                 IN THE COURT OF APPEALS OF TENNESSEE
                             AT NASHVILLE
                                    August 16, 2005 Session

            LIPMAN BROTHERS, INC. v. ARETE AGENCIES, INC.

                Direct Appeal from the Chancery Court for Davidson County
                        No. 99-1557-II   Carol McCoy, Chancellor



                   No. M2004-02073-COA-R3-CV- Filed December 7, 2005


Plaintiff Lipman Brothers, Inc. purchased 1,156 cases of French wine and hired Italia Di
Navigazione, S.p.A. (“Italia”) to ship the wine to the United States from France. Italia subsequently
hired Defendant Arete Agencies, Inc. (“Arete”) to transport the wine to Plaintiff’s Nashville
warehouses. Arete placed the wine on a train bound for Nashville but, after reaching its destination,
the wine was never delivered to Plaintiff and ultimately spoiled after sitting outside in the summer
heat for thirty-six days. Arete’s insurance provider, The Hartford Insurance Company (“Hartford”),
denied coverage for the incident. Plaintiff later obtained a judgment against Arete and, after learning
that Arete was unable to pay, issued a writ of garnishment against Hartford. The trial court
subsequently quashed Plaintiff’s writ after concluding that the debt was “contingent” because
Plaintiff failed to first institute a declaratory judgment action to interpret the disputed insurance
contract before seeking garnishment. We reverse.

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

DAVID R. FARMER , J., delivered the opinion of the court, in which W. FRANK CRAWFORD , P.J., W.S.,
and WILLIAM H. INMAN , SP . J., joined.

Eugene N. Bulso, Jr. and Barbara Hawley Smith, Nashville, Tennessee, for the appellant, Lipman
Brothers, Inc.

Thomas I. Carlton, Jr. and Ben M. Rose, Nashville, Tennessee, for the appellee, The Hartford
Insurance Company.

                                             OPINION

                          Factual Background and Procedural History

        This case arises from the spoiling of 1,156 cases of wine. Lipman Brothers, Inc.
(“Plaintiff”) is a wine distributor based in Nashville, Tennessee. On April 30, 1998, Plaintiff
contracted with Italia Di Navigazione, S.p.A. (“Italia”) to ship 1,156 cases of wine from Les Vins
Georges Duboeuf in La-Chappelle-De Guinchay, France, to Lipman’s warehouse located in
Nashville, Tennessee. Italia shipped the wine overseas from France to Savannah, Georgia, and
subcontracted with Arete Agencies, Inc. (“Arete”) to transport the wine from Savannah to
Plaintiff’s Nashville warehouses. On June 5, 1998, Arete placed the wine on a railroad car for
immediate transport to Nashville. The wine arrived in Nashville on June 8, 1998, but Plaintiff
did not receive it until July 15, 1998. During this thirty-six day period, the wine remained
outside in the railyard unprotected from the summer heat and elements. As a result of this
exposure, the wine spoiled. Plaintiff subsequently filed suit against Arete on June 2, 1999, to
recover damages resulting from the spoiling of the wine.

         At all times relevant to this matter, Arete had insurance coverage under a commercial
general liability policy issued by The Hartford Insurance Company (“Hartford”). Arete
submitted a claim to Hartford for Plaintiff’s loss and asked Hartford to defend and indemnify
Arete with respect to Plaintiff’s complaint. However, Hartford denied coverage for Arete’s claim
on July 15, 1999, due to a “care, custody, or control” exclusion in the policy. Specifically, in a
letter to Arete, Hartford stated:

       The Hartford Insurance Company issued Policy No. 22 SBA EK7130 to Arete
       Transportation with a policy period from 1/27/98 through 1/27/99. The limits of
       liability are $1M per occurrence for all bodily injury or property damage. The
       pertinent coverage form is the SS 00 08 0698, the Business Liability endorsement.
       This form indicates under the insuring agreement that we will pay all the sums
       that the insured becomes legally obligated to pay as damages because of bodily
       injury, property damage, personal injury or advertising injury to which this
       insurance applies. A review of the exclusions in this form indicate under
       Exclusion K. 4 that this policy would not apply to property damages to property in
       care, custody or control of the insured. Since [Plaintiff’s] Complaint indicates
       that the property damage occurred while in the care and control of Arete, we must
       respectfully disclaim coverage for this loss based on this exclusion.

After Hartford refused to defend the case, Arete filed an answer to Plaintiff’s complaint. Arete
subsequently dissolved on December 14, 1999. On April 28, 2000, the court granted judgment
for Plaintiff against Arete in the amount $52,032.28.

        Due to Arete’s inability to pay the court’s judgment, Plaintiff executed a non-wage
garnishment against Hartford seeking payment of the $52,032.28 award. Hartford responded by
arguing that the insurance policy did not provide coverage for the allegations made in Plaintiff’s
original complaint or for the damages claimed therein. Hartford subsequently filed a Motion to
Quash Plaintiff’s Writ of Execution and Garnishment asserting, among other things, that any
obligation owed by Hartford was contingent and thus not subject to garnishment. In support of
this argument, Hartford cited the Tennessee Supreme Court’s decision in Overman v. Overman,
570 S.W.2d 857 (Tenn. 1978) for the proposition that “[w]hile obligations that are certain,


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although not presently due, are subject to garnishment under Tennessee law, obligations that are
contingent, in that they may never become due[,] are not.” Hartford argued that since Plaintiff
had not first sought a declaratory judgment action interpreting the insurance contract, any amount
potentially due under the contract was contingent. Plaintiff filed a Motion for Conditional
Judgment on June 25, 2004. The trial court granted Hartford’s Motion to Quash from the Bench
on July 23, 2004. In so ruling, the trial judge made the following findings:

              The statute under which [Plaintiff] has issued a garnishment against
       [Hartford] is [Tenn. Code Ann. §] 26-2-202. . . .

               ....

                . . . The statute that I referenced says that all property, debts[,] and effects of
       the defendant in the possession or under the control of the garnishee shall be liable
       to satisfy the plaintiff’s judgment from the service of the notice or from the time they
       came into the plaintiff’s hands if acquired subsequent to the service of the notice and
       before judgment.

             The little notes cite the cases that have been referenced here. [Overman].
       They make a distinction between property that’s subject to the garnishment. . . .

               ....

               The question is whether or not Hartford has property that is subject to
       garnishment so as to satisfy [Plaintiff’s] judgment. [Hartford has] come forward and
       said, [“]We have no obligation to pay the judgment because the contract has an
       exclusion, and the provision of the exclusion appears in a form called the “Business
       Liability Coverage Form.”

               ....

               [Garnishment applies] to insurance companies when it’s clear that they have
       an obligation to pay. . . . [Hartford denies] any obligation or any liability to Arete.
       I have looked at the contract.

               ....

               The burden on the insurance company to show that they have no liability to
       Arete by case law is a heavy burden. To come out from under an insurance policy,
       that’s generally a heavy burden. That’s not the same burden that exists in denying
       obligations under a garnishment. It’s a different burden.




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               That doesn’t mean that Lipman cannot pursue Hartford. But it has to be in
       a more proper form. . . . I think that the issue will really focus on what was
       Hartford’s obligation under the contract that they had with Arete, that Lipman steps
       into the shoes of Arete for the purposes of construing this contract as the judgment
       creditor.

               Hartford denied that it had liability when a demand was made early on. . . .

              And the garnishment statute[,] as I construe it[,] was not to attach an
       insurance policy. It was to attach property, debts[,] and effects of the defendant in
       the possession or under the control of the garnishee. Right now, there is no showing
       that Hartford has any property, debts[,] or affects of the defendant in its possession
       or under its control.

               That’s what we’re looking at. And while, [Plaintiff argues] that there’s an
       obligation, the chose in action must be one that the Court can recognize as
       constituting property. And that is not what we have here. We have a denial of
       coverage. And that’s what makes it contingent. I can’t do that in these proceedings.

Plaintiff subsequently filed a Motion to Reconsider which the trial court denied. The trial court
entered a final written order quashing Plaintiff’s Writ of Execution and Garnishment on August
20, 2004. Plaintiff appealed.

                                         Issues Presented

       We find the issue in this case to be whether the trial court erred in quashing Plaintiff’s
Writ of Garnishment. For the reasons stated below, we reverse.

                                        Standard of Review

        The issues presented in this appeal are issues of law. The standard of review for this
Court on issues of law is de novo, with no presumption of correctness afforded to the conclusions
of the court below. Bowden v. Ward, 27 S.W.3d 913, 916 (Tenn. 2000); Tenn R. App. P. 13(d)
(2005).

                                              Analysis

       In this case, Plaintiff filed a Writ of Garnishment against proceeds allegedly owed to
judgment debtor Arete under a policy issued by Arete’s insurer, Hartford. Hartford denied
coverage. The trial court subsequently quashed Plaintiff’s writ after finding that any debt owed
by Hartford to Arete was contingent since a legal dispute existed as to whether the insurance
contract provided coverage. The trial court further refused to address the dispute because it



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concluded that it was improper for a court to interpret a disputed insurance contract in a
garnishment proceeding. We disagree with both holdings.

        This Court has previously defined a garnishment as “an attachment of a debt due the
judgment debtor from the garnishee.” Smith v. Smith, 165 S.W.3d 285, 293 (Tenn. Ct. App.
2004) (citations omitted). “[S]ervice of the garnishment upon the garnishee is a warning to the
garnishee not to pay the debt but to answer the garnishment and hold the fund subject to the
orders of the [c]ourt.” Id. Tennessee law allows for garnishment of proceeds from commercial
general liability insurance policies when “a defendant has actually suffered the damages of the
kind contemplated by the contract.” Gray v. Houck, 68 S.W.2d 117, 118 (Tenn. 1930).
However, “Tenn. Code Ann. § 29-7-112 (2002) provides that a final garnishment judgment may
be entered against a garnishee only where ‘it appears that the garnishee is indebted to the
[principal judgment debtor] defendant.’ ” Tenn. Indus. Mach. Co. v. Accuride Corp., 139
S.W.3d 290, 294 (Tenn. Ct. App. 2004). Such indebtedness must be actual and vested, not
contingent upon some future action or event.1 Overman v. Overman, 570 S.W.2d 857, 858
(Tenn. 1978).

        When a debt is disputed in a garnishment action,
        [i]t falls upon the trial court . . . to determine the indebtedness of the garnishee
        before entering judgment. Meadows v. Meadows, No. 88-135-II, 1988 WL
        116382, at *2 (Tenn. Ct. App. 1988) (citing Cheatham v. Trotter, 7 Tenn. (1 Peck)
        198 (1823)). As the court makes this determination, it must bear in mind the
        general rule that a “plaintiff is not to be placed in any better position, nor the
        garnishee in any worse position, than he would be if defendant himself was
        enforcing his claim.” Gray v. Houck, 167 Tenn. 233, 68 S.W.2d 117, 118 (1934)
        (citation omitted). This is because, “the plaintiff in garnishment is, in his relation
        to the garnishee, substituted merely to the rights of his own debtor, and can
        enforce no demand against the garnishee which the debtor himself, if suing, would
        not be entitled to recover.” Id.

Accuride, 139 S.W.3d at 294.

       In the case at bar, the trial court relied upon the Tennessee Supreme Court’s holding in
Overman v. Overman, 570 S.W.2d 857 (Tenn. 1978), in finding that any debt owed from
Hartford to Arete was contingent and thus not subject to garnishment. However, we find
Overman inapplicable to the facts in this case. In Overman, the plaintiff sought to garnish rights
held by the defendant in two annuity agreements which were not yet mature. Id. at 857. In
holding that the plaintiff could not garnish the annuities, the Tennessee Supreme Court found
that



        1
          As we discuss below, a denial of insurance coverage by a garnishee insurance company alone does not make
alleged debt contingent for the purposes of garnishment.

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       this obligation, whether it is characterized as a debt or as a chose in action, is not
       subject to garnishment because it is contingent on a future event[–the defendant’s]
       survival until the dates of maturity. If he should die before the contracts mature,
       the respondents will never be indebted to [the defendant] in any amount. While
       obligations that are certain, although not presently due, are subject to garnishment,
       obligations that are contingent, in that they may never become due, are not.

Id. at 858 (citations omitted).

        In this case, the alleged debt owed by Hartford to Arete under the insurance policy is not
contingent upon some future event. Rather, we find that any such debt accrued at the time an
event allegedly covered under the policy occurred. In so ruling, we adopt the reasoning set forth
in Zimek v. Ill. Nat. Cas. Co., 19 N.E.2d 620 (Ill. 1939), where the Illinois Supreme Court held:

       In the present case it is said the claim is contingent because the casualty company
       denies that it is liable to Zimek under the terms of the policy of insurance. But
       defendant misconceives the nature of the contingency contemplated by the rule. A
       contingent claim is one where liability hinges upon some future event, which may or
       may not occur; it is dependent on some condition as yet unperformed. Grand Lodge,
       I. O. O. F. v. Troutman, 80 Kan. 441, 103 P. 94. Here, whatever right Zimek has
       against the company has vested; all the events which can fix the garnishee with
       liability have taken place. It only remains to be determined whether those events
       make the casualty company liable to Zimek. . . . Thus, the denial of liabilit[y] by the
       garnishee does not create a contingency which will prevent garnishment. If we held
       otherwise, garnishment process by a creditor could be defeated in every case by the
       garnishee’s denial of indebtedness to the judgment debtor.

Zimek, 19 N.E.2d at 623.

         Since we have held that the alleged debt in this case is not contingent, the only issue
remaining is whether Hartford’s insurance contract provided coverage to Arete for losses
suffered by Plaintiff. As previously noted, in garnishment proceedings “[i]t falls upon the trial
court . . . to determine the indebtedness of the garnishee before entering judgment.” Accuride,
139 S.W.3d at 294 (citations omitted). As a result, we remand this case to the trial court for the
purpose of determining coverage under the insurance policy between Hartford and Arete.




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                                          Conclusion

        Based upon the foregoing, we hereby reverse the chancery court and remand this case for
further proceedings as outlined above. Costs of this appeal are taxed to Appellee, The Hartford
Insurance Company for which execution may issue of necessary.



                                                    ___________________________________
                                                    DAVID R. FARMER, JUDGE




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