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Cunningham v. Tennessee Department of Commerce and Insurance

Court of Appeals of Tennessee, Nashville

September 11, 2017


          Assigned on Briefs July 3, 2017

         Appeal from the Chancery Court for Davidson County No. 15-1072-IV Russell T. Perkins, Chancellor.

         This appeal involves the decision of the Commissioner of the Tennessee Department of Commerce and Insurance (the "Commissioner") to impose a civil fine and revoke the license of insurance agent Charles E. Cunningham ("Cunningham"), after concluding that Cunningham committed six (6) violations of applicable statutes in connection with his insurance practice. Cunningham filed a petition for review in the Chancery Court for Davidson County challenging the sufficiency of the evidence relied on by the Commissioner. The trial court found that the record supported the Commissioner's decision and choice of penalty. Cunningham appealed to this Court. We affirm the judgment of the trial court.

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

          William E. Griffith, Nashville, Tennessee, for the appellant, Charles Edward Cunningham.

          Herbert H. Slatery, III, Attorney General and Reporter, Andrée Sophia Blumstein, Solicitor General, and Timothy R. Simonds, Assistant Attorney General, Nashville, Tennessee, for the appellee, Tennessee Department of Commerce & Insurance.

          Arnold B. Goldin, J., delivered the opinion of the court, in which Frank G. Clement, Jr., P.J., M.S., and John W. McClarty, J., joined.



         I. Background and Procedural History

         Cunningham was a licensed insurance agent in Tennessee from 1982 until his license was revoked as a result of these proceedings. Cunningham operated his business under the name Cunningham Insurance, LLC. At all times relevant to these proceedings, Charles Michael Outland ("Outland") and Rodney Moore ("Moore") were co-owners of ABC Services ("ABC"), a janitorial business.

         On December 22, 2009, Moore gave Cunningham a check for $4, 717, payable to Travelers Indemnity Company ("Travelers") ("Transaction 1"). Moore tendered the check as partial payment for ABC's workers' compensation and general liability insurance policies. Instead of remitting ABC's check to Travelers for purchase of the requested policies, Cunningham deposited the check directly into his business operating account. Cunningham never submitted an application for an insurance policy to Travelers, and Travelers never issued a policy in connection with Transaction 1.

         On December 29, 2009, Moore issued a second check for $10, 744. The check was tendered as payment-in-full for ABC's workers' compensation and general liability policies with effective dates from December 7, 2009 through December 7, 2010 ("Transaction 2"). Although the check was made payable to Travelers, Cunningham once again deposited the check directly into his business operating account.

         After Transaction 2, Cunningham submitted an application for ABC's policies to Travelers. Travelers issued the requested policies to ABC with effective coverage dates of December 7, 2009 through December 7, 2010. Cunningham, however, did not pay Travelers the policy premiums. After repeated notifications for payment were mailed to Cunningham, Travelers canceled ABC's policies in February 2010 due to non-payment of the premiums. Travelers eventually referred the case to RMS Collection Service ("RMS").

         On April 12, 2010, ABC contacted Cunningham to request its certificates of insurance. Cunningham did not inform ABC that the policies had been canceled in February due to non-payment of premiums. Instead, Cunningham provided ABC a fraudulent declarations page for the canceled insurance policies, and he led ABC to believe its coverage was still effective.

         In July 2010, RMS contacted Outland and notified him that ABC's policies with Travelers had been canceled on February 7, 2010 for non-payment of premiums. Outland immediately contacted Travelers about the status of the policies, and Travelers informed Outland that it had issued the policies but never received the payments. Travelers also informed Outland that Travelers had not notified ABC directly concerning the cancellations because Cunningham had directed Travelers to send correspondence concerning the policies directly to his mailing address. Additionally, Travelers advised Outland that the total amount due for the annual premiums was $6, 619-not $10, 744.

         After speaking with Travelers, Outland went directly to Cunningham's office to confront him. Cunningham insisted the policies were effective and provided Outland with a declarations page effective March 5, 2011 to March 5, 2012. When Outland questioned Cunningham about the incorrect dates, Cunningham explained that the dates reflected a clerical error, ABC's policies were still effective, and Travelers must be mistaken because it swept the payment from his account. Outland then confronted Cunningham with the fact that Travelers had promised to refund him for the misappropriated funds and to reinstate ABC's policies. Even then, Cunningham continued to blame Travelers for the problem.

         On July 30, 2010, Outland filed a complaint with the Tennessee Department of Commerce and Insurance, Insurance Division ("Division"), alleging that Cunningham collected premiums from ABC, failed to purchase the promised policies, and continued to misrepresent their existence for several months. Also, in July 2010, Marguerite Fredette, a senior investigator with Travelers' internal investigations division, opened an investigation of Cunningham's practices after being contacted by Outland.

         Travelers reimbursed Outland and reinstated ABC's polices. It then notified Cunningham to immediately reimburse Travelers' for the premiums Cunningham misappropriated from ABC. Travelers informed Cunningham repeatedly that nonpayment and a failure to cooperate with Travelers' audit personnel would result in an immediate termination of Cunningham's appointment as an agent for Travelers. On August 9, 2010, Cunningham sent Travelers a check for $9, 581; however, the check was returned for insufficient funds. After receiving notification, Cunningham emailed Travelers representing that he had mailed a cashier's check on August 30, 2010. However, Travelers never received the payment, and Cunningham further failed to provide documents that Travelers requested in connection with its audit of Cunningham. On September 29, 2010, Travelers terminated its relationship with Cunningham and filed a complaint with the Division.

         The Division initiated a formal investigation of Cunningham on November 8, 2010. On June 28, 2013, the Division filed a petition against Cunningham with the Secretary of State, alleging that he violated Tennessee Code Annotated Sections 56-6-112(a)(4), (5), (7), (8), 56-8-104(1)(A), and 56-6-116. The Division requested that Cunningham's license be revoked and the maximum civil penalty of two hundred and fifty thousand dollars ($250, 000) be imposed as authorized by Tennessee Code Annotated Section 56-2-305.

         On June 12, 2014, a hearing was held on the Division's petition before an administrative law judge (the "ALJ"). On December 18, 2014, the ALJ issued an order in which she concluded that the Division had established, by a preponderance of the evidence, that Cunningham: (1) misappropriated insurance premium payments (Count I [Tenn. Code Ann. § 56-6-112(a)(4)]); (2) intentionally misrepresented the terms of an actual or proposed insurance contract (Count II [Tenn. Code Ann. § 56-6-112(a)(5)]); (3) engaged in an unfair trade practice (Count III [Tenn. Code Ann. § 56-6-112(a)(7)]); (4) engaged in dishonest and fraudulent practices (Count IV [Tenn. Code Ann. § 56-6-112(a)(8)]); and (5) violated his fiduciary duty to ABC (Count V [Tenn. Code Ann. § 56-6-116]). The ALJ found Cunningham guilty of Counts I-V. In total, the ALJ concluded Cunningham committed six (6) statutory violations.

         By order of July 9, 2015, the Commissioner adopted the ALJ's factual findings and legal conclusions. The Commissioner also affirmed the ALJ's revocation of Cunningham's license and imposition of an $18, 000 civil penalty. On September 4, 2015, Cunningham filed a petition for judicial review in the Chancery Court of Davidson County. Tenn. Code Ann. § 4-5-322. On September 26, 2016, the trial court issued a final order affirming the Commissioner in all respects. Cunningham appeals. We affirm.

         II. Issues Presented

         Cunningham presents the following two (2) issues for our review, which we restate as follows:

A. Whether the Commissioner erred in her determination that Appellant committed six (6) statutory violations?
B. Whether the punishment imposed by the Commissioner was proper?

         III. ...

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