Opinion ID: 2326570
Heading Depth: 2
Heading Rank: 1

Heading: Hartford's Liability Under the September 2003 Surety Bond

Text: Hartford argues that the essential fact for the resolution of this appeal is the fact that it expressly limited its liability through a clause in the November 6, 2003 Increase Rider. The pertinent clause is italicized in the following excerpt from the Increase Rider: NOW, THEREFORE, in consideration of additional pre-pay premium of One Thousand Seven Hundred Fifty Dollars ($1,750.00), it is hereby agreed by the PRINCIPAL and the SURETY that the amount of said bond, to which this rider is attached and made a part thereof, is increased to Two Hundred Four Thousand Dollars ($204,000.00), such increase to be effective as of November 6, 2003, for losses occurring thereafter, all other terms, conditions, and limitations of said bond to remain in full force and effect as originally executed[.] (Emphasis added). We agree that we must focus on the losses occurring thereafter clause on which Hartford relies in order to determine whether to uphold the trial court ruling holding Hartford liable for the full amount of the Maryland judgment. Before turning to that clause, however, we must begin by examining the language of the surety bond that Hartford issued in September 2003. That is because, by the express terms of the Increase Rider, all other terms, conditions, and limitations of said [September 2003] bond . . . remain in full force and effect as originally executed. The September 2003 surety bond provided as follows: Now the conditions of this undertaking are, and we, the undersigned Cordelia Smith guardian to Clifton D. Smith as principal and Hartford Fire Insurance Company as surety, do hereby undertake, that the above Cordelia Smith shall faithfully account to the Court[,] as required by law, for the management of the property and estate of the Minor under her care, and shall also deliver up said property and estate agreeably to the order of the Court or the direction of law, and shall in all respects fa[i]thfully perform the duty of guardian to the said minor according to law and without injury or damage to any person interested in the same, and shall in all things abide by and perform such judgment or decree as the Court may make in the premises. And we, the said Cordelia Smith principal, and Hartford Fire Insurance Company surety, do hereby appear and submit ourselves to the jurisdiction of the Court, and undertake for ourselves and each of us, our and each of our heirs, executors, administrators, successors, and assigns in the maximum sum of Thirty Thousand ($30,000.00) dollars, to abide by and perform the judgment or decree of the Court in the premises, and further agree that, upon default by the principle [sic] in any of the conditions hereof, the damages may be ascertained in such a manner as the Court shall direct, that the Court may give judgment hereon in favor of any person thereby aggrieved against us as principal and surety for the damages, not exceeding Thirty Thousand ($30,000.00) dollars, suffered or sustained by such aggrieved party and that such judgment may be rendered in the above entitled cause or proceeding against all or any of us whose names are hereto signed, as provided by D.C.Code § 16-601 (1981 ed.)[.] As can be seen from the quotation above, nothing in the September 2003 bond purports to limit Hartford's liability to liability for losses occurring after issuance of the bond. Moreover, while the general rule is that fidelity bonds are held to operate only prospectively from their dates, and do not operate retroactively so as to cover defaults arising prior to execution, [3] in most jurisdictions that have ruled on the issue, a contrary rule applies with respect to bonds required in court proceedings for the protection of minors, incompetents, or estates. [4] [T]he apparent majority of courts and authorities addressing this issue have reached [the] conclusion that a surety is liable for misappropriations by a guardian or conservator prior to issuance of the bond if the bond guaranteed that the guardian or conservator would faithfully account for the assets she controlled [5] (at least in cases where the bond does not expressly disclaim liability arising out of a prior default). [6] The explanation frequently offered is that sureties on guardianship bonds agree that their principal will do what he is ordered to do, when his accounts are settled by [the] court and thus incur liability based upon the obligation of the guardian to make a true account, and to pay over and deliver to the person lawfully entitled to receive the same the moneys and property found due upon his final settlement with the court, making it immaterial when the conversion or misappropriation took place. S. Sur. Co. v. Burney, 34 Okla. 552, 126 P. 748, 750 (1912); see also Pacheco, 199 P.3d 676, 681-82 (reasoning, in a dispute involving Hartford, that where the guardian is required to file an annual accounting in connection with her administration of an estate and to account for and turn over all assets, the surety is liable for her default in failing to do so, without regard to the time when her misappropriation took place (citing 11 LEE R. RUSS & THOMAS F. SEGALLA, COUCH ON INSURANCE § 166:63, at 166-54 (3d ed.1998))). In this case, as required by law [7] and as quoted above, the September 2003 bond guaranteed that Cordelia would fa[i]thfully perform the duty of guardian . . . without injury or damage to any person interested in the same, would faithfully account to the Court for the property of the Estate, and would deliver up said property and estate agreeably to the order of the Court, and that upon Cordelia's default, the court would be entitled to give judgment . . . in favor of any person thereby aggrieved against Hartford as surety for the damages, up to $30,000.00. In addition, District of Columbia law required Cordelia as guardian to make an annual accounting, i.e., once in each year, or oftener if required, [to] settle an account of h[er] trust under oath. D.C.Code § 21-143. And, although our court has not previously considered whether to adopt the majority rule regarding the liability of a surety for acts of the guardian prior to execution of the bond, our guardianship statute evinces a legislative intent to require a surety to assume liability for at least some pre-bond conduct of the guardian with respect to guardianship assets. See D.C.Code § 21-119 (providing that [a]n allowance made to a guardian for the clothing, support, maintenance, education or other expenses incurred for the ward or his estate, before the guardian gives bond or is appointed, has the same effect in law as if made subsequently to the appointment of the guardian and his giving bond). [8] For these reasons, and because in the September 2003 bond Hartford did not disclaim liability for damages related to defaults by Cordelia prior to issuance of the bond, we follow what appears to be the majority rule and hold that Hartford is liable to reimburse the Estate for at least $30,000 (corresponding to the penal sum of the September 2003 bond) of the amount that the Estate paid to satisfy the Maryland judgment. [9] Accordingly, we affirm the summary judgment ruling in part.