Aetna Cas. and Sur. Co. v. County of Nassau

• Citation: 645 N.Y.S.2d 480,221 A.D.2d 107
• Parties: In the Matter of AETNA CASUALTY AND SURETY COMPANY, Appellant, v. COUNTY OF NASSAU, et al., Respondents.
• Decision Date: 17 June 1996
• Court: New York Supreme Court Appellate Division

Page 480

645 N.Y.S.2d 480

221 A.D.2d 107

In the Matter of AETNA CASUALTY AND SURETY COMPANY, Appellant, v. COUNTY OF NASSAU, et al., Respondents.

Supreme Court, Appellate Division Second Department.

June 17, 1996.

Lambert & Weiss, New York City (Arthur N. Lambert, Monroe Weiss, and Stephen H. Marcus, of counsel), for appellant.

Owen B. Walsh, County Attorney, Mineola, and Plunkett & Jaffe, P.C., White Plains (Kevin J. Plunkett and Richard J. Lambert, of counsel), for respondents (one brief filed).

Hollander & Associates, P.C., New York City (Larry B. Hollander, Sandra S. Jackson, and Ralph J. Reiseman, of counsel), for New York Surety Company and Contractors Casualty and Surety Company, amicus curiae.

Ernstrom & Dreste, Rochester (J. William Ernstrom and Theodore M. Baum, of counsel), for Surety Association of America, amicus curiae.

Before RITTER, J.P., and THOMPSON, SULLIVAN and FRIEDMANN, JJ.

RITTER, Justice Presiding.

This appeal concerns the power of the respondents (hereinafter collectively Nassau County) to prohibit the petitioner, Aetna Casualty and Surety Company (hereinafter Aetna), from acting as a surety on any competitively bid public contract in Nassau County during the period Aetna is in default on a surety bond.

In 1992, Nassau County awarded a contract to Manshul Construction Corporation (hereinafter Manshul) for the construction of two buildings at Nassau County Community College. Aetna was the surety for the project. In May 1994, after a prior declaration of default by Nassau County had been settled by stipulation between the parties, Nassau County again declared Manshul in default of the contract. Manshul commenced a proceeding pursuant to CPLR article 78 to challenge the declaration which resulted in a second stipulation of settlement between the parties. However, this time the stipulation set forth a schedule of milestone dates by which work was to be completed and the Supreme Court retained jurisdiction over the proceeding for purposes of determining whether the work was progressing as scheduled. Ultimately, a dispute arose concerning the progress of the work and a hearing was ordered. After the hearing, the court, in a decision dated November 5, 1994, found that Manshul had failed to substantially accomplish the work as set forth in the stipulation and by order and judgment dated December 6, 1994, ordered Aetna, as surety, to complete the project. However, although Aetna did continue certain work on the project, Nassau County determined that the work did not comply with the terms of the contract and, by letter dated January 13, 1995, Nassau County declared Aetna in default of its obligations as surety. Aetna concedes that the instant proceeding does not challenge the propriety of Nassau County's declaration that it was in default. Thus, the issue is not before this court on appeal (see, Lavine v. Lavine, 127 A.D.2d 566, 511 N.Y.S.2d 366).

Pursuant to Nassau County Charter § 2206, which, inter alia, prohibits Nassau County from contracting with any party in default on a bond issued to it, Nassau County, by letter dated January 19, 1995, notified Aetna and potential bidders that it would no longer accept Aetna as surety on any publicly bid contract. In response, Aetna commenced this proceeding pursuant to CPLR article 78 arguing that Nassau County's actions violated the Insurance Law (specifically, Insurance Law § 1111) and that Nassau County was exercising powers granted exclusively to the Superintendent of Insurance. The Supreme Court denied Aetna's petition and dismissed the proceeding holding, inter alia, that Insurance Law § 2504(c), which empowers certain entities such a Nassau County to make determinations concerning the "sufficiency" of a bond, authorized the actions taken by Nassau County. We now affirm.

Pursuant to Insurance Law § 1111(b)(1):

"Whenever by any law of this State a bond, undertaking, recognizance, guaranty or like obligation is required, permitted, authorized or allowed, or the performance of any act, duty or obligation, or the refraining from any act, is required, permitted, authorized or allowed to be secured or guaranteed, such bond or like obligation, or such security or guaranty, may be executed by any insurance company authorized to do in this state the business of executing such instruments and empowered by its charter to execute them. The insurer's execution of such instrument * * * shall be accepted as, and in all respects shall be, a full compliance with every law or other requirement, now or hereinafter in force, that any such obligation be given or accepted or that it be executed by one or more sureties, or that such sureties be residents, householders or freeholders, or possess any other qualifications".

Further, Insurance Law § 1111(c) states that a certificate of qualification issued by the Superintendent of Insurance (hereinafter the Superintendent) to a surety "shall be conclusive evidence" of the surety's "qualification, and its sufficiency under the law of this state". Aetna argues that the broad and absolute sweep of the language of this section mandates that Nassau County accept a bond issued by any qualified surety and reveals a legislative intent to repose the power to determine whether a surety is qualified to do business in the State solely with the Superintendent. Further, the Insurance Law as a whole evinces a legislative intent to occupy the entire field of surety regulation and, therefore, preempts any local legislation. Thus, Aetna argues that because it is authorized to do business in the State and has been issued a certificate of qualification by the Superintendent, Nassau County was without the power or authority to preclude it from acting as a surety within Nassau County while in default as surety on the Manshul contract.

To the contrary, Nassau County argues that the language of Insurance Law § 1111(b) and (c), when properly interpreted, concerns only the financial solvency and capability of a surety and does not evince an intent to preempt local legislation. Further, it argues, even if Insurance Law § 1111 could be read expansively, it must be read in conjunction with the later-enacted Insurance Law § 2504(c), which states:

"This section shall not, however, prevent the exercise by such officer or employee on behalf of the State or such public corporation or public authority of its right to approve the form, sufficiency, or manner of execution, of surety bonds or contracts of insurance * * * selected by the bidder to underwrite such bonds or contracts" (emphasis supplied).

The county argues that it was merely exercising the authority granted to it by Insurance Law § 2504(c) to determine the "sufficiency" of Aetna's bond to effectuate the mandate of Nassau County Charter § 2206.

There is a paucity of case law concerning the sections of the Insurance Law at issue. Further, the Insurance Law does not define the word sufficiency (see, Insurance Law § 107) and it has not been construed by case law. Accordingly, in the absence of controlling authority, this court must interpret the statutes at issue to give effect to the legislative intent behind their enactment:

"It is a fundamental rule of statutory construction that a statute or legislative act is to be construed as a whole, and that all parts of an act are to be read and construed together to determine the legislative intent. So, in construing a statute the court must take the entire act into consideration, or look to the act as a whole, and all sections of law must be read together to determine its fair meaning. Statutory language, however strong, must yield to what appears to be intention and that is to be found not in the words of a particular section alone but by comparing it with other parts or provisions of the general scheme of which it is part.

* * * * * *

"In seeking the legislative intent, words absolute in themselves and the broadest and most comprehensive language may be qualified and restricted by reference to other parts of the statute or to other acts on the same subject, or by the facts to which they relate, and though a statute is divided into many sections, each section is to be construed in connection with the others, and each is to be kept in subservience to the general intent of the whole enactment" (McKinney's Cons.Laws of N.Y., Book 1, Statutes, § 97).

Here, applying these rules of construction, we find that the broad and absolute language of Insurance Law § 1111(b) is circumscribed by its historical origins and the Legislature's intent in enacting it.

In response to a query by Aetna, the Superintendent issued an informal opinion letter, not binding on this court, wherein he traced the history of Insurance Law § 1111 as follows:

"Section 1111 of the Insurance Law was derived from Section 1 of Chapter 720 of the Laws of 1893 as amended by Chapter 178 of the Laws of 1895. Under the earlier versions of the statute, authorized corporate sureties were given the same status as individual sureties. That is where, for example, a law required a homeowners bond, an authorized corporate surety bond 'shall be accepted' as the equivalent to the homeowner's bond. However, under the former version of the statute, a court or other public authority had the discretion to investigate the underlying solvency of an authorized surety company before accepting its bond.

"The statute was amended in 1913 to mandate that courts and governmental agencies, in passing on the financial ability of a surety to meet its obligations, 'shall accept the certificate of the superintendent as to the solvency of the surety.' (Ed. note, section 181 of the Ins.L.1913). This amendment ended the court's examination of an authorized surety's finances each time the surety issues a judicial bond.

"Section 1111(c) now states that the certificate of qualification issued to a surety is conclusive evidence that a surety is solvent--that is, that the company's capital and...