Neff v. Cherokee Ins. Co.

• Decision Date: 27 January 1986
• Citation: 704 S.W.2d 1
• Parties: John C. NEFF, Commissioner of Commerce and Insurance, Appellee, v. CHEROKEE INSURANCE CO., in Receivership, v. PINE TOP INSURANCE CO. and Pine Top Insurance Co., Limited, Appellants. 704 S.W.2d 1
• Court: Tennessee Supreme Court

Page 1

704 S.W.2d 1

John C. NEFF, Commissioner of Commerce and Insurance, Appellee, v. CHEROKEE INSURANCE CO., in Receivership, v. PINE TOP INSURANCE CO. and Pine Top Insurance Co., Limited,

Appellants.

704 S.W.2d 1

Supreme Court of Tennessee,

at Nashville.

Jan. 27, 1986.

Michael E. Evans, Nashville, for appellants.

William B. Hubbard, Nashville, for appellee.

OPINION

DROWOTA, Justice.

This case presents an issue of first impression in Tennessee, requiring this Court to construe the language of T.C.A. Sec. 56-9-127 (1980). This statute establishes the priority accorded to claims in the distribution of assets of an insolvent insurance company. The sole issue raised is whether, in the rehabilitation of an insurance company by the Commissioner of Commerce and Insurance, claims made by other insurance companies under contracts of reinsurance are classified as claims for benefits under policies and for losses incurred, or are the claims of general creditors with the lowest priority. The statute at issue is contained within a comprehensive regulatory scheme regarding insurance and must be considered in light of the public policies that prompted the development of this statutory framework.

The appellants in this case are Pine Top Insurance Company and Pine Top Insurance Company, Limited (referred to collectively as Pine Top), which operate in the United States and the United Kingdom respectively. Pine Top had entered into various reinsurance agreements with Cherokee Insurance Company (Cherokee), covering a percentage of Pine Top's previously incurred insurance obligations. Subsequently, in July 1984, the Commissioner of Commerce and Insurance (Commissioner) placed Cherokee into receivership. As a result, acting through a Special Deputy Commissioner as Receiver, the Commissioner filed a Petition for Approval of Interim Plan of Rehabilitation. This Interim Plan was approved by the Davidson County Chancery Court on August 8, 1984, providing that Cherokee pay the claims for benefits, for losses incurred, and for unearned premiums before those of general creditors, pursuant to T.C.A. Sec. 56-9-127: ¹

56-9-127. Priority of claims.--The following priority of claims in the distribution of assets is hereby established:

(1) Claims for cost of administration and conservation of assets of the unsurer[sic];

(2) Compensation actually owing to employees other than officers of an insurer, for services rendered within three (3) months prior to the commencement of a proceeding against the insurer under this chapter, but not exceeding one thousand dollars ($1,000) for each employee and in the discretion of the commissioner may be paid as soon as practicable after the proceeding has been commenced. Such priority shall be in lieu of any other similar priority which may be authorized by law as to wages or compensation of such employees;

(3) Claims for benefits under policies and for losses incurred, including claims of third parties under liability policies, but excluding claims of other insurers for subrogation and claims for payments and settlements under uninsured motorist coverages;

(4) Claims for unearned premiums;

(5) Claims of general creditors, including claims of other insurers for subrogation and claims for payments and settlements under uninsured motorist coverages.

The Interim Plan classified direct policyholders of Cherokee in Classes 3 and 4, but all claims arising from reinsurance agreements were placed in Class 5. Consequently, on April 4, 1985, Pine Top filed a Motion to Modify or Set Aside Interim Plan of Rehabilitation, arguing that its claims should have been given Class 3 priority as claims under policies of reinsurance for losses incurred. ² This argument was based on its contention that reinsurance contracts are insurance policies for the purposes of T.C.A. Sec. 56-9-127. Citing the consistent and unchallenged treatment of reinsurance by the Commissioner under the statute, as well as the pre-enactment and legislative history of T.C.A. Sec. 56-9-127, the Chancellor found that this provision of Title 56 had been amended for the express purpose of allowing direct policyholders priority over other creditors. In part, the trial court based its decision on the relative expertise of direct policyholders, compared to that of other insurance companies, in making insurance purchasing choices. The motion of Pine Top was accordingly denied on May 7, 1985. The order became final and, pursuant to T.C.A. Sec. 56-9-103(e), a direct appeal to this Court was brought by Pine Top.

I

Because we are faced with an issue of first impression under this statute, we look to the place occupied by T.C.A. Sec. 56-9-127 in the comprehensive statutory scheme involved. We are also guided by the rules of statutory construction found in the case law of this State. We recall at the outset that "[a]s a general proposition Code provisions in pari materia ... must be construed together, and the construction of one, if doubtful, may be aided by the consideration of the words of and legislative intent indicated by the others." Gallagher v. Butler, 214 Tenn. 129, 137, 378 S.W.2d 161, 164 (1964) (citation omitted). Additionally, this Court has stated that "[t]he obligation of a court in construing a statute is to give effect to the statutory purpose. When the proper application of a statute is not entirely clear, the first inquiry is to ascertain the general legislative intent." State by Lockert v. Knott, 631 S.W.2d 124, 126 (Tenn.1982). Moreover, we have consistently held that "in construing a statute, all sections are to be construed together in light of the general purpose and plan, evil to be remedied, and object to be attained...." State v. Netto, 486 S.W.2d 725, 729 (Tenn.1972). See also Westinghouse Electric Corp. v. King, 678 S.W.2d 19 (Tenn.1984). While we recognize that an unambiguous statute does not require resort elsewhere than the face of the statute to ascertain legislative intent, see, e.g., Roddy Manufacturing Co. v. Olsen, 661 S.W.2d 868 (Tenn.1983), this principle of construction cannot relieve us of the essential task of saying what the law means, particularly in a case of first impression. See, e.g., Weaver v. Woods, 594 S.W.2d 693, 695 (Tenn.1980).

The statute in question is part of a broadly conceived scheme for the regulation of insurance in Tennessee. The appellant, Pine Top, has cited many provisions of Title 56 for the proposition that contracts of reinsurance are treated as insurance policies within this statutory framework. Pine Top argues that the language of T.C.A. Sec. 56-9-127(3) provides no principled basis upon which to exclude reinsurance contracts from Class 3 under the maxim of statutory construction that if one exception is expressed then others are excluded (expressio unius est exclusio alterius). Pine Top then argues that reinsurance is referred to throughout Title 56, citing T.C.A. Secs. 56-1-102(4), 56-1-404, 56-2-207, 56-2-208, 56-2-209, and a number of others as examples of the Legislature's intent to treat reinsurance contracts in the same manner as direct insurance policies. Nevertheless, not only do we look beyond these isolated sections of Title 56 to ascertain the policy involved, but we also are guided by T.C.A. Sec. 1-3-103 (1985), which provides that conflicts among Code provisions are to be resolved so that each provision prevails as to subjects within the special purview of the relevant chapter or title. Moreover, as to the policy motivating the regulatory scheme, which is found consistently in other states as well as in Tennessee, Richards writes in Insurance, Sec. 39, that

[t]he emphasis [of insurance regulation] has been placed simply upon protecting the little policy-holder who cannot tell when he is charged too much for his insurance; since he does not investigate his purchase too carefully nor could he determine if a given insurer has the capacity, i.e., the solvency, to perform in the future when the insured event occurs, the States have established regulatory bodies to secure that necessary measure of protection.

Further, the Legislature stated expressly in T.C.A. Sec. 56-1-102 that "[t]he ... definitions apply in chapters 1 [through] 4, 7, 10 and 11 of this title," which means that they do not apply in Chapter 9, a provision of which we are required to construe here, and no definition of reinsurance appears in T.C.A. Sec. 56-2-201 or in any other provision of Title 56. This is so because reinsurance is more in the nature of a contractual device or business practice employed among insurance companies to spread their risks, than it is a policy of insurance for which a person or business bargains to obtain specific protection from a given risk. See T.C.A. Secs. 56-2-201; 56-7-101. Cf. T.C.A. 56-2-207. The definition of an insurance contract is found in T.C.A. Sec. 56-7-101, but while it would perhaps otherwise encompass a reinsurance agreement, the express inclusion of or reference to reinsurance in a number of places without doing so in this definition implies its exclusion elsewhere for the purposes of Title 56 as a whole. Consistent with the presumption of the Legislature's knowledge of the subjects on which it acts, the Code simply and wisely recognizes and provides for the business practice of insurance companies in obtaining reinsurance contracts to spread their risks. See, e.g., T.C.A. Secs. 56-1-102(4); 56-1-404; 56-2-207; 56-2-208; 56-2-209; 56-5-301(5); 56-9-131(b)(8); 56-13-103(a)(2); 56-13-104; 56-13-122; 56-22-110; 56-23-104. Although referring specifically to what is now T.C.A. Sec. 56-2-201, the rationale expressed by this Court in Equitable Life Assurance Co. v. Odle, 547 S.W.2d 939 (Tenn.1977), may be generalized to this setting as well: "It appears reasonable to conclude that the Legislature was concerned only with defining all of the kinds of insurance in the context of determining insurance company qualifications to insure and the granting of authority...