Phoenix Indem. Co. v. Board of Public Instruction of Alachua County, B-64

• Decision Date: 24 September 1959
• Docket Number: No. B-64,B-64
• Citation: 114 So.2d 478
• Parties: PHOENIX INDEMNITY COMPANY, a corporation, Appellant, v. BOARD OF PUBLIC INSTRUCTION OF ALACHUA COUNTY, Florida, Board of Public Instruction of Clay County, Florida and Board of Public Instruction of Putnam County, Florida, for the Use and Benefit of Employers Insurance Company of Alabama, Inc., a corporation, A & Z Contracting Company, Inc., a corporation, Appellees.
• Court: Florida District Court of Appeals

Page 478

114 So.2d 478

PHOENIX INDEMNITY COMPANY, a corporation, Appellant, v. BOARD OF PUBLIC INSTRUCTION OF ALACHUA COUNTY, Florida, Board of Public Instruction of Clay County, Florida and Board of Public Instruction of Putnam County, Florida, for the Use and Benefit of Employers Insurance Company of Alabama, Inc., a corporation, A & Z Contracting Company, Inc., a corporation, Appellees.

No. B-64.

District Court of Appeal of Florida, First District.

Sept. 24, 1959.

Howell, Kirby, Montgomery & Sands, Jacksonville, for appellant.

Hazard & Thames, Jacksonville, for appellees.

STURGIS, Judge.

The appellant, Phoenix Indemnity Company, hereinafter sometimes referred to as the 'surety,' was surety on a performance and guaranty bond given under Section 255.05, Florida Statutes, F.S.A. by A & Z Contracting Company, Inc., hereinafter referred to as the 'contractor,' to the Board of Public Instruction of Alachua County, Florida, in accordance with the terms of a public works contract. Suit was prosecuted in the name of the Board against the contractor and surety to recover, for the use and benefit of Employers Insurance Company of Alabama, Inc., hereinafter referred to as the 'insurer,' the amount due to insurer for insurance premiums on workmen's compensation, public liability, and property damage insurance furnished by it to the contractor who, under the terms of the contract, was obligated to provide such insurance and furnish the bond before commencing work under the contract. By appropriate reference the contract was made a part of the bond.

It is provided by Section 235.32 and 255.05, Florida Statutes, F.S.A., that a bond be given for performance of formal public works contracts. ¹ The statute was designed not only to assure that the work is actually performed in accordance with and at the contract price, but also to protect the governmental agency against involvement 'in any expense,' which comprehends, of course, the expense of defending actions that may be instituted to obtain payment for materials, supplies, or labor used directly or indirectly by the contractors or subcontractors engaged to perform the public works. And, as held in Fulghum v. State, 92 Fla. 662, 109 So. 644, it was also the broad legislative intent to afford to those supplying labor and materials on public works projects a means of protection in lieu of the lien afforded to them on private work as provided by other statutes.

In addition to the conditions prescribed by the statute (footnote 1), the bond herein was further conditioned that the contractor-principal should pay all bills for 'services furnished to the principal in connection with the contract.'

As stated, it was provided by the contract that the contractor furnish the mentioned insurance as a condition precedent to commencing work. It also required the contractor (1) to pay all payroll and materials bills and 'other costs and liability incurred * * * in connection with the construction of the work,' (2) to furnish, for use in making monthly progress payments to the contractor as called for under the contract, a complete schedule of materials, including the due proportion of expense and profit, to equal the total contract price, (3) to furnish a bond for 10% performance of the contract at the price stated therein, and (4) for payment of all persons supplying labor, material and supplies used directly or indirectly by the contractor or subcontractor (F.S. § 255.05, F.S.A.). The cost of the insurance was calculated and included as a part of the monthly progress payments made to the contractor.

It is not contested that the insurer performed 'services' on behalf of the contractor, consisting of the investigation of claims, negotiating and handling settlements, and furnishing medical and surgical relief. These services evidently operated to protect the public agency from involvement in actions by workmen employed on the contract job.

The appellant surety moved to dismiss the complaint for failure to state a cause of action. Upon denial thereof, and there being no dispute as to the unpaid balance due by the contractor for the premiums of insurance or of the facts, final judgment was entered against the contractor who did not defend the action and is not a party to this appeal, and also against the surety who appeals therefrom.

While this is a case of first impression in Florida, it is the general rule that whether a surety for compensation will be held liable for unpaid insurance premiums depends strictly upon the terms of the bond as construed in the light of applicable statutes.

The appellant surety here insists (1) that it is the real party defendant in interest, (2) that its liability is distinct from that of the contractor, (3) that the bond is merely statutory, in that its primary purpose is to fill the void resulting from the inapplicability of the Mechanics' Lien Law (Chapter 84, Florida Statutes, F.S.A.) to public works, and (4) that since insurance premiums are not 'materials' or 'labor' or 'supplies' within the purview of the Mechanics' Lien Law, they are not covered by the bond.

Appellee contends: (1) That assuming, per argumenti, the primary purpose of the statute (F.S. § 255.05, F.S.A.) is to fill the void resulting from the inapplicability of the Mechanics' Lien Law to public works, it does not limit the coverage contractable under a bond, that even the statutory bond extends coverage beyond the protection afforded by the Mechanics' Lien Law, and that the added coverage of the bond in suit is enforceable as a common law undertaking. (2) That coverage under the bond should be construed most strongly in favor of the beneficiaries. (3) That when insurance is required under construction contracts, the rule in Florida is that insurance premiums as here involved are to be treated was part of the construction costs. (4) That by the terms of the bond the surety expressly assumed liability to pay such insurance premiums. (5) That 'services', as comprehended by the bond, embrace the mentioned services of the insurer. (6) That again assuming, per argumenti, that the bond covers only items lienable under the Mechanics' Lien Law, payment of the insurance premiums would be covered on the premise that the insurer is a subcontractor within the definition of the Mechanics' Lien Law; this position being on the theory that the insured contracted to perform a part of the contractor's obligation--furnishing of the insurance--and thereby became a subcontractor within the meaning of the contract, as well as within the meaning of the Mechanics' Lien Law.

Section 255.05, Florida Statutes, F.S.A., does require coverage under the bond beyond the protection afforded by the lien arising under the Mechanics' Lien Law. The latter limits the lien to contractors dealing directly with the owner and such subcontractors, materialmen, and laborers as deal directly with the prime contractors, thus failing to provide protection for those furnishing materials and labor to the subcontractors. Richard Store Company v. Florida Bridge & Iron, Inc., Fla., 77 So.2d 632. Under Section 255.05, however, the coverage of the bond for public works contracts includes 'labor, material and supplies, used directly or indirectly by said contractor, or subcontractors * * *,' and it is immaterial whether the materials furnished are supplied directly or indirectly to the contractor or subcontractor. Kidd v. City of Jacksonville, 97 Fla. 297, 120 So. 556, citing McCrary v. Dade County, 80 Fla. 652, 86 So. 612, 614.

In the last case it was held that the phrase 'supplying labor and materials in prosecution of the work' is not limited in meaning to the structure, building or thing produced in which the labor or material must actually enter and become an integral part. Adhering thereto, we hold that the liability of the surety for the insurance premiums involved in this suit must be construed in accordance with the terms and qualifications of the formal public works contract for the performance of which the bond was given, or in the light of the special circumstances under which the insurance was furnished. And as the bond in suit is conditioned to pay bills for 'services' and to complete all 'work comprehended by the contract free and clear of all liens for labor or materials, or otherwise,' we are persuaded that it contemplates performances and a guaranty beyond those specifically required by F.S. Section 255.05, F.S.A.

Contracts of suretyship for compensation are to be construed most strongly against the surety and in favor of the indemnity which the obligee has reasonable grounds to expect. They are regarded in the nature of an insurance contract and are governed by rules applicable to such contracts. The maxim that 'sureties are favored in the law' has no application to contracts of suretyship by one engaged in the business for hire. The provisions of the bond should be considered as a whole and given that effect which was logically intended by the parties as shown by the entire instrument. Applying those principles to the admitted facts in this case, it is apparent that the contractor and surety knew that no work could be done under the contract until the insurance was provided, that premiums would be charged therefor, that the insurer would become obligated to perform services on behalf of the contractor, and that such services would be consumed in the course of the work in the same sense that other materials were consumed, such as...