Opinion ID: 1350624
Heading Depth: 1
Heading Rank: 5

Heading: characteristics distinguishing guaranty from insurance protection

Text: Guarantor equates its guaranty obligation with an insurance policy. It notes that if PepsiCo had not issued the guaranty and if Lee Way's own-risk permit had been revoked, Lee Way may have been required to insure its compensation liability by obtaining an insurance policy from an independent carrier. That policy would have been written for a period defined as running from the date of its issuance to the date of its termination. Compensation awarded prior to its issuance would not be covered. [33] Despite some superficial similarities, contracts of guaranty are distinguishable from contracts of insurance. [34] The distinction between the two lies in the nature of the performance promised by the obligor. If the performance is collateral to another's obligation to perform, the resulting contract is a guaranty. If, on the other hand, the performance is not collateral but operates to create a distinctly different legal relationship between the promisor and the promisee, then the resulting contract should be classified as something other than a guaranty. The insurer's obligation to provide indemnity falls under the latter rubric. The agreement here under consideration is a guaranty and the law of insurance indemnity is not applicable. Unlike an insurance policy which would constitute a new and separate obligation for future awards, this is a guaranty of a pre-existing and continuing obligation to pay awards made during the life of the permit. Lee Way defaulted on its obligation under the provisions of its permit to make payment on an award to the claimant. PepsiCo guaranteed payment of any and all awards granted under the permit so that Lee Way could continue to operate as an employer standing in the status of self-insurer. The claimant is hence entitled to press his claim against the guarantor, PepsiCo, Inc., and PepsiCo  as guarantor  should be included in the order of certification for enforcement of the unpaid obligation. The trial tribunal should have ruled that the guarantor's secondary liability could be invoked and become a fit subject for inclusion in the certification for enforcement in the district court, [35] because Lee Way was in bankruptcy and its obligation for payment of the award became unenforceable. Order of the Workers' Compensation Court is vacated and the proceeding remanded with directions to include the guarantor as a legal obligor on the certified award. DOOLIN, C.J., and SIMMS, WILSON and SUMMERS, JJ., concur; HARGRAVE, V.C.J., and HODGES and LAVENDER, JJ., dissent. KAUGER, J., disqualified.