In Re: Int. Fidelity Ins. Nat. Assoc. of Bail Ins. Co. ( 1999 )

IN THE COURT OF CRIMINAL APPEALS OF TENNESSEE
FILED
AT KNOXVILLE August 17, 1999
Cecil Crowson, Jr.
APRIL 1999 SESSION Appellate C ourt
Clerk
IN RE: INTERNATIONAL FIDELITY * C.C.A. 03C01-9811-CR-00398
INSURANCE COMPANY, NATIONAL
AMERICAN INSURANCE COMPANY, * Greene, Hamblen, Hancock, and
AND THE NATIONAL ASSOCIATION Hawkins Counties
OF BAIL INSURANCE COMPANIES, *
ON BEHALF OF ITS MEMBER
COMPANIES UNDERWRITING BAIL * Hon. James E. Beckner, Judge
BONDS IN THE THIRD JUDICIAL
DISTRICT, * (Order of the Criminal Court for the
Third Judicial District)
Appellants. *
For Appellant: For Appellee:
John K. King Paul G. Summers
Lewis, King, Krieg, Waldrop & Catron, P.C. Attorney General and Reporter
P.O. Box 2425 425 Fifth Avenue North
Knoxville, TN 37901 Nashville, TN 37243-0493
Alan M. Parker Ellen H. Pollack
Lewis, King, Krieg, Waldrop & Catron, P.C. Assistant Attorney General
P.O. Box 2425 Criminal Justice Division
Knoxville, TN 37901 425 Fifth Avenue North
Nashville, TN 37243-0493
OPINION FILED:
REVERSED
NORMA MCGEE OGLE, JUDGE
OPINION
The appellants appeal the entry of an order by the Criminal Court for
the Third Judicial District,1 requiring the deposit with the court of additional funds by
all companies underwriting bail bonds in that district and imposing a cap upon the
total amount of bail bonds which may be underwritten by any one company. The
appellants present the following issue for our review: Whether the trial court’s order
was arbitrary and capricious, violating the appellants’ substantive rights to a hearing
on the merits of the trial court’s action and a finding by the trial court of specific
reasons therefor.
I. Factual Background
The limited record before this court 2 reflects that there are currently
eighteen bail bond companies authorized to underwrite bail bonds in the Third
Judicial District. In addition to securing bail bonds with real estate or other assets of
the bail bond company itself, a local bail bond company can guarantee a bail bond
through an insurance company. Under this arrangement, the local bail bond
company, acting as an agent for the insurance company, pledges the assets of the
insurance company as security on bail bonds. Apparently, at least one bail bond
company in the Third Judicial District guarantees bail bonds through appellant
insurance companies.
The record further reflects that the order which is the subject of this
appeal stemmed from the trial court’s concern that “the Insurance practice has
1
The Third Judicial District encompasses Greene, Hamblen, Hancock, and Hawkins Counties.
2
The record includes three orders by the trial court, dated October 15, 1998, December 28,
1998, and January 12, 1999, and an affidavit by appellants’ counsel. The Decemb er and January
orders and the affidavit were submitted to this court as attachments to the appellants’ Motion for Stay
Pending Appeal. This court stayed exec ution of the trial court’s October and D ecemb er orders
pending the reso lution of this ap peal.
2
imbued Bonding Companies with no cap on bond writing and that is immensely
irresponsible.” The trial court was additionally concerned that insurance companies
“have wide spread liability and are not easily held responsible or accountable to the
Court.” Accordingly, on October 15, 1998, the trial court entered an order requiring
all bail bond companies in the Third Judicial District to deposit with the court a
minimum amount of fifty thousand dollars ($50,000.00) for the purpose of securing
outstanding bail bonds. According to the court’s order, each company would be
allowed to underwrite bail bonds amounting to ten times the deposit or five hundred
thousand dollars ($500,000.00). A bail bond company could deposit more than fifty
thousand dollars ($50,000.00), but could not underwrite bail bonds exceeding a total
amount of one million dollars ($1,000,000.00). The order was to be effective on
January 1, 1999,3 and all bail bond companies were required to be in compliance
with the trial court’s order by that date. Each bail bond company would then be
individually approved by order of the court. The October order applied both to bail
bond companies underwriting bail bonds as agents of insurance companies and to
private, non-insurance bail bond companies. The trial court noted:
There will be no distinction between Bail Bond
Companies that write with insurance and those that do
not. Each company is obligated to secure the bonds.
The primary obligation rests with the company and not
the Insurance Indemnifier.
The appellant insurance companies filed an appeal of the order with
this court on November 12, 1998. Thereafter, on December 28, 1998, the trial court
entered another order, modifying the October order. In the December order, the trial
court permitted insurance companies, licensed with the Tennessee Department of
Commerce and Insurance, to underwrite bail bonds totaling two hundred thousand
3
The trial court subsequently informed the appellants by telephone that the order would be
effective January 15, 1999.
3
dollars ($200,000.00), without depositing additional security. The trial court
acknowledged that insurance companies licensed to conduct business in
Tennessee deposit assets with the Tennessee Commissioner of Commerce and
Insurance for the purpose of securing the company’s outstanding bonds and
obligations in this state. The trial court also acknowledged that insurance
companies generally possess assets exceeding those of private, non-insurance
bonding companies. However, the trial court determined that these assets are not
readily available to the court. Moreover, the court opined that the assets deposited
with the Commissioner of Commerce and Insurance, when spread across the state,
do not provide adequate security.
The record before this court includes an affidavit by the appellants’
attorney stating that the appellants are insurance companies which were previously
qualified to conduct business in the Third Judicial District and have been
underwriting bail bonds in that district. Moreover, the appellants’ attorney attested
that the appellants have underwritten outstanding bail bonds in excess of two
hundred thousand dollars ($200,000.00). Accordingly, pursuant to the trial court’s
orders, the appellants are automatically disqualified from underwriting bonds in the
Third Judicial District, unless and until the appellants deposit additional security with
the court.
In their brief, the appellants additionally assert that each appellant
insurance company possesses a certificate of authority from the Tennessee
Commissioner of Commerce and Insurance, reflecting each company’s compliance
with the insurance laws and regulations of Tennessee. Tenn. Code. Ann. § 56-2-
102(a) (1997). See also Tenn. Code. Ann. § 56-15-101 to -115 (1997). According
to the appellants, each company is solvent and has deposited one hundred
4
thousand dollars ($100,000.00) with the Tennessee Department of Commerce and
Insurance. Moreover, the companies collectively maintain “hundreds of millions of
dollars in assets and unassigned bona fide surpluses.”
II. Analysis
A. Bail Bonds
Initially, we find it useful to review the nature of a “bail bond” and the
relationship between a defendant, his surety, and the court in the bail bond context.
Generally, a bail bond “is a contract between the government on the one side and
accused and surety on the other, whereby the surety guarantees the appearance of
the accused” in court. 8 C.J.S. Bail § 4 (1988). See also Tenn. Code. Ann. § 40-11-
122 (1997).4 The Tennessee Court of Appeals has also described a bail bond as
an “undertaking by [a] surety, into whose custody [the]
defendant is placed, that he will produce [the] defendant
in court at a stated time and place.” ... The defendant or
principal is released from the custody of the law and
placed in the custody of the surety. To ensure the
diligence and attentiveness of the surety to its principal’s
timely appearance in court, the surety posts some
manner of bond or security.
... Upon the non-appearance of the defendant, that bond
is conditionally forfeited. T. C. A. §. 40-11-201. Since
the surety is bound to produce its principal to fulfill its
obligations as surety, a [conditional] judgment ... is
immediately obtained against the surety in the amount of
the bond. “[T]o notify the defendant and his sureties to
show cause why such judgment shall not be made final,”
a writ of scire facias issues to set a date for a hearing on
final forfeiture. T. C. A. §. 40-11-202. See T.C.A. §. 40-
11-139.
... [B]y entering into the bail bond agreement and
assuming custody of its principal, the surety submits itself
to the in personam jurisdiction of the court ... .
Indemnity Insurance Company of North America v. Blackwell, 653 S.W.2d 262, 264
4
A defendant m ay also post his own bail bond under Tenn . Code. Ann. § 40-11-118 (19 97),
depositing with the court a sum of money in cash equal to the amount of bail. However, the execution
of a “‘sec ured’ app earanc e bond ” is a mo re com mon practice. State v. C leme nts, 925 S.W.2d 224,
225 (T enn. 199 6).
5
(Tenn. App. 1983). In this case, the insurance companies apparently act as sureties
through an agent, a local bail bond company, and thereby subject themselves to the
court’s jurisdiction.
At issue in this case are the parameters of the court’s authority to
regulate the insurance companies acting as sureties through their agents in bail
bond agreements. In the Release from Custody and Bail Reform Act of 1978, the
legislature explicitly set forth certain powers of a court to regulate professional
bondsmen and other sureties. Tenn. Code. Ann. § 40-11-101 to -405 (1997).
Additionally, a trial court possesses inherent power to administer its affairs, including
the right to impose reasonable regulations regarding bail bonds. In re Hitt, 910
S.W.2d 900, 904 (Tenn. Crim. App. 1995); In re: International Fidelity Insurance
Company, No. 03C01-9610-CR-00360, 1998 WL 597080, at *3 (Tenn. Crim. App. at
Knoxville, September 10, 1998), perm. to appeal denied, (Tenn. 1999). The
appellants contend that the trial court exceeded any statutory or inherent authority
by requiring the appellant insurance companies to submit additional security to the
court without affording the appellants a hearing or making specific factual findings.
B. The Trial Court’s Orders
In In re: Indemnity Insurance Company of North America, 594 S.W.2d
705, 708 (Tenn. 1980), our supreme court observed that insurance companies in
good standing with the Department of Commerce and Insurance should not be
required to file additional assets with local courts in the absence of a finding by local
judges of specific reasons therefor. The supreme court explained:
We agree with counsel for appellant that the statutory
scheme provided by the insurance laws ordinarily should
afford sufficient ready, liquid assets to satisfy the
obligations of an insurance carrier writing bail bonds.
Id. Thus, in In re: International Fidelity Insurance Company, No. 03C01-9610-CR-
6
00360, 1998 WL 597080, at *3-4, while acknowledging the authority of a trial court
to require insurance companies underwriting bail bonds in its district to deposit
additional funds with the court, this court also concluded:
[A] local rule of law that would require the deposit of
additional funds before a petition to qualify could be
heard would be null and void ab initio to the extent that it
conflicts with the substantive right of the insurance
company to have a hearing on the merits, and the right to
be required to put up additional funds only upon a finding
by the trial judge of specific reasons therefor.
Id.
The clear implication of both In re Indemnity Insurance Company of
North America and In re: International Fidelity Insurance Company is that local rules
requiring additional security from insurance companies are invalid to the extent that
they are based upon broad assumptions about the adequacy of security provided by
the insurance laws of this state.5 Yet, in this case, the trial court examined the
statutory scheme provided by the insurance laws and arbitrarily determined that it
was inadequate to afford sufficient ready, liquid assets to satisfy the obligations of
the appellants. On the basis of this conclusion, the trial court then adopted a local
rule requiring all insurance companies, apparently without exception, to deposit
additional security with the court. The trial court adopted the local rule without
making findings specific to the insurance companies conducting business in its
district or problems experienced by the trial court in executing final judgments of
5
In addition to requiring the deposit of security with the trial court, the October order imposed a
cap on the amount of bail bonds that can be underwritten by any one bail bond company. Both In re
Indemnity Insurance Company of North America and In re: International Fidelity Insurance Company
only addressed the former requirement. However, we conclude that the substantive rights announced
in those cases would apply equally to the imposition of caps on the total amount of bail bonds that can
be underwritten by insurance companies in good standing with the Department of Commerce and
Insurance.
7
forfeiture against appellant insurance companies.6
The appellants also contend that they were not afforded a hearing in
this case. As noted above, the trial court’s October order applies to all insurance
companies without exception and, on its face, does not provide a hearing to
insurance companies collectively or individually. However, the trial court stated in its
January order, “This Court has never refused a hearing on these matters. This
Court has required that instead of an oral hearing all matters be submitted in writing
for a more efficient and better record.”
Assuming that the appellants were permitted to make written
submissions to the trial court, procedural due process may require the opportunity
for an oral presentation to the decision maker if written submissions are inadequate
to provide a party a fair hearing. See, e.g. 2 Ronald D. Rotunda & John E. Nowak,
Treatise on Constitutional Law § 17.8, at 644-645 (2d ed. 1992). The form of the
hearing required by due process will depend upon the balancing of competing
interests. Mathews v. Eldridge, 424 U.S. 319, 333-335, 96 S. Ct. 893, 901-903
(1976). However, neither the supreme court nor this court relied upon principles of
procedural due process in announcing the rights of insurance companies
underwriting bail bonds.7 Rather, as noted above, in In re: International Fidelity
6
Although the October order was applicable to all bail bond companies, the record reflects that
the trial court entered the order solely for the purpose of addressing its concerns about insurance
companies. The record includes no expression of concern about private, non-insurance bail bond
companies other than the trial court’s desire to create a “level playing field” for all bail bond
companies. Indeed, the trial court suggested in its January order that private, non-insurance bail bond
compa nies were already effectively subject to limitations imposed b y the October order.
7
In contrast, in State v. AAA Aaron’s Action Agency Bail Bonds, Inc., No. 01C01-9710-CR-
00462, 1998 WL 670392, at *2 (Tenn. Crim. App. at Nashville, September 30, 1998), we concluded
that, in authorizing any bail bo nd co mp any to enga ge in th e bail b ond busin ess , a co urt ef fectiv ely
grants a company a right to pursue that business. Thus, in addition to statutory mandates, procedural
due process requires that a company be provided notice and the opportunity to be heard prior to the
deprivation of its right to en gage in th e bail bond busines s. Id. at **3- 4. Sig nifica ntly, this cour t’s
opinion was not addressed solely to insurance companies underwriting bail bonds. Thus, depending
upon the extent to which a local rule of court constituted a deprivation of a bail bond company’s right
to engage in the bail bond business, both insurance companies and private, non-insurance bail bond
8
Insurance Company, No. 03C01-9610-CR-00360, 1998 WL 597080, at *3-4, this
court cited In re Indemnity Insurance Company of North America and concluded that
insurance companies possess a substantive right to a “hearing on the merits.”
Presumably, this substantive right derives from the statutory scheme provided by
the insurance laws. Neither the supreme court nor this court has addressed
whether or not written submissions will satisfy this substantive right. Nevertheless,
we submit that the appellants’ substantive right to a hearing must at least be
coextensive with minimum requirements of due process, providing the appellants a
fair and reasonable opportunity to respond to the trial court’s concerns. Assuming
that the form of hearing should be decided according to a due process analysis, the
record before this court is simply inadequate to conduct a thorough balancing of the
competing interests.
In any case, regardless of the form of the hearing, In re Indemnity
Insurance Company of North America and In re: International Fidelity Insurance
Company appear to place the burden upon the trial court to justify a requirement of
additional deposits by insurance companies with specific factual findings. The trial
court does not state anywhere in the record that the appellant insurance companies
have refused to provide any information requested by the court. The trial court
simply failed to satisfy its burden.
Therefore, we vacate the October and December orders of the trial
court. We additionally conclude that it is unnecessary to remand this case for a
hearing. If the trial court believes that additional deposits by insurance companies in
the Third Judicial District are required, we have already noted its inherent power to
conduct a fair hearing, allowing the appellants an opportunity to respond to the
companies might be entitled to notice and a hearing pursuant to principles of due process.
9
court’s concerns and, upon specific findings, impose reasonable regulations.
Norma McGee Ogle, Judge
CONCUR:
Jerry L. Smith, Judge
Joe G. Riley, Jr., Judge
10