Republic Ins. Co. v. Prince George's County

• Decision Date: 01 September 1991
• Docket Number: No. 1704,1704
• Citation: 92 Md.App. 528,608 A.2d 1301
• Parties: REPUBLIC INSURANCE COMPANY v. PRINCE GEORGE'S COUNTY, Maryland. ,
• Court: Court of Special Appeals of Maryland

Page 528

92 Md.App. 528

608 A.2d 1301

REPUBLIC INSURANCE COMPANY v. PRINCE GEORGE'S COUNTY, Maryland.

No. 1704, Sept. Term, 1991.

Court of Special Appeals of Maryland.

July 9, 1992.

James R. Schraf (Victor I. Weiner and Lipshultz and Hone, Chartered, on the brief), Silver Spring, for appellant.

Crystal R. Dixon, Associate Co. Atty. (Michael P. Whalen, Co. Atty., Michael O. Connaughton, Deputy Co. Atty. and J. Michael Dougherty, Jr., Associate Co. Atty. on the brief), Upper Marlboro, for appellee, Prince George's County.

Angelo I. Castelli, Greenbelt, for appellees, Tantallon XI, Inc., William and Jane Martin and John and Patricia Smart.

Argued before WENNER, FISCHER and HARRELL, JJ.

HARRELL, Judge.

On 19 August 1988, Prince George's County, Maryland (County) filed an action in the Circuit Court for Prince George's County against Republic Insurance Company (Republic), seeking recovery under a performance bond issued by Republic. Republic issued the bond to secure a road construction permit on behalf of Tantallon, XI, Inc. (Tantallon), which ultimately defaulted on its obligations under the permit. Republic answered and filed a third-party complaint against William Martin, Jane Martin, John Smart and Patricia Smart (the indemnitors), claiming indemnity against liability. ¹ Republic later added Tantallon as a third-party defendant. Following a jury trial (Platt, J. presiding), the circuit court denied Republic's motions for judgment and judgment N.O.V. and entered judgment on the jury's verdicts in favor of the County in the amount of $59,861.00 and in favor of Republic in the amount of $27,666.00. The court denied the County's request for prejudgment interest. Republic noted a timely appeal, and the County cross-appealed.

On appeal, Republic asserts that the amount of damages recoverable by the County on the bond must be measured as of 16 June 1988, the date, as stipulated by the parties, of Tantallon's default on its obligations under the permit. Republic also asserts that the liability of the indemnitors must be coextensive with its own liability under the bond. The County, in its cross-appeal, contends that the circuit court abused its discretion in denying its request for prejudgment interest. For reasons we shall explain, we affirm the judgments below.

Facts

On 29 August 1978, Tantallon filed an "Application For Construction Within A Public Right-Of-Way" with the County Department of Public Works and Transportation, seeking a permit for street construction on Hallwood Place and Buckmaster Lane in a subdivision known as Tantallon on the Potomac. Republic issued a performance bond on behalf of Tantallon, undertaking liability as surety for costs incurred in the completion of the work in the event of a default by Tantallon. The bond provided that "in no event shall the liability of [Republic] exceed the sum of $59,861.00." Republic and the indemnitors entered into a contemporaneous agreement under which the indemnitors agreed to indemnify Republic against any liability incurred by Republic under the bond.

Tantallon received its permit but failed to complete the work described therein. By letter dated 10 November 1986, the County notified Republic that the permit was in default and demanded that Republic either pay the County the amount of $27,666.00 or undertake to complete the work remaining under the permit. The figure $27,666.00 consisted of the County's estimate of the cost to complete the work plus an additional 25% of the estimated cost for contingencies. See County Code subtit. 23, § 23-116(d) (1987). Republic took no action on the County's demand. On 29 October 1987, counsel for Republic and the County met and the County again demanded that Republic either pay the County for the remaining work to be done or undertake to complete the work itself. Again, Republic took no action. Accordingly, the County filed suit against Republic. At that time, the estimated cost of completing the work had escalated to $52,018.50. According to evidence presented at trial, the County ultimately expended far more than the $59,861.00 ceiling of the bond to complete the work. ² The County traced the increase in costs from 1986 to 1990-91, when the work was actually completed, to the erosive effects of rain and vehicle traffic on the unfinished surface of the street and to inflation.

Additional facts will be discussed as necessary during our analysis of the individual issues presented.

I.

Republic argues that the County is limited to recovery of damages for the cost to complete the work as of the date of Tantallon's default. Alternatively, it argues that the circuit court erred in failing to instruct the jury on the doctrine of mitigation of damages. We find both arguments to be without merit.

A suretyship is a contractual agreement and, therefore, is governed by the Maryland law on the interpretation and construction of contracts. General Motors Acceptance Corp. v. Daniels, 303 Md. 254, 261, 492 A.2d 1306 (1985). The bond issued by Republic provides that Republic's obligation "shall remain in full force and effect until the work described in the application has been approved or accepted[.]" In our view, this provision indicates the parties' intention that damages were to become fixed upon the approval or acceptance of the work by the County, rather than upon default.

Even were we not to give the above quoted provision of the bond such a construction, we would still reject Republic's argument.

As a general rule, the damages upon breach of contract are to be measured as of the date of the breach. ... Under this rule, later events, such as fluctuations in value after the breach, do not affect the measure of damages.

There are, however, exceptions to this rule. For example, if an insurer delays settling a loss and prices rise during the period of delay, the insurer is liable for the increased costs.

22 Am.Jur.2d Damages § 79 (1988).

In Aycock v. Republic Ins. Co., 116 So.2d 317 (La.1959), a fire partially destroyed the plaintiff's home residence, which was insured against such risk by the defendant. At the time of the fire, the cost of repair was estimated at approximately $3,800. The defendant delayed settlement for a period of almost four months before tendering payment. In the meantime, the cost of materials and repairs rose substantially. The court held that the defendant was liable for the increase in cost, relying upon the following general principle: "In the absence of fraud or estoppel, an insured is not conclusively bound by statements in notice or proofs of loss." Id. at 320.

The Aycock court also reasoned as follows:

Certainly plaintiff cannot be charged with responsibility for this unforeseen increase in cost. Nor do we think it reasonable to conclude that he should bear the additional expense of such increase. Settlement of the loss was entirely within the hands of the insurer.... Defendant's neglect or failure, with or without what it may have deemed good reason, to make settlement must be assumed to comprehend the assumption of the risk of changing economic conditions.

Id. at 321.

Under Maryland law, "if there has been no concealment by the insured, and no resulting disadvantage to the insurers which would give rise to an estoppel, the notices and proofs given do not restrict the claim finally, but may be corrected." Automobile Ins. Co. v. Thomas, 153 Md. 253, 262, 138 A. 33 (1927). Of course, we are mindful that the above rule has been applied in cases involving an insurer and insured, rather than a principal and surety. Under the circumstances, however, we think that the relationships are so similar that the rule is applicable.

Under the indemnity agreement, Republic reserved the right, at its election, to settle any claims against it under the bond. Thus, settlement of the loss in the instant case was entirely within the hands of Republic. Republic failed to make settlement with the County. We think that failure "must be assumed to comprehend the assumption of the risk of changing economic conditions." Aycock, 116 So.2d at 321.

Republic maintains that the County should be forced to bear the expense of increased costs because the work could have been completed in 1986 for $27,666.00, and reasonable efforts on the part of the County would have prevented the increase in costs above that amount. We disagree. A surety bond represents an undertaking to indemnify or protect a person or the public against losses resulting from acts of the principal. Lumbermens Mutual Casualty Co. v. Agency Rent-A-Car, Inc., 128 Cal.App.3d 764, 180 Cal.Rptr. 546, 550 (1982). See also Rosenbloom v. Feiler, 290 Md. 598, 604, 431 A.2d 102 (1981), quoting L. Simpson, Handbook on the Law of Suretyship § 17, at 28 (1950) ("In suretyship ... the promise is made to protect the promisee creditor in case the principal fails to perform."). Forcing the County to bear the additional expense of increased costs, when Republic was responsible for the failure to settle the loss, would strip the County of the protection that the contract of suretyship was intended to ensure. Having failed to settle on the loss, Republic became liable for increased costs during the period of the delay.

Republic also argues that the circuit court erred in failing to instruct the jury on the doctrine of mitigation of damages. The County responds that Republic never objected to the circuit court's failure to instruct the jury on mitigation of damages. Assuming, arguendo, that the issue is properly preserved, our review of the record in the instant case convinces us that the court's instructions to the jury fairly covered the doctrine of mitigation of damages. See Maryland Rule 2-520; Myers v. Estate of Alessi, 80 Md.App. 124, 132, 560 A.2d 59 (1989) ("To determine propriety of denying a requested jury instruction, a reviewing court must examine whether the requested instruction was fairly covered by the instructions given, and whether the...