I AM H. INMAN , S P . J ., joined. Eug ene N . Bulso, Jr. a nd Ba rbar a Hawle y Smit h, Nashville, Tenne ssee, f or the a ppellant, Lipman Br others, Inc. Thomas I . Carlton , J r. an d Be n M. Rose, Nashville, Tenne ssee, f or the a ppellee, T he Ha

rtford In s u r a n c e C o m p a n y. OP IN ION Fac tua l Ba c kg

ro und a nd P

ro c e dur al H ist or y This case arises f

rom the spoiling of

1,156 case s of wine. Lipman Br others, Inc. (“Plaintiff” ) is a wine distributor ba sed in Nashville, Te nnessee . On April 30, 1998, Plaintiff-2-

contra cted with Italia Di Navig azione, S.p.A. (“Italia”) to ship 1,156 cases of w ine from L es Vins Ge or g e s D ub oe uf

in L a -C ha

pp e lle -D e Gu inc hay , Franc e , to L ipm a n’ s w are ho us e loc a te d in Nashville, Tenne ssee. Italia shipped the wine overse as fr om France to Sava nnah, Ge org ia, and su bc on tr a c te d w ithAr e te Ag e nc ie s, I nc . ( “ Ar e te ” ) t o tr a ns po rt the wi ne fr om S a va nn ah to Plaintiff’s Nashville wa

rehouse s. On J une 5, 1998, Ar ete plac ed the wine on a railroad ca r for immediate transport to Nashville. The wine a rrived in Na shville on J une 8, 1998, but Plaintiff did not rece ive it until J uly 15, 1998. During this thi rty -six day period, the w ine re mained ou tsi de in the raily ardun pr ote c te d f ro m th e su mme r h e a t a nde le me nts . A s a re su lt o f this e xpos ur e , th e wi ne sp oil e d. Pla int if f s ub se qu e ntl y

fi le d s uit a g a ins t A re te on June 2, 19 99 , to rec over damag es re sulting fr om the spoiling of the w ine. At all times releva nt to this matter, Ar ete ha d insurance cover ag e under a commer cial g e ne ra l li abil ity

po lic y iss ue d b y Th e Ha rt fo rdIns ur a nc e Compa ny (“ Ha rt fo rd ” ). Ar e te submitt ed a c laim to Hartfor d for Plaintiff’s loss and a sked Ha rtford to de fend and indemnify Ar e te wi th r e sp e c t to Pla int if f’ s c omp la int . H ow e ve r, Ha rt fo rdde nie d c ov e ra g e fo r A re te ’s c la im on J uly 15, 1999, due to a “ car e, custody , or control” exclusion i n the policy . Specifica lly , in a letter to Are te, Hartford stated: Th e Ha rt fo rdI ns ur a nc e Compa ny iss ue d Po lic y

No . 2 2 SB A E K7 13 0 to Ar e te Transportation with a policy period fr om 1/27/98 through 1/27/99. The limits of liabilityare $1M per oc curr ence for a ll bodilyinjury or prope rty

damag e. The pertinent c overa g e form is the SS 00 08 0698, the B usiness L iabilityendorse ment. Th is f orm in dic a te s u nd e r the ins uring a g re e me nt that w e wi ll p a y a ll the su ms that th e ins ur e d b e c ome s le g a lly ob lig a te d to pay

a s d a ma g e s b e c aus e of

bo dil y inj ury , p ro pe rty

da ma g e , p e rs on a l in

jury or a dv e rt isi ng inj ury

to w hic h th is insurance applies. A re view of the exclusions i n this form indicate unde r Exc lus ionK. 4 th a t th is p oli c y wo uldno t app ly

to p ro pe rty

da ma g e s to pr op e rty

in car e, custody

or control of

the insured. Since [Plaintiff’s] C omplaint indicates that th e pr op e rty

da ma g e oc c ur

re d w hil e in the c are a ndc on tr ol o f A re te , w e mus t respe ctfully

disclaim cover ag e for

this loss based on this exclusion. Af te r H art fo rdre fu se d to de fe ndthe c a se , A re te fi le d a n a ns we r t o Pl a int if f’ s c omp la int . A re te subsequently

dissolved on Dece mber 14, 1999. On A pril 28, 2000, the court g rante d judgme nt for Plaintiff ag ainst Arete in the amount $52,032.28. Du e t o Ar et e’ s i n ab i l i t y

t o p ayt h e c o u rt ’s j u d gm en t , P l ai n t i ff ex ec u t ed a n o n -w age g arnishment ag ainst Hartf ord see king pay ment of the $52,032.28 a war d. Hartford re sponded by arg uing that the insurance policy did not provide cove rag e for the alleg ations made in Plaintiff’s orig ina l c omp la int

or fo r the da ma g e s c la ime d th e re in. Ha rt fo rdsu bs e qu e ntl y

fi le d a Mo tio n to Quash Plaintiff’s Writ of Execution and Garnishment asserting , among other thing s, that any obligation owed by

Hartford wa s conting ent and thus not subject to g arnishment. In support of this arg ument, Hartford cited the Tenne ssee Supre me Court’s dec ision in Ove rman v. Ov erman , 570 S.W .2d 857 (Tenn. 1978) for the pr oposition t hat “[w]hil e oblig ations that are certain,-3-

althoug h not presently

due, ar e subjec t to ga

rnishment under Te nnessee law, oblig ations that are conting ent, in that they

may never become due[,] arenot.” Hartford ar g ued that since Plaintiff had not first soug ht a dec laratory judgme nt action interpre ting the insurance c ontrac t, any amount potentially

due under

the contra ct was c ontinge nt. Plainti ff f iled a Motion for Conditional J udg ment on J une 25, 2004. The trial court g rante d Hartford’s Motion to Quash fr om the Be nch on July 23 , 2 00 4. I n s o r

uli ng , th e tr ia l ju dg e ma de the fo llo wi ng fi nd ing s: Th e statut e un de r w hic h [Plaint if f] h a s is su e d a

g arn ish me nt a g a ins t [Hartford] is [ Tenn. Code Ann. §] 26-2-202. . . .

. . . . . . . The statute that I ref

ere nced say s that all property , debts[,] and ef fec ts of the de fe nd a nt i n th e po sse ssi on or un de r the c on tr ol o f the g arn ish e e sh a ll b e lia ble to satisfy the plaintiff’s judg ment from the service of the notice or from the time they came into the plaintiff’s hands if acquir ed subsequent to the service of the notice and be fo re jud g me nt. The little note s ci t e the c ases that ha ve bee n ref ere nced he re. [ Ove rman ]. They make a distinction between prope rty that’s subject to the g arnishment. . . .

. . . . Th e qu e sti on is w he the r o r n ot H artfo rdha s p ro pe rty that is su bje c t to g arnishment so as to satisfy [P laintiff’s] judgme nt. [Hartford has] come f orwa rd and said, [“] We have no ob l i gat i o n t o pay the judg ment beca

use the c ontrac t has an e xclu sio n, a ndthe pr ov isi on of the e xclu sio n ap pe ars in a fo rm c a lle d th e “ B us ine ss L iabilityCoverag e F orm.”

. . . . [Garnishment applies] to insurance companies w hen it’s clea r that they have an oblig ation to pay . . . . [Hartford de nies] any obligation or an y l i abil ity to Arete

. I ha ve loo ke d at th e c on tr a c t.

. . . . Th e bu rd e n o n th e ins ur a nc e c omp a ny to sh ow that the y ha ve no lia bil ity to A r e t e b y c a s e l a w i s a h e a v y b u r d e n . T o c o m e o u t f r o m u n d e r a n i n s u r a n c e p o l i c y, that’s g ener ally

a hea vy burden. That’s not the same bu rd en that exists i n denying obligations under a g arnishment. It’s a diffe rent burde n.-4- Th a t do e sn ’t

me a n th a t Lipm a n c a nn ot pur su e Ha rt fo rd . B ut i t ha s to be in a more proper

form. . . . I

think that the issue will re all y focus on what was Hartford’s oblig ation under the contra ct that they had with Are te, that Lipman steps into the shoes of Are te for the purposes of c onstruing this contra ct as the judg ment cre ditor. Hartford denie d that it had liabilitywhen a demand wa s made e arly

on. . . . And the g arnishment statute[,] as I const rue it[,] was not to attac h an ins ur a nc e po lic y . It w a s to a tta c h p ro pe rty , d e bts [,] a nde ff e c ts o f the de fendan t in the possession or under

the control of the g arnishee . Right now, ther e is no showing that Hartford has any

property , debts[,] or aff

ects of the def

endant in its possession or un de r i ts c on tr ol. That’s what we’r e looking at. And while, [Plainti ff a rg ues] t h at t h ere ’s an obligation, the chose in ac tion must be one that the Court can r ec o gn i z e as constit u t i n g p ro p er t y . And that is not what we ha ve her e. We have a denia l of c ov e ra g e . An d that’ s wh a t make s it c on tin g e nt. I c a n’ t do that in the se pr oc e e din g s. Plaintiff subsequently

filed a Motion to Reconsider which the tria l court denie d. The trial c ourt e nte re d a fi na l w ri tte n o rd e r q ua sh ing Pla int if f’ s Wr it o f E xec uti on a ndGa rn ish me nt o n A ug us t 20, 2004. Plaintiff appea led. Issues Presented We find the issue in this case to be w hether the trial court erre d in quashing Plaintiff’s Writ of Garnishment. For the re asons stated be low, we r ever se.

Stan dard of Revie w Th e iss ue s p re se nte d inthi s a pp e a l are iss ue s o f l a w. Th e stand ardof re vie w f or thi s Cou rt on iss ue s o f l a w i s de novo , with no presumption of corr ectne ss affor ded to the conc lusions of the c ourt below. Bo wde n v . W ar d , 27 S.W .3d 913, 916 (Tenn. 2000) ; Tenn R. App. P. 13(d) (2005). Anal y sis I n th is c a se , Pl a int if

f f ile d a Wri t of Ga rn ish me nt a g a ins t pr oc e e ds a lle g e dly ow e d to judgme nt debtor Are te under a policy issued by Are te’s insurer , Hartford. Ha rtford de nied cover ag e. The trial court subseque ntly quashed Plaintiff’s w rit after finding that any

debt owed by Hartford to Are te was c ontinge nt since a le g al dispute exist ed as to whe ther the insurance c on tr a c t pr ov ide d c ov e ra g e . T he tr ia l c ou rt fu rthe r re fu se d to a dd re ss the dis pu te be c aus e itA s we d i scus s b el o w, a de ni al of i nsur ance co verage b y a garni shee i nsur ance co m p any al o ne d o es not m ake 1

a lleg e d d e b t co n ting e n t f o r th e p u rp o se s o f ga rn ish m e n t. -5- conclude d that it was improper f or a c ourt to interpre t a disputed insuranc e contr act in a g arn ish me nt p ro c e e din g . We dis a g re e wi th b othho ldi ng s. This Court has previously define d a g arnishment as “ an attac hment of a de bt due the judgme nt debtor fr om the g arnishee .” Sm ith v . S mi th , 165 S.W .3d 285, 293 (Tenn. Ct. App. 2004) (c itations omi tted). “[S] ervic e of the g arnishment upon the g arnishee is a warning to the g arnishee not to pay

the debt but to answe r the g arnishment and hold the f und subject to the order s of the [c]ourt.” Id. Tenne ssee law allows for g arnishment of pr ocee ds from commer cial g ener al liabilityinsurance policies when “ a def endant ha s actua lly

suffe red the damag es of the kind contemplated by

the contra ct.” Gray v . Houck , 68 S.W .2d 117, 118 (Tenn. 1930)

. Howeve r, “Te nn. Code Ann. § 29-7- 112 (2002) pr ovides that a fina l ga rnishment judgme nt may be ente red a g ainst a g arnishee only wher e ‘it appe ars that the g arnishee is indebted to the [principal judgment de btor] defenda nt.’ ” Te nn . I nd us . M ac h. Co. v . A c c ur ide Cor

p ., 139 S.W .3d 290, 294 (Tenn. Ct. App. 2004). Such inde btedness must be ac tual and veste d, not c on tin g e nt u po n s ome fu tur e a c tio n o r e ve nt. Ove rman v. Ov erman , 570 S.W .2d 857, 858 1 (Tenn. 1978)

. When a debt is disputed in a g arnishment ac tion, [i ]t falls upon the trial c ourt . . . to determine the indebtedness of the g arnishee befor e ente ring judgme nt. Me ad ows v . M e ad ows , N o . 8 8

- 1 3 5

- I I , 1 9 8 8 WL 1 1 6 3 8 2 , at* 2 (T en n . C t

. Ap p . 1 9 8 8 ) ( ci t i n g Cheatham v. Trotter , 7 Tenn. (1 Pec k) 198 (1823)) . As the court makes this determination, it must bear in mind the g ener al rule that a “plaintiff is not to be plac ed in any better position, nor the g arnishee in any

worse position, than he w ould be if def endant himself wa s enfor cing his claim.” Gray v . Houck , 167 Tenn. 233, 68 S.W.2d 117, 118 (1934) (citation omitted). This is because, “the plaintiff in g arnishment is, in his relation to the g arnishee , substitut ed mer ely to the rig hts of his own debtor, and c an e nf or c e no de ma nda g a ins t th e g arn ish e e wh ic h th e de bto r h ims e lf, if su ing , w ou ld not be entitled to rec over.” Id

. Acc uride , 139 S.W .3d at 294. I n th e c a se a t ba

r, the tr ia l c ou rt

re lie d u po n th e Te nn e sse e Sup re me Cou rt ’s ho ldi ng in Ove rman v. Ov erman , 570 S.W .2d 857 (Tenn. 1978) , in finding that any debt owed f

rom Hartford to Are te was c ontinge nt and thus not subject to ga rnishment. Howeve r, we find Ove rman inapplicable to the f acts in this case . I n Ove rman , th e plaint if f s ou g ht t o g arn ishri g hts held by the def endant in two annuity

ag ree ments which we re not y et mature

. Id. a t8 5 7

. In holding that the pla intiff could not g arnish the a nnuities, the Tennesse e Supreme Court found that-6-

this obli g ation, whether

it is charac terized as a de bt or as a c hose in ac tion, is not su bje c t to g arn ish me nt b e c aus e it i s c on tin g e nt o n a fu tur e e ve nt[–the de fe nd a nt’ s] survival until the dates of maturity . I f he should die be fore the contra cts mature, the re sp on de nts wi ll n e ve r b e ind e bte d to [the de fe nd a nt] i n a ny a mou nt. Whil e ob lig a tio ns that are c e rt a in, a lth ou g h n ot p re se ntl y du e , a re su bje c t to g arn ish me nt, obligations that are c ontinge nt, in that they may never become due, ar e not. Id. at 858 (c itations omi tted). I n this case, the a lleg ed debt owe d by Hartford to Are te under

the insuranc e policy

is not conting ent upon some future event. Rathe r, we find that any such debt a ccr

ued at the time a n e ve nt a lle g e dly

c ov e re d u nd e r the po lic y oc c ur re d. I n s o r

uli ng , w e a do pt t

he re a so nin g se t f

orth in Zimek v. I

ll. Nat . Cas. Co. , 19 N.E.2d 620 (I ll. 1939), where the I llinois Supreme Court held: I n the pre sent ca se it is said the claim i s co n tinge nt because the c asualty company deni es t h at i t is li able to Z imek under the terms of the policy of insuranc e. B ut defe ndant misconce ives the nature of the c ontinge ncy contemplated by

the rule. A conting ent claim is one whe re liability hinge s upon some future e vent, which may or may not occur ; it is depende nt on some condition as y et unper formed. Grand Lodge, I. O. O. F. v. Troutman , 8 0 K a n . 4 4 1 , 1 0 3 P. 9 4

. H e r e , w h a te v e r r ig h t Z im e k has a g a inst th e compa ny

ha s v e ste d; a ll the e ve nts wh ic h c a n f ix the g arn ish e e wi th lia bil ity ha ve take n p la c e . It on ly re ma ins to b e de termi ne d w he the r tho se e ve nts make the c asualty

company liable to Z imek.

. . . Thus, the denial of l iabilit[ y ] bythe g arn ish e e do e s n ot c re a te a c on tin g e nc y wh ic h w ill pr e ve nt g arn ish me nt. I f w e he ld otherwise, ga

rnishment proce ss by a creditor could be defe ated in eve ry case by the g arnishee ’s denial of

indebtedness to the judg ment debtor. Zimek , 19 N.E.2d at 623. Since we ha ve held that the a lleg ed debt in this case is not continge nt, the only issue rema ining is whe ther Ha

rtford’ s insurance contra ct provided c overa g e to Are te for losses suffe red by

Plaintiff. As previously

noted, in g arnishment proc eeding s “[i] t falls upon the trial court . . . to dete rmine the indebte dness of the g arnishee befor e ente ring judgme nt.” Acc uride , 139 S.W .3d at 294 (c itations omi tted). As a r esult, we re mand this case to the trial court for the purpose of

determining cove rag e under the insuranc e policy

betwee n Hartford and A rete

.-7- Conclu sion Ba sed upon the for eg oing, w e her eby reve rse the c hance ry

court a nd rema nd this case f or further proce eding s as outlined above. Costs of this appea l are taxed to Appellee, The Hartford In s u r a n c e C o m p a n y f

o r w h i c h e x e c u t i o n m a y i s s u e o f n e c e s s ar y.

___________________________________ DAVID R. FARMER, J UDGE