D.C. Ins. Guar. v. Algernon Blair

Decision Date26 September 1989
Docket NumberNo. 88-512.,88-512.
Citation565 A.2d 564
PartiesDISTRICT OF COLUMBIA INSURANCE GUARANTY ASSOCIATION, Appellant, v. ALGERNON BLAIR, INC., Appellee.
CourtD.C. Court of Appeals

H. Thomas Howell, with whom J. Snowden Stanley, Jr. and Thomas G. Hagerty, Washington, D.C., were on the brief, for appellant.

Kenneth I. Johnson, with whom Ellen Kohn, Washington, D.C., was on the brief, for appellee.

Before ROGERS, Chief Judge, and MACK and BELSON, Associate Judges.

PER CURIAM:

This appeal grows out of an action by appellee Algernon Blair, Inc. ("Blair"), against appellant, the District of Columbia Insurance Guaranty Association ("DCIGA" or "the Association"), for payment of nine surety bonds. Upon the insolvency of the original surety, Blair sought payment of the bonds by DCIGA, a mandatory membership organization of insurers who do business in the District of Columbia, created by law to guarantee claims against insolvent member insurers. When DCIGA sought a declaratory judgment absolving it of liability on the bonds, the trial court dismissed its complaint and entered a declaratory judgment in favor of Blair. On appeal, DCIGA renews its contention that Blair's demands are not "covered claims" within the meaning of the District of Columbia Insurance Guaranty Association Act, D.C.Code §§ 35-1901 et seq. (1988 Repl.), because the claims fail to meet either of the two alternative predicates to "coverage" under the Act: the claimant is not a legal resident of the District of Columbia, and the claim does not "arise from" property permanently located within the District. Although the trial court ruled for Blair on both predicates, we reach only the latter issue, and resolving it in Blair's favor, we affirm.

I
A

Claimant-appellee Blair is a Delaware corporation with its principal place of business in Montgomery, Alabama. On November 4, 1982, Blair qualified to transact business in the District of Columbia by obtaining from the Recorder of Deeds a certificate of authority pursuant to D.C. Code § 29-399(a) (1981). On November 8, 1982, Blair contracted to construct an equipment maintenance facility at the Ivy City Railroad Yard in Washington, D.C., for the National Railroad Passenger Corporation (Amtrak). On January 3, 1983, Blair entered into a subcontract to pay $2,431,538.70 to Snow's General Services, Inc. ("Snow"), a contractor with its principal place of business in Richmond, Virginia, for structural demolition and excavation at the project site. This work was subsequently divided into nine separate subcontracts, secured by nine performance and payment bonds executed in Maryland on Snow's behalf by the Eastern Indemnity Company of Maryland ("Eastern").

Snow initiated work under four of the nine subcontracts in February 1983. By late March 1983, a dispute arose between Blair and Snow regarding Snow's inefficiency and undermanning of the work, which caused delays and complications for Blair and its other subcontractors. When, by repeated correspondence, Blair attempted to implement a priority work schedule, Snow responded with charges of harassment, and walked off the project. By telegram of April 15, 1983, Blair notified Eastern that Snow was in default under four of its subcontracts, and demanded Eastern's response as surety under Snow's bonds. Pursuant to a separate indemnity agreement with Snow, Eastern assumed the subcontracts and directed Blair to prosecute the subcontract work in the most economical fashion possible. Blair complied with this directive, charging Snow's accounts for expenses incurred and crediting them for progress payments received in performing the subcontracts.

Alleging that it had incurred losses under each of the nine subcontracts, in 1984 Blair sued Eastern for payment under the surety bonds. However, in February 1985 a Maryland circuit court adjudged Eastern insolvent and ordered the cancellation of all the bonds it had issued. Consequently, on February 7, 1986, Blair submitted its claims to DCIGA for payment under the Insurance Guaranty Association Act, supra, which provides that the Association shall pay covered claims under policies issued by insolvent member insurers authorized to transact business in the District of Columbia. Although Eastern was authorized to transact business in the District, DCIGA denied the claims, contending that they were not "covered claims" under the Insurance Guaranty Act, since Blair was not a "resident" business entity of the District within the meaning of the Act, and the losses it sustained did not "arise from" property permanently located within the District, as the Act requires. Rejecting these contentions, the trial court awarded judgment to claimant Blair. This appeal followed.

B

The statute governing this case is the District of Columbia Insurance Guarantee Association Act, supra, which gave existence to appellant DCIGA. This statute was based on the Post-Assessment Property and Liability Insurance Guaranty Association Model Act ("Model Act"), prepared by the National Association of Insurance Commissioners in 1969. See H.R.Rep. No. 257, 93d Cong., 1st Sess., 1 (1973). Congress enacted this legislation

to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers.

D.C.Code § 35-1901. The District of Columbia Insurance Guaranty Association Act applies to all kinds of direct insurance except life, title, disability and mortgage guaranty insurance, and therefore its scope includes claims of the kind now on appeal.1 Id., § 35-1902. For purposes of the Act,

[t]he term "covered claim" means an unpaid claim . . . which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy . . . issued by an insurer, if such insurer becomes an insolvent insurer after August 14, 1973, and: (A) The claimant or insured is a resident of the District of Columbia at the time of the insured event; or (B) the property from which the claim arises is permanently located in the District of Columbia.

. . . .

Id., § 35-1903(2). To come within the coverage of the Act, such an insolvent insurer must be a "member insurer" of DCIGA, licensed to issue insurance, id., § 35-1903(4)(B), and authorized to transact business, id., § 35-1903(3), within the District. A prerequisite of the insurer's authority to transact business within the District is its membership in DCIGA, a non-profit unincorporated legal entity established to carry out the purposes of the Act, including the payment of claims against insolvent member insurers. Id., §§ 35-1904, 35-1906(a)(1)-(2).

Because the original insolvent surety was a licensed "member insurer" authorized to do business in the District, the only question before this court is whether the claim on appeal meets either of the legal predicates of D.C.Code § 35-1903(2): legal residency of the claimant, or domestic origin of the claim.

II

We choose to address only the disputed status of Blair's claim as arising from property permanently located in the District of Columbia, and conclude that the logic of the law, the syntax of the provision, the accepted meaning of the term "arising from," the internal consistency of the Act, and the relative weight of the interests that the relevant jurisdictions have in the case, support "coverage" of the claim at issue in this appeal. We do not reach the issue of Blair's asserted residency for purposes of section 35-1903(2).

Undeniably, the Ivy City project site is permanently located in the District of Columbia. In arguing that the claim on appeal nevertheless does not "arise from" property permanently located in the District, DCIGA essentially relies on a two-part argument. First, DCIGA contends that for the purposes of the Insurance Guaranty Association Act, the property from which the claim arose was not the construction site, but Blair's right to Snow's performance on the nine subcontracts. This property, DCIGA asserts, was a chose in action, or object of intangible property, and therefore lacked definite or permanent situs. Second, because the Act defines a "covered claim" as an "unpaid claim . . . which arises out of and is within the coverage . . . of an insurance policy to which this chapter applies . . . and . . . (B) the property from which the claim arises is permanently located in the District of Columbia," D.C.Code § 35-1903(2), the Association contends that "the property from which the claim arises" must itself be covered by the policy for "coverage" to apply to the claim. DCIGA thus equates "the property from which the claim arises" with the insured object of the unpaid claim under the terms of the provision. For a claim to be within the coverage of a policy, appellant argues, it must therefore arise from property that is within the coverage of the policy. If recovery is sought for contractual nonperformance, it follows that the right to performance is the underlying property, and as a chose in action, that right can have no permanent location for the purposes of the Act.

The logic and legislative history of the Act do not support this approach. Notably, the Model Act excluded surety insurance from its scope. See Model Act § 3. Nevertheless, in enacting the District of Columbia Insurance Guaranty Association Act, Congress chose to omit this exclusion, and thus required DCIGA to guaranty surety bonds written by DCIGA members. We cannot read this conspicuous omission — the only change in scope from Model Act to District law — as accidental. Rather, it evinces an obvious intent to include surety guaranties within the scope of the legislation. Moreover, it would be inconsistent to include surety...

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