Anne Arundel County v. Hartford Acc. and Indem. Co., 118
| Citation | 329 Md. 677,621 A.2d 427 |
| Decision Date | 01 September 1992 |
| Docket Number | No. 118,118 |
| Parties | ANNE ARUNDEL COUNTY, Maryland v. HARTFORD ACCIDENT AND INDEMNITY COMPANY. , |
| Court | Maryland Court of Appeals |
David A. Plymyer, Deputy County Atty. (Judson P. Garrett, Jr., Anne Arundel County Atty., and John F. Breads, Jr., Asst. County Atty., all on brief), Annapolis, for appellant.
William K. Dove, II, on brief, Fairfax, VA, for appellee.
Argued before ELDRIDGE, RODOWSKY, McAULIFFE, CHASANOW, KARWACKI, ROBERT M. BELL and CHARLES E. ORTH, Jr., Judge of the Court of Appeals (Retired, Specially Assigned), JJ.
For a decade James G. Lowe was employed by Anne Arundel County as the Superintendent of Downs Park, owned by the County. He took advantage of his position by stealing $88,286 of County funds. He was duly charged, and at trial in the Circuit Court for Anne Arundel County he entered a plea of guilty of felony theft. He was sentenced to imprisonment for a term of five years. The sentence was suspended, and he was placed on probation for five years. One of the conditions of probation was that he make restitution to Anne Arundel County in the amount of $25,000. Although the probation order is not included in the record before us, it appears that Lowe was to make monthly payments to the Division of Parole and Probation to be forwarded to the victim, Anne Arundel County.
Anne Arundel County was the insured or obligee under a bond issued by the Hartford Accident and Indemnity Company (the insurer or surety) in the penalty of $1,000,000 which covered Lowe's thievery. The bond included a rider with a "Deductible Amount" of $25,000, so that the insurer was liable only for a loss in excess of that amount and "then for such excess only, but in no event for more than the [$1,000,000 indemnity]." Paragraph 1. Paragraph 2 of the rider provided, in relevant part, that, if the insured suffers a loss within the indemnity amount, "all recoveries made after payment by the Surety of loss covered by this bond" shall be applied first in reimbursement of the Surety and thereafter in reimbursement of the Obligee or insured for that part of such loss within such Deductible Amount.
The record contains an affidavit by the prosecutor in the criminal cause in which he stated:
Per my discussions with the representatives of the County, and the Court, the restitution figure represented the amount of the deductible under the County's policy with its insurer. Accordingly, the restitution figure was designed to compensate the County for the amount not actually paid to it by its insurer.
Honoring the bond, the insurer paid the County $63,286, the amount of the loss less the $25,000 deductible.
Thereafter, counsel for the insurer wrote the Assistant County Attorney, enclosing a copy of the deductible rider. Counsel for the insurer pointed out:
As you can see, paragraph two of said Rider provides that, "if there be no excess loss, any such recoveries shall be applied first in reimbursement of the Surety and thereafter in reimbursement of the Obligee or Insured for that part of such loss within such Deductible Amount." The County's claim of $88,286.00 does not consist of an excess loss since the Bond in question has a $1,000,000.00 policy limit. Accordingly, The Hartford maintains a right of first recovery for its payment of $63,286.00.
He requested:
Would you please contact the necessary individuals to determine the amount of restitution thus far received by Anne Arundel County for James Lowe. Afterwards, would you then please issue my office a check for this amount, payable to William K. Dove, II on behalf of The Hartford. Moreover, it is requested that the County take whatever necessary steps to insure that all further restitution payments are likewise issued to my office on behalf of The Hartford.
He suggested, "Should you have any questions regarding the above, please feel free to call."
The Assistant County Attorney did not share the view of the insurer's counsel. He sent the insurer's counsel a copy of Art. 27, § 640 of the Maryland Code. He pointed out:
As you can see, the law clearly distinguishes categories of individuals or entities to whom restitution may be ordered by the court. Specifically, § 640(b)(3) allows the court to distinguish between those payments which would go to the direct victim of a crime and those which would be made to a third-party payor, including an insurer which has made payment to the victim to compensate the victim for a property loss. Moreover, subsection (b)(4) mandates that the court give priority in payment of restitution to the victim unless the victim has been fully compensated for the loss by a third party payor.
(Emphasis in original). He explained, "In this instance, the court ordered that restitution be made to the victim (Anne Arundel County) and not to the insurer." He observed that the $25,000 restitution amount "represented the out-of-pocket loss to the County." He noted that the attorney then representing the insurer "was fully aware of the ongoing criminal proceeding and had every opportunity to advise [the prosecutor] or the court that the insurer believed any restitution amount should be paid directly to it." He rejected, "[u]nder the circumstances," the demand that the County "forward any restitution payments to you on behalf of [the insurer]."
The insurer filed suit in the Circuit Court for Anne Arundel County against the County. The first eight paragraphs of the Complaint as amended set out the facts surrounding the loss sustained by the County by reason of Lowe's conduct, and called attention to the obligation of the insurer under the bond, including the deductible rider, and asserted that by reason of its obligation the insurer had paid the County $63,286, representing the County's loss less the deductible sum of $25,000. Paragraph 9 alleged that in exchange for the insurer's payment the County had assigned to the insurer all its rights to all money recovered by reason of the proof of loss. The Release and Assignment document was made a part of the Complaint. Paragraphs 10 and 11 claimed that Lowe "has been making and continues to make restitution payments to Anne Arundel," in an amount which at that time totaled about $7,000. Paragraphs 12-16 alleged that "the Bond, the Deductible Rider, and the Release and Assignment, each establish and define a contractual relationship between [the insurer] and Anne Arundel County," that the insurer has a right of first recovery on the sums recovered in connection with the loss, that the County has refused to pay the sums, that the retention of the sums constituted a breach of contract, and that the stated intention of the County to retain the sums recovered from Lowe constitutes an anticipatory breach of contract. "Wherefore," the insurer requested,
judgment be entered against Anne Arundel County in the amount of Twenty-five Thousand Dollars ($25,000.00) with interest from the date of judgment, together with its costs hereby expended....
Paragraphs 17 and 18 of the Amended Complaint requested that a declaratory judgment be entered against the County in the amount of $25,000 and that the County
be ordered prospectively to pay to the [insurer] any and all sums it receives from James G. Lowe in restitution of monies embezzled from [the County] as and as soon as said monies are paid to the County....
The Release and Agreement made a part of the Amended Complaint by paragraph (1) released the insurer from all liability under the bond by reason of the loss. Paragraph (2) read:
The Insured has assigned and does hereby assign, sell, transfer and set over to the Surety all its rights, title and interest in relation to any and all items claimed in and by the said proof of loss, and all money that may be recovered by reason thereof.
It was signed by the Director of Administration of the County and acknowledged before a Notary Public as the free act and deed of the signers and sealers and the free act and deed of the County.
The County moved for Summary Judgment, and the insurer filed a cross-motion for Summary Judgment. After a hearing on the motions, the Circuit Court for Anne Arundel County denied the County's motion and granted the insurer's motion. It entered judgment in favor of the insurer "as to the relief sought in the Amended Complaint...." It "specifically" ordered the County
to pay [the insurer] all sums paid to or recovered to date [23 June 1992] to [the County] from James G. Lowe, including restitution paid through the Department of Parole and Probation, said sums totaling $16,323.07.
The County noted an appeal to the Court of Special Appeals. We certified the case to us on our own motion prior to decision by the intermediate appellate court.
The County stated in its brief:
§ 640(b)(4) renders void and unenforceable the contract provision only insofar as the provision embodies an agreement that the insurer has the right to restitution proceeds; to the extent that the same provision reflects the parties' intent concerning other recoveries, the statute is inapplicable.
At the time this case was before the circuit court, Section 640(b)(4) provided:
If the victim has been fully compensated for the victim's loss by a third-party payor, the court may order restitution to the third-party payor. Otherwise, payment of restitution to the victim has priority over payment of restitution to the third-party payor.
It is the County's view that paragraph (2) of the rider and paragraph (2) of...
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