Court Opinion

ID: 1068692
Source: CourtListenerOpinion
Date Created: 2013-10-09 19:30:52.425224+00
Date Added: 2024-06-11T10:44:20.646139
License: Public Domain

IN THE COURT OF APPEALS OF TENNESSEE
                               AT KNOXVILLE
                           September 27, 2002 Session

   STATE OF TENNESSEE, EX REL. ANNE B. POPE v. UNITED STATES
               FIRE INSURANCE COMPANY, ET AL.

                    Appeal from the Chancery Court for Hamilton County
                      No. 02-0079 W. Frank Brown, III, Chancellor

                                 FILED FEBRUARY 28, 2003

                                 No. E2002-01092-COA-R3-CV

This is a suit by the State of Tennessee, ex rel. Anne B. Pope, in her official capacity as
Commissioner of the Tennessee Department of Commerce and Insurance, against the following
Defendants: United States Fire Insurance Company; United States Fidelity and Guaranty Company;
Employers Reinsurance Corporation; Utica Mutual Insurance Company; Insurance Company of
North America; and Safeco Insurance Company of America. The suit seeks to require the Defendant
Corporations to deposit with a Receiver approved by the Chancery Court the principal amount of the
last rider to a bond that they had executed to ensure payment of worker’s compensation benefits that
might be owed by North American Royalties, Inc., and its subsidiaries, Wheland Holding Company,
Inc., Wheland Manufacturing Company, Inc., and Wheland Foundry, LLC. The suit was initiated
because North American Realties, Inc., which sought bankruptcy protection, was self-insured
pursuant to T.C.A. 50-6-405. A number of employees who contended they were entitled to benefits
under the Worker’s Compensation Statute intervened, insisting that the Companies which had
executed the bonds were liable for the aggregate amount thereof, rather than the amount shown on
the last rider issued as to the bonds in question. The Trial Court found in favor of the Insurance
Companies. We affirm.

     Tenn.R.App.P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed;
                                   Cause Remanded

HOUSTON M. GODDARD , P.J., delivered the opinion of the court, in which CHARLES D. SUSANO, JR.,
and D. MICHAEL SWINEY, JJ., joined.

Thomas L. Wyatt, Chattanooga, Tennessee, for the Appellants/Intervening Petitioners, Carlise Cagle,
David Seale, Bradley Hatfield, Doug West, Sr., Richard Cole, James Workman, Silas Passmore, Jim
T. Dickson and Eddie Hart, Sr.

Paul G. Summers, Attorney General and Reporter, and Sarah Ann Hiestand, Senior Counsel, Finance
Division, Office of the Attorney General, for the Appellee State of Tennessee, ex rel. Anne B. Pope,
Commissioner of the Tennessee Department of Commerce and Insurance
John M. Gillum, Nashville, Tennessee, for the Appellee United States Fidelity and Guaranty
Company

William E. Godbold, III, Chattanooga, Tennessee, for the Appellee Employers Reinsurance
Corporation

William L. Norton, III, of Nashville, Tennessee, for the Appellee, United States Fire Insurance
Company

                                             OPINION

       The Intervening Petitioners appeal.

       Because there are no disputed facts, resolution of this appeal becomes a question of law
decided by this Court, unaccompanied by a presumption of correctness of the determination below.
Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993); Campbell v. Florida Steel
Corp., 919 S.W.2d 26, 35 (Tenn. 1996).

      Counsel for the Intervening Petitioners concedes in the brief he filed that there is no
Tennessee case precisely in point. He does, however, correctly argue in his brief as follows:

               The Tennessee Workers’ Compensation Act is a creature of the
        Legislature, the purpose of which is to increase the right of employees to be
        compensated for injuries arising out of their employment. Aerosol Corp. v.
        Johnson, 222 Tenn. 339, 435 S.W.2d 832 (1968); W. S. Dickey Mfg. Co. v. Moore,
        208 Tenn. 576, 347 S.W.2d 493 (1961). It is to be liberally construed to
        accomplish its intended purpose - compensation for work injuries. Bishop Baking
        Co. v. Forgery, 538 S.W.2d 602 (Tenn. 1976). Its provisions are written into
        every employment contract governed by Tennessee law. Barham v. Southeastern
        Motor Truck Lines, Tenn. 532, 201 S.W.2d 678 (1947).

       He also presents three cases which he contends tend to support his position.

        In Karstens v. Wheeler Millwork Cabinet & Supply Co., Inc., 614 S.W.2d 37 (Tenn. 1981),
the employer purchased a policy for worker’s compensation and was issued a certificate of
compliance which was filed with the Department of Labor. At the time of the issuance of the
certificate, the employer employed more than five employees. Later, the work force was reduced to
less than five and one of the employees was injured. The employer sought to cancel the policy
retroactively to the date when the work force fell below five employees.

                                               -2-
       Both the employer and the insurance company attempted to avoid payment of benefits
because the employer reduced its work force. The Supreme Court required that the benefits be paid,
holding that the public record maintained by the Department of Labor superceded any facts or
contractual status existing between the employer and the insurance company.

        In the second case, Malkiewicz v. R. R. Donnelley & Sons Company, 794 S.W.2d 728 (Tenn.
1990), the injured employee sought to bring suit against the party providing the security under which
the employer qualified as a self-insurer. The guarantor sought and was ultimately granted by the
Supreme Court the protection of the tort immunity afforded under the Worker’s Compensation
Statute.

       With all due respect, we do not believe either case aids us in resolution of this appeal.

       The third case relied upon by the Intervening Petitioners is Green v. United States Fidelity
& Guaranty Co., 185 S.W. 726 (Tenn. 1916). There, our Supreme Court held a fidelity bond
renewed annually upon payment of the annual premium created separate annual contracts, which
provided security each year up to the penal sum of the bond.

        Counsel for the Intervening Petitioners does recognize that there are factual distinctions
between the bond in Green and the bonds here at issue, and that in Green, the bond was for the term
of one year and renewal certificates were issued annually upon payment of the annual premium. This
distinction is pointed out in Fourth & First Bank & Trust Co. v. Fidelity & Deposit Co. of Maryland,
281 S.W. 785 (Tenn. 1926), hereinafter discussed.

       Fourth & First Bank & Trust Co. v. Fidelity & Deposit Co. of Maryland, 281 S.W. 785
(Tenn. 1926), was relied upon by the Chancellor and supports his resolution. The brief of USF&G
accurately states the facts and holding of that case:

                  The Fourth & First decision is analogous to the present case, in that
         USF&G’s Bond, like that in Fourth & First, was for an indefinite period, subject
         to cancellation. If anything, the bank in Fourth & First had a stronger argument
         than Intervening Petitioners because that bond specifically referenced the payment
         of annual premiums. Despite that fact, the Fourth & First decision determined
         that, like the USF&G Bond, “the original obligation was not limited to a year,”
         and that “[a]t the end of the first year, the bond went on, whether the premium was
         paid or not.” Fourth & First, 281 S.W. at 787.

                 The Fourth & First decision is consistent with custom and practice in the
         surety industry, which dictates that a surety charge an annual premium for
         continuous bond obligations. Because, a continuous bond obligation is one that
         is operable until cancelled, it is necessarily indefinite as to term. A surety charges
         an annual premium as a matter of assessing the risk on an on-going basis.

                                                  -3-
         Charging a lump-sum amount at the commencement of the bond’s effective date
         is not possible.

                 Consistent with the custom and practice, USF&G charged an annual
         premium as a matter of convenience. This practice allowed USF&G to evaluate
         the risk associated with an indefinite obligation on an on-going basis. When
         USF&G increased the amount of the annual premium, it did not issue a new bond
         nor did the increases relate to a new bond or new bond number.

                 The Intervening Petitioners attempt to distinguish the Fourth & First
         decision by noting that the bond in that case was a common law bond rather than
         a statutory bond. That fact is of no consequence whatsoever. The Intervening
         Petitioners suggest that the remedial nature of the Workers’ Compensation Law
         requires that the bond be treated differently. However, the remedial nature of the
         law cannot be extended to impose liability that is clearly not contemplated by the
         statute. The fact that the court considered a common law bond is no ground to
         disregard the analysis in Fourth & First.

       We agree with the Chancellor that Fourth & First is persuasive in our resolution of the
question before us.

        Our conviction that this determination is appropriate is buttressed by the fact that Mark
Brothers, Director of self-insurance in the Department of Commerce and Insurance, testified that he
set the amount required to be bonded annually, and it was intended that the amount of bond would
be an amount determined by him upon reviewing various materials relative to past worker’s
compensation claims by employees.

          We also note that if the Intervening Petitioners are correct, the amounts available when
considering the initial issue and all riders as to all bonds involved would be in excess of $9,000,000.
It is difficult to envision this being appropriate when the last rider as to the last bond issued by U.S.
Fire Insurance Company in November 1999, was only $975,000.

     Finally, we emphasize that the bonding companies followed the requirements of the
Commissioner of Labor in posting the bonds and in increasing the penal amounts.

        For the foregoing reasons the judgment of the Trial Court is affirmed and the cause remanded
for collection of costs below. Costs of appeal are adjudged against the Intervening Petitioners,
Carlise Cagle, David Seale, Bradley Hatfield, Doug West, Sr., Richard Cole, James Workman, Silas
Passmore, Jim T. Dickson and Eddie Hart, Sr., and their surety.

                                                  -4-
_________________________________________
HOUSTON M. GODDARD, PRESIDING JUDGE

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