Court Opinion

ID: 2646978
Source: CourtListenerOpinion
Date Created: 2013-12-20 01:04:25.486405+00
Date Added: 2024-06-11T09:06:22.168674
License: Public Domain

IN THE SUPREME COURT OF TENNESSEE
                             AT KNOXVILLE
                                September 4, 2013 Session

                     ERIK HOOD v. CASEY JENKINS ET AL.

          Appeal by Permission from the Court of Appeals, Eastern Section
                       Chancery Court for Grainger County
                 No. 0908101    Telford E. Forgety, Jr., Chancellor

               No. E2011-02749-SC-R11-CV - Filed December 19, 2013

The minor beneficiary of a $100,000 life insurance policy filed suit against his financial
guardian and the insurance company after the guardian misappropriated the insurance
proceeds. The trial court entered judgments in favor of the minor against both the guardian
and the insurance company. On appeal by the insurance company, the Court of Appeals
affirmed, holding that the insurance company breached its contractual duties by entrusting
the proceeds to the guardian. The insurance company then applied for permission to appeal
to this Court, contending that it could not be held liable for the loss to the minor because it
had relied upon the validity of a juvenile court order of guardianship. Because the insurance
company acted in good faith when it relied upon a facially valid court order establishing a
financial guardianship in making payment of the life insurance proceeds, it is not liable for
breach of contract. The judgment of the Court of Appeals is, therefore, reversed, and the
claim against the insurance company is dismissed.

    Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
                                     Reversed

G ARY R. W ADE , C.J., delivered the opinion of the Court, in which J ANICE M. H OLDER,
C ORNELIA A. C LARK, W ILLIAM C. K OCH, J R., and S HARON G. L EE, JJ., joined.

Michael S. Kelley (at trial and on appeal) and Briton S. Collins (at trial), Knoxville,
Tennessee, for the appellant, The Old Line Life Insurance Company of America.

Bruce T. Hill, Sevierville, Tennessee, for the appellee, Erik Hood.
                                           OPINION
                              I. Facts and Procedural History
       On March 28, 2002, The Old Line Life Insurance Company of America (“Old Line”)1
issued a $100,000 life insurance policy to David Ray Hood (“Hood”), who had named his
son, Erik Christopher Hood (“Erik”), as the sole beneficiary under the policy. When Hood
died on September 17, 2007, Erik, who was sixteen years old, left his father’s residence in
order to reside with his older half-sister, Casey Jenkins (“Casey”).2 In the next month, Old
Line received a “Proof of Death Claimant’s Statement” signed by Erik, notifying Old Line
of Hood’s death and requesting a lump sum payment of the proceeds. Meanwhile, Casey
petitioned the Juvenile Court for Grainger County for an appointment of guardianship over
Erik, which was granted with the consent of Erik and his mother, Donna Hood. After
requesting additional documentation and confirming with the juvenile court that it had
entered an order appointing Casey as Erik’s financial guardian, Old Line issued a check to
Casey on January 11, 2008, in the amount of $100,854.88. The insurance proceeds were
deposited into a joint bank account in the names of Casey and Erik. Within eight months,
the entire account was depleted.

        On August 31, 2009, Erik filed a complaint in the Chancery Court for Grainger
County, asserting that Old Line had “breached its duty to [Erik], a third party beneficiary of
the policy,” by releasing the insurance proceeds to Casey “without confirming that she was
properly appointed and duly authorized to act as the guardian over [his] finances,” and by
failing to investigate whether Casey had met “all statutory requirements” of the guardianship
laws in Tennessee. The complaint also alleged that Casey had breached her fiduciary duties
by converting and spending “most, if not all,” of the insurance proceeds and by also
converting for her own use the Social Security death benefits payable to Erik. Erik later
amended his complaint to claim both a breach of contract and negligence by Old Line; he
specifically asserted that Old Line acted negligently by disbursing the insurance proceeds
without properly investigating the appointment of Casey as guardian and without requiring
adequate proof of the guardianship. Erik further alleged that Casey “had no legal authority
to receive said funds.”

        1
          Old Line later became a part of the American General Life Insurance Company and, therefore,
portions of the trial testimony and some documents in the record refer to “American General” or “AIG.” For
purposes of this opinion, we refer to the relevant insurance company as “Old Line.”
        2
        Erik and Casey share the same biological mother, Donna Hood. Erik’s biological father, Hood, had
adopted Casey while he was married to Donna Hood.

                                                   -2-
       Casey did not respond to the complaint and the trial court entered a default judgment
against her.3 In its answer to the complaint, Old Line asserted four affirmative defenses,
claiming (1) that it was entitled to rely upon the order of the juvenile court in disbursing the
insurance proceeds to the guardian; (2) that it acted in good faith when it disbursed the
insurance proceeds; (3) that even if negligent by disbursing the proceeds, its fault should be
reduced in proportion to the fault of others, including that of the juvenile court judge; and
(4) that its acts were not a proximate cause of the damage to Erik. Old Line also filed a
cross-claim against Casey to recover any funds that Old Line might be ordered to compensate
Erik. The trial court later denied competing motions for summary judgment and conducted
a bench trial.

       Charlotte Swanks, the claims examiner who had processed the insurance claim for Old
Line at its Houston, Texas office, testified that after she had first reviewed the “Proof of
Death Claimant’s Statement,” she requested additional documentation, including Hood’s
death certificate and a copy of the insurance policy.4 She recalled that she subsequently
received a copy of the death certificate from Lloyd Richardson, an independent insurance
agent in Knoxville, who informed her that Erik was a minor. In letters dated November 2,
2007, and December 11, 2007, Ms. Swanks informed the agent that Old Line could not
release the insurance proceeds without “guardianship papers for the finances of the minor
beneficiary.”5 In response, the agent faxed to Ms. Swanks Casey’s “Petition for
Guardianship,” an exact copy of which appears below:

        3
          Casey did not appeal the default judgment. Although she was a witness at the trial, she is not a
party to this appeal.
        4
        The policy, which was made an exhibit at trial, included a section entitled “Payment of Proceeds,”
which provided, in pertinent part:

        Proceeds will be payable on the date of the insured’s death. . . .
        Upon receipt of due proof of the insured’s death, we will pay the insured’s beneficiary the
        face amount. . . .
        Due proof of the insured’s death will consist minimally of our company claim form
        completed by the beneficiary and a certified copy of the death certificate of the insured.
        Interest as required by law will be added to the proceeds payable under this policy.
        5
         Although the insurance policy itself did not include any express provisions relating to the payment
of proceeds to minor beneficiaries, the “special instructions” attached to the “Proof of Death Claimant’s
Statement” provided:

        Minor Beneficiary. The Statement is to be completed by the legally appointed guardian
        of the Estate of the minor and an official certificate of the guardian’s appointment must be
        furnished.

                                                    -3-
The agent also included the “Appointment of Guardian of the Person” appearing below,
which the juvenile court judge had signed on December 11, 2007, and asked Ms. Swanks
whether the “attached appointment papers suffice”:

       In response, Ms. Swanks sent a letter on December 17, 2007, informing the agent that
“the documents received only indicate Guardianship and do[ not] indicate Guardianship for
the Finances of the Minor.” She again specifically asked for “guardianship papers for the
finances of the minor beneficiary” as a condition to the release of the insurance proceeds.

                                            -4-
On January 3, 2008, the agent faxed to her the following “additional financial guardianship
papers”:

       Upon receiving this additional documentation, Ms. Swanks, concerned because the
word “Financial” was handwritten, faxed the documents she had received from the agent to
the Juvenile Court Clerk for Grainger County, “requesting [a] document in writing that this
Petition for ‘Financial’ guardianship is valid.”          In response, she received an
“Exemplification,” signed by the clerk and the juvenile court judge, which provided that the
order appointing “Eri[k] Hood Financial Guardian” was a true and perfect copy of the
original order in the juvenile court. After reviewing the exemplification with the other

                                            -5-
documentation and consulting with her supervising manager, Ms. Swanks issued a check in
the amount of $100,854.88, which included interest from the date of death, to “Casey Jenkins
as financial guardian [for the benefit of] Erik Christopher Hood, minor [beneficiary].”

       During her cross-examination, Ms. Swanks conceded that she did not ask Old Line’s
legal department to review any of the documentation and that she had relied on the
exemplification by the juvenile court and consultation with her supervising manager. She
acknowledged that she had processed “[v]ery few” applications for minor beneficiaries and
admitted that she was unfamiliar with Tennessee law governing the establishment of a
guardianship. Ms. Swanks further conceded that she was unaware that the statute the
juvenile court judge had cited in the orders of appointment, Tennessee Code Annotated
section 37-228 (1977 & Supp. 1983), was outdated at the time of their entry.6

        Erik, who was twenty years old at the time of trial, testified that after the death of their
father, Casey had asked him to move in with her and her family. He recalled that the
insurance agent had informed him that someone would need to be appointed as his financial
guardian in order to gain access to the insurance proceeds and that Casey had agreed to “take
care of everything.” Erik remembered joining Casey in the juvenile court on three separate
occasions. The first proceeding established the guardianship of his person; a second
proceeding related to the guardianship involved the presence of his mother; and a third
proceeding was conducted to create the financial guardianship. Erik testified that he did not
consult an attorney during this time and stated that the juvenile court judge did not appoint
a guardian ad litem to represent his interests in any of the proceedings. He stated that
although he believed he was mature enough, at sixteen years old, to manage the insurance
proceeds, he had trusted the juvenile court judge to properly appoint Casey as his financial
guardian and had trusted Casey to “guard [his] proceeds” until he was of “legal age or . . . an
appropriate age to accept that much money.”

       Erik further testified that he later saw a manila envelope containing the insurance
check, but he denied accompanying Casey to the bank in order to deposit the check.
Although his name was on the bank account in which the insurance proceeds were deposited,
he denied knowing that he had access to the account, claiming that he only spent the benefits
he received through Social Security and the amount of private donations he had received

        6
          This statute, which relates to the authority of the juvenile courts to investigate allegations of
delinquency, unruliness, abandonment, dependency, or neglect; to order temporary care and custody; and to
request certain assessments and evaluations, is now codified, as amended, at Tennessee Code Annotated
section 37-1-128 (2010 & Supp. 2013).

                                                   -6-
after his father’s death.7 Erik stated that Casey had used the insurance proceeds to purchase
liquor, to dine at restaurants, to pay the employees of a construction company owned by her
husband, to purchase sex paraphernalia, and to fund extensive renovations at his father’s
residence. He claimed that he first became suspicious that Casey may have misused the
account when she refused to provide him with the related bank statements.

       Donna Hood, the mother of Erik and Casey, acknowledged that she had consented to
Casey’s appointment as guardian because “[t]hat’s what Erik wanted.” She denied, however,
that she had consented to Casey applying for the insurance proceeds.

       Casey, twenty-six years old at the time of Hood’s death, had obtained a degree in
accounting but had been arrested three times for passing bad checks. She testified that prior
to receiving the insurance check from Old Line she had opened two bank accounts jointly
owned by her and Erik, but she could not recall whether Erik was with her when she opened
the accounts. She stated that the first account was opened in September of 2007 to deposit
Erik’s Social Security checks and the donations from friends and family, and that the second
account was reserved for the insurance proceeds. Casey identified the statements of the two
accounts, which included copies of the checks signed either by her or by Erik. She claimed
that she intended to benefit Erik by using the money in the second account to pay the two
mortgages on Hood’s residence, to renovate the residence, and to purchase Hood’s vehicle
that had been repossessed.8 While she asserted that Erik had consented to some of her
attempts to preserve Hood’s estate, she admitted that she never sought advice from an
attorney regarding her use of the insurance proceeds and that she never understood her
responsibilities as a financial guardian.

       The trial court awarded judgment to Erik against Old Line for $86,842.37,
representing the $100,854.88 less funds expended at the behest of Erik, and awarded Old
Line a judgment in the same amount for its cross-claim against Casey. The court also
awarded a default judgment to Erik against Casey in the sum of $100,000.

       In its appeal to the Court of Appeals, Old Line presented the following issues for
review: whether Old Line breached its contract when it distributed the insurance proceeds
to Casey upon receipt of a facially valid guardianship order from the juvenile court; and if

        7
           While Erik acknowledged that he had signed several checks that were linked to the account with
the insurance proceeds, he testified that he had mistakenly used a checkbook from that account, believing
that it was a checkbook from a different bank account with his Social Security benefits and private donations.
        8
          Casey testified that she thought these actions would benefit Erik because he was the intended
recipient of ninety percent of Hood’s estate. Hood’s will left the remaining ten percent to Casey, on the
condition that she obtain a college degree.

                                                     -7-
the guardianship was invalid because Casey was not properly appointed, whether Erik had
the capacity to consent to Casey’s receipt of the insurance proceeds. The Court of Appeals
affirmed. Hood v. Jenkins, No. E2011-02749-COA-R3-CV, 2012 WL 4788636, at *1 (Tenn.
Ct. App. Oct. 9, 2012). Because the order of guardianship was “woefully deficient” in that
it failed to comply with the relevant guardianship statutes, and, therefore, Casey was not a
properly appointed guardian, id. at *7, the Court of Appeals held that Old Line had breached
its contractual duty to Erik as beneficiary of the insurance policy, did not act in good faith
when it paid the insurance proceeds to Casey, and had failed in its duty to ensure that Casey
was properly appointed as financial guardian, id. at *8-9. Finally, the court ruled that Erik,
as a minor, “lacked the capacity to consent to the improper appointment of [Casey] as his
financial guardian and her subsequent misappropriation of the insurance proceeds.” Id. at
*10.

       We granted the application of Old Line for permission to appeal to consider whether,
under these circumstances, Old Line may be held liable for the misappropriation of the
insurance proceeds.

                                  II. Standard of Review
       In a civil case heard without a jury, the trial court’s findings of fact are reviewed de
novo, accompanied by a presumption of correctness, unless the evidence preponderates
otherwise. Tenn. R. App. P. 13(d); Morrison v. Allen, 338 S.W.3d 417, 425-26 (Tenn.
2011). Questions of law, however, must be reviewed de novo with no presumption of
correctness. Colonial Pipeline Co. v. Morgan, 263 S.W.3d 827, 836 (Tenn. 2008) (citing
Perrin v. Gaylord Entm’t Co., 120 S.W.3d 823, 826 (Tenn. 2003); Ganzevoort v. Russell, 949
S.W.2d 293, 296 (Tenn. 1997)).

                                        III. Analysis
       In the appeal to this Court, Old Line has stated the issues as follows: (1) whether it
can be liable for breach of contract by relying upon a facially valid court order in the
disbursement of the insurance proceeds; (2) whether there is a causal link between its actions
and the subsequent misappropriation of the insurance proceeds by Casey; and (3) whether
Erik, as a “mature minor,” had the capacity to consent to the financial transactions. Because
the first issue is determinative, we will address only whether Old Line can be held
responsible for breach of contract in light of the juvenile court order appointing Casey as
“financial guardian.” 9

        9
         Although Erik had amended his complaint to assert a negligence claim and Old Line had answered
the complaint by denying that it was negligent in any respect, neither party addressed the elements of
negligence in their briefs to the Court of Appeals or to this Court. To the extent that Old Line has argued
                                                                                              (continued...)

                                                    -8-
       Old Line contends that the express terms of the insurance policy only required
payment of the face amount of the policy plus the required interest. Because Old Line
discharged this contractual duty after receiving “due proof of [Hood’s] death,” it asserts that
it cannot be held liable for the subsequent misappropriation of the insurance proceeds by a
duly appointed guardian.

        Initially, in an action for breach of contract, the rights of a third-party beneficiary
“‘depend upon and are measured by the terms of the contract.’” Benton v. Vanderbilt Univ.,
137 S.W.3d 614, 618 (Tenn. 2004) (quoting U.S. Fid. & Guar. Co. v. Elam, 278 S.W.2d 693,
702 (Tenn. 1955)). When the terms of an insurance contract are unambiguous, it is the duty
of the Court to apply the ordinary meaning of the words in the contract, and neither party is
to be favored in the interpretation of the contractual language. In re Estate of Clement, 414
S.W.2d 644, 646 (Tenn. 1967); Wallace v. State Farm Mut. Auto. Ins. Co., 216 S.W.2d 697,
701 (Tenn. 1949) (citing Seay v. Ga. Life Ins. Co., 179 S.W. 312, 313 (Tenn. 1915)).

       At a minimum, the terms of the insurance policy expressly required that Old Line
obtain a completed claim form signed by Erik, as beneficiary, and a completed copy of the
death certificate. The evidence establishes that Old Line met these requirements. The issue,
however, is whether Old Line breached its contractual duty by disbursing the insurance
proceeds to Casey based upon the juvenile court order appointing her as guardian over Erik’s
financial matters.

        The proof at trial was not in material dispute. Although the insurance policy did not
contain a provision relating to minor beneficiaries, the instructions in the “Proof of Death
Claimant’s Statement,” which was to be completed by the beneficiary, provided that in the
case of a minor beneficiary, “[t]he Statement [had] to be completed by the legally appointed
guardian of the Estate of the minor[,] and an official certificate of the guardian’s appointment
[had to] be furnished.” Consistent with this provision, Ms. Swanks insisted upon being
provided the “guardianship papers for the finances of the minor beneficiary.” After receiving
the first petition and order of guardianship, she asked for documentation of the establishment
of a financial guardianship. When provided with the second petition and order, which

        9
          (...continued)
that it was not the cause in fact or a proximate cause of the loss to Erik, both parties have framed the issue
of causation in the context of damages for breach of contract. See Anderson-Gregory Co. v. Lea, 370 S.W.2d
934, 937 (Tenn. Ct. App. 1963) (citing Cent. Nat’l Ins. Co. v. Horne, 326 S.W.2d 141 (Tenn. Ct. App. 1959))
(“[D]amages for breach of contract are limited to the natural and proximate consequences thereof.”). The
Court of Appeals did not address any claim of negligence. The failure of the parties to specifically raise or
argue the issue of negligence has resulted in waiver. See Hodge v. Craig, 382 S.W.3d 325, 334-35 & n.3
(Tenn. 2012). In any event, we need not reach the issue of causation because we have determined that Old
Line was not in breach of its contract.

                                                     -9-
included handwritten interlineations, she asked the juvenile court for confirmation: a
“document in writing that this Petition for ‘Financial’ guardianship is valid.” The juvenile
court then sent an “Exemplification” verifying the validity of the financial guardianship
order, and Ms. Swanks issued a check to the named guardian for the benefit of the minor.
Thereafter, Casey misappropriated the majority of the insurance proceeds for her personal
use.

       While Erik acknowledges that Old Line received documentation of Casey’s
appointment as financial guardian, he argues that Old Line nevertheless breached its contract
by releasing the insurance proceeds to Casey because she had failed to meet certain of the
statutory requirements for the creation of a proper financial guardianship. His claim is that
the juvenile court’s failure to assure compliance with the statutory requirements is fatal to
the appointment of Casey as his financial guardian and that Old Line had the obligation to
confirm that the requirements of guardianship law had been met. He specifically asserts that
the guardianship petition failed to address each of the six requirements of Tennessee Code
Annotated section 34-2-104 (2007).10 Erik also complains that the order approving the

       10
            Tennessee Code Annotated section 34-2-104 provides, in its entirety, as follows:

       The petition for the appointment of a guardian, which shall be sworn, should contain the
       following:
               (1) The name, date of birth, residence and mailing address of the minor;
               (2) The name, age, residence and mailing address and relationship of the petitioner;
               (3) The name, age, mailing address and relationship of the proposed guardian and,
               if the proposed guardian is other than the petitioner, a statement signed by the
               proposed guardian acknowledging awareness of the petition and willingness to
               serve;
               (4) The name, mailing address and relationship of the closest relative or relatives
               of the minor and the name and mailing address of the present custodian of the minor
               who should be notified of the proceedings. If the respondent has no then living
               parent or sibling, the petition shall so state and more remote relatives are not to be
               listed;
               (5) An explanation of the reason for seeking appointment of a guardian; and
               (6) If the petition requests the guardian manage the property of the respondent, the
               petition also shall contain:
                         (A) If the financial information about the minor is known to the petitioner:
                                  (i) A list of the property of the minor together with the
                                  approximate fair market value of each item. The petitioner shall
                                  state whether the property listed is all of the minor’s property;
                                  (ii) A list of the source, amount and frequency of each item of
                                  income, pension, social security benefit or other revenue received
                                  by the minor;
                                  (iii) A list of the usual monthly expenses of the minor. The
                                                                                                (continued...)

                                                    -10-
guardianship lacked a property management plan as required by Tennessee Code Annotated
section 34-2-105(2)(B)–(D) (2007), cited the “repealed” statute in Tennessee Code
Annotated section 37-228 (1977 & Supp. 1983),11 and waived bond despite the absence of
a request for waiver, as required by Tennessee Code Annotated section 34-1-105(b) (2007)
(amended 2013).

        Initially, a void judgment is one that is invalid on its face because the issuing court
either lacked subject matter or personal jurisdiction over the proceedings, or the judgment
itself was outside of the pleadings. Gentry v. Gentry, 924 S.W.2d 678, 680 (Tenn. 1996); see
also Taylor v. State, 995 S.W.2d 78, 83 (Tenn. 1999) (holding that an order or decree is only
void on its face if “the [issuing] court lacked jurisdiction or authority to render the
judgment”); N.Y. Cas. Co. v. Lawson, 24 S.W.2d 881, 883 (Tenn. 1930). A voidable
judgment, on the other hand, is one that is facially valid and “requires proof beyond the face
of the . . . judgment to demonstrate its voidableness.” Dykes v. Compton, 978 S.W.2d 528,
529 (Tenn. 1998) (citing Archer v. State, 851 S.W.2d 157, 161-62 (Tenn. 1993)). The
distinction between void and voidable judgments is critical as to whether a court order may
be challenged directly, as in the guardianship proceeding in the juvenile court, or in a
collateral proceeding, as here in the chancery court. See Lovlace v. Copley, No.
M2011-00170-SC-R11-CV, 2013 WL 4773078, at *12-13 (Tenn. Sept. 6, 2013) (explaining
why a final order of adoption entered by the Chancery Court for Hickman County was not
subject to collateral attack in subsequent visitation proceedings in the Chancery Court for
Lewis County). As our Court of Appeals has explained,

               A collateral attack on a prior judgment may be successful if the
        judgment is void because the court rendering the judgment acted in a manner
        inconsistent with due process of law. But a judgment is not subject to
        collateral attack for mere errors or irregularities committed by the court in the
        exercise of its jurisdiction. Errors other than lack of jurisdiction render the

        10
             (...continued)
                                      petitioner shall include an explanation of how these expenditures
                                      were met prior to the filing of the petition; and
                                      (iv) A description of the proposed plan for the management of the
                                      minor’s property if a guardian is appointed; or
                              (B) If the financial information about the minor is unknown to the
                              petitioner, a request that the court enter an order authorizing the petitioner
                              to investigate the respondent’s property.
        11
           As noted, this statute had not been repealed but was an outdated version of the current version
codified at Tennessee Code Annotated section 37-1-128 (2010 & Supp. 2013).

                                                         -11-
        judgment merely voidable, and a voidable judgment can only be challenged on
        direct appeal.

Cumberland Bank v. Smith, 43 S.W.3d 908, 910 (Tenn. Ct. App. 2000) (emphasis added)
(citations and internal quotation marks omitted); see also Gentry, 924 S.W.2d at 680 (citing
William H. Inman, Gibson’s Suits in Chancery § 228, at 219-20 (7th ed. 1988)) (agreeing
that voidable court orders are valid and binding until they are either overturned by an
appellate court or set aside by the issuing court).

        For purposes of this proceeding, the order of financial guardianship entered by the
Juvenile Court for Grainger County qualifies as a prior, final judgment that was neither
appealed by the parties nor set aside by the juvenile court. Thus, it is not subject to collateral
attack unless it is void on its face for lack of jurisdiction in the juvenile court to enter the
order or unless the order exceeded the scope of the pleadings. If the juvenile court had
jurisdiction over the subject matter and the order addressed only the terms of the petition for
guardianship, the order is facially valid and cannot be attacked in this collateral proceeding.
This is so even if the juvenile court committed irregularities or otherwise erred in the exercise
of its jurisdiction.

        The statute establishing jurisdiction over guardianships in this state provides that
“[a]ctions for the appointment of a guardian of the person or property or both may be brought
in a court exercising probate jurisdiction or any other court of record in the county in which
there is venue.” Tenn. Code Ann. § 34-2-101(a) (2007) (emphasis added). To establish
proper venue, “[a]n action for the appointment of a guardian may be brought in the county
of residence of the minor, the county of residence of the minor’s parents or, if the minor’s
parents are living apart, the county of residence of the custodial parent.” Id. § 34-2-101(b)
(emphasis added). At the time that Casey petitioned for financial guardianship, Erik was
living with her at her residence in Grainger County. Venue, therefore, was properly vested
in the Juvenile Court for Grainger County.12

        12
           Subject matter jurisdiction and venue are, of course, two distinct concepts, and venue generally
is not a condition precedent to a court’s jurisdictional power. Meighan v. U.S. Sprint Commc’ns Co., 924
S.W.2d 632, 639 (Tenn. 1996). We have considered the propriety of the venue in this context only because
Tennessee Code Annotated section 34-2-101(a) vests jurisdiction over guardianship actions “in a court
exercising probate jurisdiction or any other court of record in the county in which there is venue.” (Emphasis
added.) We do not mean to blur the well-established line between venue, which is a matter that may be
waived because it is a concept of convenience, and subject matter jurisdiction, which cannot be waived
because it is the basis for the authority of a particular court to act upon a particular controversy. Meighan,
924 S.W.2d at 639.

                                                    -12-
       The only remaining question which might render the guardianship order void is
whether the juvenile court was a “court of record.” Tennessee Code Annotated section 37-1-
159 explicitly provides that a “juvenile court shall be a court of record.” Tenn. Code Ann.
§ 37-1-159(a) (2010) (emphasis added). Although the trial court expressed doubt as to
whether the juvenile court had subject matter jurisdiction, the Court of Appeals properly
ruled “that the order of guardianship was a facially valid court order that was signed by the
juvenile court judge.” Hood, 2012 WL 4788636, at *8. The Juvenile Court for Grainger
County was the proper venue and qualified as a court of record. Moreover, our guardianship
statutes clearly grant the juvenile court jurisdiction over actions for the appointment of a
guardian for both personal and financial purposes. See Tenn. Code Ann. § 34-2-101(a).
Finally, the orders entered by the juvenile court corresponded with the petitions filed by
Casey requesting her appointment as guardian. In consequence, we must hold that the order
of financial guardianship was a facially valid court order that is not subject to attack in this
collateral proceeding.

       While confirming the facial validity of the order of financial guardianship, the Court
of Appeals nevertheless determined that Old Line breached the terms of its contract by
disbursing the insurance proceeds to Casey because “the order did not effectively establish
[her] as [Erik’s] legally appointed guardian of his estate.” Hood, 2012 WL 4788636, at *8
(emphasis added). The court reasoned that the “Proof of Death Claimant’s Statement”
required Old Line to pay the proceeds to “the legally appointed guardian of the Estate of the
minor,” and that Casey “was simply not the legally appointed financial guardian.” Id.
(emphasis altered from original). Observing that the order of financial guardianship was
“woefully deficient,” id. at *7, the Court of Appeals pointed out the several aspects of the
order that failed to comport with the requirements of our statutes, see, e.g., Tenn. Code Ann.
§ 34-2-105(2)(A)–(D) (requiring the order of guardianship to set a bond, specify the nature
and frequency of approved expenditures, and establish a property management plan). Based
on these deficiencies, our intermediate court held that Old Line failed to act in good faith
when it distributed the insurance proceeds to Casey because “[a] reasonably prudent
investigation would have revealed that the order was ineffective for purposes of establishing
[Casey] as [Erik’s] legally appointed financial guardian.” Hood, 2012 WL 4788636, at *8.

        We fully agree that the order entered by the juvenile court was “woefully deficient”
in terms of its substance. We further agree that the juvenile court judge failed to assure
compliance with several of the statutory requirements. We cannot agree, however, that “the
order . . . was not an effective order of guardianship,” id. at *7, or that Old Line breached its
contract by relying upon the order authorizing the disbursement of the insurance proceeds.
Instead, we hold that Old Line was not only entitled to rely upon the facially valid order of
financial guardianship, but that the evidence also established that, prior to payment, Old Line

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acted in good faith by conducting an investigation into the adequacy of the documentation
in the juvenile court judgment.

        Initially, in Hawley v. Lavelle, 602 S.W.2d 499, 502 (Tenn. Ct. App. 1980), the Court
of Appeals held that “there can be no claim for damages, compensatory or punitive, against
parties who have acted upon the orders of a court unless the parties conspired to perpetrate
a fraud upon the [c]ourt to obtain that order.” In Hawley, our intermediate court confirmed
that “parties have the right to act in reliance upon orders of a [c]ourt without being subject
to a later claim for damages in the event the [c]ourt or its officers were in error[,] as long as
the parties did not direct or ratify the wrongful acts.” Id. (emphasis added); see also Tantaris
v. Boehms, No. 89-178-II, 1989 WL 137853, at *6 (Tenn. Ct. App. Nov. 17, 1989)
(“Persons, especially those who are not parties to a lawsuit, must be able to rely on judgments
and orders of the courts of this state. . . . It should not be incumbent on one who is not a
party to a lawsuit to have to search through the trial record to determine if there might be
something in that record which could change an order or judgment of the trial court which
is plain and unequivocal.”). The holding in Hawley is entirely consistent with the well-
established principle that a court order “is not subject to collateral attack for . . . errors or
irregularities committed by the court in the exercise of its jurisdiction.” Cumberland Bank,
43 S.W.3d at 910.

        In this instance, the order of financial guardianship, despite the “errors and
irregularities,” qualified as facially valid. Further, the evidence does not establish that Old
Line was either a party to the juvenile court proceedings or played any other role in directing
or ratifying the erroneous acts of the juvenile court judge. To the contrary, Old Line acted
consistently with its policy of requesting an “official certificate of the guardian’s
appointment” before disbursing the insurance proceeds to the guardian. Under these
circumstances, we hold that Old Line did not breach its contractual duties by relying upon
the facially valid order of financial guardianship.

         Unlike the Court of Appeals, we also find that Old Line did not act in bad faith when
it relied upon the order after confirming that a financial guardianship had been established.
In Atkins v. Security Connecticut Life Insurance Co., No. 02A01-9710-CV-00257, 1998 WL
900057, at *2 (Tenn. Ct. App. Dec. 28, 1998), our Court of Appeals adopted the “good faith
payment” defense, holding that an insurance company is discharged “from all subsequent
liability when it makes good faith payments to a purported beneficiary without notice of any
competing claims.” It is only when the insurance company is aware of suspicious
circumstances surrounding a claim that the company cannot rely upon the good faith payment
defense unless it has conducted a “reasonably prudent investigation” to uncover the truth.
Id. at *3; cf. Dick Broad. Co. of Tenn. v. Oak Ridge FM, Inc., 395 S.W.3d 653, 660-61
(Tenn. 2013) (citing Restatement (Second) of Contracts § 205 (1979)) (recognizing that

                                              -14-
every contract includes an implied duty of good faith and fair dealing in its performance and
enforcement); Dick Broad., 395 S.W.3d at 668-69 (holding that a standard of reasonableness
governs the performance of contractual duties). This defense has been applied in the context
of automobile insurance claims, see Snow-Koledoye v. Horace Mann Ins. Co., No.
M2000-02954-COA-R3-CV, 2002 WL 225893 (Tenn. Ct. App. Feb. 14, 2002), and life
insurance claims, see Atkins, 1998 WL 900057. In our view, the rationale also applies to
these circumstances.

        In both Atkins and Snow-Koledoye, the insurance companies were discharged from
all liability under the good faith payment defense because the claims were paid in reliance
upon documents that appeared to be valid. Snow-Koledoye, 2002 WL 225893, at *6; Atkins,
1998 WL 900057, at *3. In contrast, the Court of Appeals has rejected the defense for a
company that paid funds in a manner inconsistent with a court order directing the manner of
distribution. In re Guardianship of Tatum, No. W2001-00859-COA-R3-CV, 2002 WL
1751247, at *4 (Tenn. Ct. App. Feb. 4, 2002). In Tatum, Rosalyn Felder petitioned the
probate court for guardianship of her minor daughter, who after the death of her father was
the named beneficiary of funds payable by his employer, BellSouth Telecommunications,
Inc. Id. at *1. The probate court entered an order appointing Felder as guardian and
directing the guardian’s attorney to exercise “joint control of the guardianship estate with the
guardian.” Id. As required by the order, the guardian’s attorney notified BellSouth of the
joint control provision and asked that the funds be forwarded to him for deposit in the
guardianship accounts. Id. BellSouth, however, disregarded the request and instead sent a
check payable to Felder, who subsequently misappropriated the funds. Id. The Court of
Appeals distinguished the ruling in Atkins and held that BellSouth, aware of the court order
requiring joint control and obliged to make “further inquiry” if it was confused as to how the
funds were to be paid, acted negligently and in breach of its contract. Id. at *4.

        In contrast to the circumstances in Tatum, the evidence here established that Old Line
made every effort to pay the claim in a manner that was consistent with the terms of the
insurance policy, the Proof of Death Claimant’s Statement, and the order of financial
guardianship entered by the juvenile court. Moreover, our conclusion is that Old Line
conducted a reasonably prudent investigation when it made further inquiry into the
circumstances of the claim. See Tatum, 2002 WL 1751247, at *4; Atkins, 1998 WL 900057,
at *3. Prior to disbursing the insurance proceeds, Ms. Swanks first requested additional
documentation in the form of Hood’s death certificate and a copy of the insurance policy.
When she learned that Erik was a minor, she also asked for “guardianship papers for the
finances of the minor beneficiary.” After concluding that the appointment of Casey as
personal guardian was insufficient, Ms. Swanks specifically asked for proof of the
appointment of a financial guardian. Concerned about the authenticity of the handwritten
interlineations in the second order, she requested and received written confirmation from the

                                              -15-
juvenile court, signed by the clerk and the judge, that the order establishing the financial
guardianship was valid. After a review of the various documents and consultation with her
supervisor, she paid the claim to Casey for the benefit of Erik. Because these undisputed
facts in the record establish that Old Line acted in good faith, the evidence preponderates
against any finding to the contrary.

        “Persons, especially those who are not parties to a lawsuit, must be able to rely on
judgments and orders of the courts of this state.” Tantaris, 1989 WL 137853, at *6 (emphasis
added). To hold otherwise would undermine the integrity of final judgments issued by the
courts of jurisdiction. See Wilson v. Wilson, 984 S.W.2d 898, 904 (Tenn. 1998) (equating
the enforcement of a court order with the integrity of the judicial process). Obviously, the
Juvenile Court for Grainger County had the obligation to follow the statutory requirements
for the establishment of a guardianship. Had it done so, a proper bond may have been set and
the loss to Erik may have been avoided. Nevertheless, Old Line met its obligation by
requiring the presentation of a facially valid judgment issued by a court of competent
jurisdiction. In the absence of bad faith, justice and principles of finality are better served
by enforcing a facially valid court order. See Tantaris, 1989 WL 137853, at *5; see also
State v. Ritchie, 20 S.W.3d 624, 630 (Tenn. 2000) (reaffirming “the strong presumption of
validity that attaches to final judgments” of courts of competent jurisdiction); Harris v.
McClanahan, 79 Tenn. 181, 185 (1883) (“[I]t is the settled law of this State, deemed
indispensable to that sanctity of judicial proceedings necessary for the public welfare,
that [the] judgments of courts of general jurisdiction can not be collaterally attacked by
evidence outside of the record itself.”).

                                        IV. Conclusion
        Because the evidence demonstrated that Old Line acted in good faith by its reliance
upon the facially valid order of the Juvenile Court for Grainger County before disbursing the
insurance proceeds to the guardian, it did not breach its contractual duties. The $86,842.37
judgment in favor of Erik Hood against Old Line is reversed, and the corresponding cross-
claim in favor of Old Line against Casey Jenkins is vacated. Costs of this appeal are taxed
to The Old Line Life Insurance Company of America and its surety, for which execution may
issue if necessary.

                                                    GARY R. WADE, CHIEF JUSTICE

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