Hartford Fire Insurance v. Micah A. & Angela L. Curtis and Hartford Fire Insurance Co. v. Jerry Lee Rhodes & Bonnie M. Cochran ( 2013 )

No. 12-0037-Hartford Fire Insurance Co., v. Micah A. Curtis and Angela L. Curtis, and
No. 12-0522-Hartford Fire Insurance Co., v. Jerry Lee Rhodes and Bonnie M. Cochran
FILED
June 21, 2013
RORY L. PERRY II, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
Chief Justice Benjamin dissenting:
The majority’s application of the exception in State v. Myers, 74 W. Va.
488, 82 S.E. 270 (1914) is based on the faulty premise that the bonds in these cases are
judgment bonds. However, the express conditions of the bonds make it clear that they
are performance bonds as they are conditioned upon the bond principal failing to
faithfully conform to and abide by the provisions of the Act. The condition of the bonds
is found in the first sentence of the third paragraph:
NOW THEREFORE, if the said principal CALUSA
INVESTMENTS, LLC shall conform to and abide by the
provisions of said Act and of all rules and orders lawfully
made or issued by the Commissioner of Banking thereunder,
and shall pay to the State and shall pay to any such person or
persons properly designated by the State any and all moneys
that may become due or owing to the State or to such person
or persons from said obligor in a suit brought by the
Commissioner on their behalf under and by virtue of the
provisions of said Act, then this obligation shall be void,
otherwise it shall remain in full force and effect.
Thus, the principal does not breach the bond if it either abides by the Act
and the rules issued by the Commissioner of Banking, or pays any damages to the State
for a violation of the Act or rules. If the principal breaches this condition, then the surety
becomes liable. The sentence immediately following the bond’s condition instructs the
claimant how to make a claim against the bond and establishes a condition precedent to
making such a claim. That sentence states, “If any person shall be aggrieved by the
misconduct of the principal, he may upon recovering judgement (sic) against such
principal issue execution of such judgement (sic) and maintain an action upon the bond . .
. .” Thus, the procedure to be followed in asserting a claims on these bonds is to recover a
judgment against the principal and, if such judgment goes unpaid, sue the surety, i.e.,
“maintain an action upon the bond.” Clearly, a plain reading of the bonds at issue
establishes that they do not guarantee payment unconditionally.
Here, there has been no determination that the principals failed to comply
with the laws and regulations applicable to them, and the surety had no opportunity to
assert applicable defenses or challenge the amount of damages. Under the language
contemplated in the bonds, the surety should have been given opportunity to defend.
Other states including Georgia and Wisconsin have recently held that mortgage broker
and lender bonds are not judgment bonds. See e.g., Hartford Fire Insurance Co. v.
iFreedom Direct Corp., 718 S.E.2d 103 (Ga.App. 2011) (“This statutorily-created
administrative remedy cannot be extended beyond its plain terms to create an additional
private cause of action against a mortgage lender’s bond based on a failure to pay a
judgment.”); Lingo v. Hartford Fire Ins. Co., 2010 WL 1837718 at *3 (E.D. Mo. 2010)
(“The bonds at issue are not judgment bonds, but rather performance bonds as they are
conditioned upon the bond principal . . . failing to ‘faithfully conform to and abide by the
provisions of the . . . Act’”); All Cities Privacy Class v. Hartford Fire Insurance Co., 798
N.W.2d 909 (Wis.App. 2011) (“Hartford is not required to pay the judgment rendered
against All Cities under the plain terms of the surety bond and WIS STAT.
§224.72(4)(d)(1).”).
The majority’s ruling, akin to a strict liability standard, adversely impacts
the surety market by allowing plaintiffs to collect up to the full amount of the bond
without ever having to prove a case. Now claimants’ attorneys can merely sue a defunct
mortgage lender, obtain default judgment and present the judgment to a surety for
satisfaction. This will undoubtedly increase the risk of writing such bonds in West
Virginia and make it harder for honest, legitimate lenders to obtain the bonds.
Because there has been no determination on the merits below that the
principals failed to comply with the laws and regulations applicable to them, and the
surety had no opportunity to assert applicable defenses or challenge the amount of
damages, I believe that the circuit courts’ rulings were erroneous. Accordingly, I
respectfully disagree with and dissent to the majority’s holding in this case.