FILED

October 26, 1998

Cecil W. Crowson

Appellate Court Clerk

IN THE SUPREME COURT OF TENNESSEE

AT JACKSON

PREMIUM FINANCE CORPORATION OF AMERICA )

) FOR PUBLICATION

Plaintiff-Appellee )

)

v. ) FILED: OCTOBER 26, 1998 

)

CRUMP INSURANCE SERVICES OF MEMPHIS, INC., )

CRUMP E & S OF MEMPHIS, INC., ) SHELBY COUNTY

NORTHLAND INSURANCE COMPANY, )

NATIONAL INDEMNITY COMPANY, )

CANAL INSURANCE COMPANY, ) HON. KAY S. ROBILIO,

THOMAS JEFFERSON INSURANCE COMPANY, ) JUDGE

SCOTTSDALE INSURANCE COMPANY, )

STRATFORD INSURANCE COMPANY, )

NATIONAL CASUALTY COMPANY, ) NO. 02-S-01-9711-CV-00095

NATIONAL FIRE & CASUALTY COMPANY, )

NATIONAL LIABILITY & FIRE INSURANCE COMPANY, )

NATIONAL FIR & MARINE INSURANCE, )

CONTINENTAL INSURANCE COMPANY, )

LLOYDS OF LONDON, and )

GLENS FALLS INSURANCE COMPANY )

 )

 Defendants-Appellants )

For Appellee: For Appellants:

Crump Insurance Services of Memphis,

J. ALLAN HANOVER Inc., f/k/a Crump E & S of Memphis, Inc.

BARBARA B. LAPIDES J. RICHARD BUCHIGNANI

JEFFERY S. ROSENBLUM ROSS HIGMAN

Memphis, TN Memphis, TN

Northland Insurance Company

RICHARD GLASSMAN

Memphis, TN

National Indemnity Company

National Liability & Fire Insurance Company

National Fire & Marine Insurance Company

JOHN D. RICHARDSON

Memphis, TN

Canal Insurance Company

Thomas Jefferson Insurance Company

Scottsdale Insurance Company

National Casualty Company

National Fire and Casualty Company

HENRY T. V. MILLER

WILLIAM A. LUCCHESI

Memphis, TN

Stratford Insurance Company

JAMES R. GARTS, JR.

Memphis, TN

Continental Insurance Company

Glens Falls Insurance Company

SAM B. BLAIR, JR.

Memphis, TN

OPINION

JUDGMENT OF THE COURT OF APPEALS BIRCH, J.

REVERSED IN PART AND AFFIRMED IN PART
1The trial court denied the motions as to the plaintiff’s

common law claims of fraud and unjust enrichment and stayed these

claims during the pendency of the appeal.

2The Court of Appeals’s opinion at footnote 7 states that the

plaintiff conceded on appeal that any action against the general

insurance agent, Crump, must be pursued under the common law.

Thus, we will address the appeal as to the defendant insurance

companies only. 

2

In the current case, the plaintiff, a premium finance

company, alleged damage as a result of the defendant insurance

companies’ failure to return unearned premiums to the plaintiff

after cancellation of the underlying insurance contracts. The

defendants filed motions to dismiss for failure to state a claim

upon which relief can be granted, which the trial court granted as

to the plaintiff’s claim under the Premium Finance Company Act,

Tenn. Code Ann. § 56-37-101 et seq. (1994) (hereinafter “the

Act”).1 The trial court certified its order as final in accordance

with Tenn. R. Civ. P. 54.02, and the plaintiff appealed. The Court

of Appeals reversed the trial court, holding that the plaintiff had

stated a cause of action under Tenn. Code Ann. § 56-37-111 (1994).2

We granted the defendants’ application for appeal under

Tenn. R. App. P. 11 to determine whether Tenn. Code Ann. § 56-37-

111 creates a cause of action for a premium finance company against

an insurance company for failure to return an unearned premium to

the finance company after cancellation of the underlying insurance

contract. After a thorough examination of the statute and its

legislative history, we conclude that Tenn. Code Ann. § 56-37-111

does not impliedly grant a statutory right of action to a premium

finance company. Consequently, the plaintiff has failed to state
3Tennessee Code Annotated § 56-37-110 provides the procedure

for cancellation of financed contracts by premium finance

companies. 

3

a claim upon which relief can be granted. The judgment of the

Court of Appeals is, for the reasons appearing below, reversed. 

I

The plaintiff is a Tennessee corporation licensed in

1989, and its primary business is the financing of insurance

premiums for persons or entities who do not pay the premium in full

at the inception of coverage. In the typical transaction, the

borrower executes a financing agreement which provides for

repayment of the amount of the premium advanced with interest.

This agreement contains authorization for the plaintiff to cancel

the insurance contract and “direct the return of unearned premiums”

if the borrower fails to repay as promised. 

According to its complaint, the transactions were

typically generated by a “producing agent” who would locate

prospective borrowers and write the financing agreements. If

accepted, the plaintiff issued a check to the agent for the amount

of the premium; the agent then would deliver the premium to the

defendants’ “general agent.” The “general agent” would then issue

the contract of insurance. If the insured defaulted on the

agreement, the plaintiff canceled the insurance contract as

permitted by Tenn. Code Ann. § 56-37-110 (1994).3 
4

The plaintiff alleges that from 1989 to 1992 the “general

agent” returned all unearned premiums to the plaintiff upon

cancellation of financed insurance contracts. In late 1992,

however, the agent stopped returning unearned premiums. As a

result, the plaintiff eventually defaulted on its own obligations

and subsequently abandoned the premium finance industry. 

II

This matter comes to us by way of a motion to dismiss for

failure to state a claim upon which relief can be granted. Such

motion tests only the legal sufficiency of the complaint. It

admits the truth of all relevant and material allegations--“but

asserts that such facts do not constitute a cause of action as a

matter of law.” Pursell v. First Am. Nat’l Bank, 937 S.W.2d 838,

840 (Tenn. 1996). Thus, courts ruling on such a motion must accept

the truth of all factual allegations. The inferences to be drawn

from the facts or the legal conclusions set forth in the complaint,

however, are not required to be taken as true. Riggs v. Burton,

941 S.W.2d 44, 47 (Tenn. 1997). In considering this appeal, we

review the lower courts’ legal conclusions de novo with no

presumption of correctness. Tenn. R. App. P. 13(d); Stein v.

Davidson Hotel Co., 945 S.W.2d 714, 716 (Tenn. 1997). 

The plaintiff’s statutory claim is based on a portion of

the Act wherein the General Assembly established the standards for

return of unearned premiums following cancellation of a financed

insurance contract. Tennessee Code Annotated § 56-37-111 states,

in relevant part, as follows:
4Subsequent to the filing of this action, this section was

amended to add subsection (b) regarding refund on a pro rata basis.

The wording quoted above remains unchanged as subsection (a).

5

Whenever a financed insurance

contract is cancelled, the insurer

shall return whatever gross unearned

premiums are due under the insurance

contract directly to the premium

finance company for the account of

the insured or insureds as soon as

reasonably possible, but in no event

shall the period for payment exceed

thirty (30) days after the effective

date of cancellation.4

The plaintiff claims that the General Assembly intended

this section of the Act to grant premium finance companies a

statutory cause of action against insurers who fail to return

unearned premiums. In contrast, the defendants insist that the

General Assembly did not intend to grant such a cause of action to

premium finance companies because those companies have other

avenues of relief available to them. 

In considering this issue, the Court of Appeals looked to

several other states which have decided contests between insurers

and premium financiers on statutes similar to our own. Although

the decisions of our sister states are persuasive, they do not

substitute for our own stated principles for determining whether a

statute creates a cause of action. We are mindful that our

essential duty in construing a statute is to ascertain and carry

out the legislature’s intent without unduly restricting or

expanding a statute's coverage beyond its intended scope. Hawks v.

City of Westmoreland, 960 S.W.2d 10, 16 (Tenn. 1997); Britton v.

Claiborne County, 898 S.W.2d 220, 222-23 (Tenn. Ct. App. 1994). 
6

Where a right of action is dependent upon the provisions

of a statute, our courts are not privileged to create such a right

under the guise of liberal interpretation of the statute. Hogan v.

McDaniel, 204 Tenn. 235, 239, 319 S.W.2d 221, 223 (Tenn. 1958).

Only the legislature has authority to create legal rights and

interests. Thus, the burden of establishing the existence of a

statutory right of action lies with the plaintiff. Ergon, Inc. v.

Amoco Oil Co., 966 F. Supp. 577, 585 (W.D. Tenn. 1997).

In determining whether the legislature intended to grant

a statutory right of action, we begin by examining the language of

the statute. If no cause of action is expressly granted therein,

then we must determine whether such action was intended by the

legislature and thus is implied in the statute. To do this, we

consider whether the person asserting the cause of action is within

the protection of the statute and is an intended beneficiary.

Carter v. Redmond, 142 Tenn. 258, 263, 218 S.W. 217, 218 (1920);

Chattanooga Ry. & Lt. Co. v. Bettis, 139 Tenn. 332, 337, 202 S.W.

70, 71 (1918). The statute’s structure and legislative history are

helpful in making this determination. 

III

The plaintiff concedes, as it must, that the language of

Tenn. Code Ann. § 56-37-111 does not expressly grant a cause of

action to a premium finance company against an insurer who fails to

return an unearned premium. The plaintiff also acknowledges that

the Act “mandates a duty on the part of the insurance companies,

but it does not provide an enforcement mechanism for that duty.”
7

Nevertheless, plaintiff still urges that we should imply a cause of

action under the statute because “there is no indication that the

intent of the Act is to deny a private right of action, and there

is substantial suggestion from the language and structure of the

act and legislative history that the legislative purpose was to

facilitate, rather than interrupt, the commerce of premium

financing.”

We agree that the Act was not intended to “interrupt” the

business of premium financing. According to Representative Bob

Davis, the sponsor of the Act on the House side, the legislature

intended to give legal recognition to the premium finance industry

which had developed prior to the Act’s passage. This broad

statement of purpose, however, merely establishes the

permissibility of premium financing in Tennessee. It does not

provide for its day-to-day operation. 

Reviewing the overall structure of the Act is of greater

assistance in determining the issue. The Act is structured so as

to evince a clear design to regulate the premium finance industry

and thereby protect the insurance-financing public. As provided in

the Act, its regulatory function is accomplished by providing for

licensure of companies, directing the contents of financial

agreements, establishing interest rates, and controlling the

cancellation of insurance contracts for non-payment of a premium

loan. See Act of April 18, 1980, ch. 920, preamble, 1980 Tenn.

Pub. Acts 1574, 1574. Enforcement is through administrative

penalties and criminal sanctions, all against the premium finance

companies. See Tenn. Code Ann. §§ 56-37-105(a) (1994) (license
8

forfeiture); -105(b) (1994) (civil fines); and -113 (1994)

(criminal sanctions). Where an act as a whole provides for

governmental enforcement of its provisions, we will not casually

engraft means of enforcement of one of those provisions unless such

legislative intent is manifestly clear. We do not find such clear

intention in the statute under review. 

Focusing on Tenn. Code Ann. § 56-37-111, we think it is

plain that the legislature intended this section to be of primary

benefit to the insurance-financing public, with a residual benefit

to premium finance companies. This section directs insurers to

return unearned premiums to the finance company who must then apply

those refunds to reduce an insured’s debt. But for this section,

insurers would return unearned premiums directly to the insured.

The insured would, however, remain liable to the finance company

for the premium loan balance due under the agreement. Thus, this

section clarifies the procedure for insureds upon cancellation of

a financed insurance contract. 

A statutory cause of action to enforce this section is

not necessary to further the legislative purpose. Insurers are

heavily regulated entities who are under an obligation to return

unearned premiums after cancellation of an insurance contract. An

insurer who refuses to return such premiums will be subject to

liability to its insured and may face regulatory sanctions as well.

Thus, the insurer has every incentive to promptly return the

unearned premiums as directed by the statute. 
9

In addition, we decline to accept the prediction of the

plaintiff that the premium finance industry cannot operate

successfully and will cease to exist if such companies are unable

to seek statutory recourse against insurers. As we noted above,

the premium finance industry pre-dates the enactment of the statute

at issue. Furthermore, such companies have other avenues of relief

available to them. They may elect to proceed against the borrowerinsured under the terms of the outstanding premium loan. They may

elect to exercise any common law remedy in tort or contract

available against an insurer. Finally, they may protect their

interests by providing for such a possibility as a term of the

contract. 

IV

We hold that Tenn. Code Ann. § 56-37-111 does not grant

premium finance companies a cause of action against insurers for

failure to return unearned premiums after cancellation of a

financed insurance contract. The plaintiff has therefore failed to

state a claim upon which relief can be granted with respect to this

statute. It results that the judgment of the Court of Appeals is

reversed as to the defendant insurance companies and affirmed as to

the “general agent.” 

______________________________

ADOLPHO A. BIRCH, JR., Justice

CONCUR:

Anderson, C.J.
10

Drowota, Holder, JJ.