Shannon R. Ginn Const. Co. v. Reliance Ins. Co.

• Decision Date: 17 March 1999
• Docket Number: No. 98-8196-Civ.,98-8196-Civ.
• Citation: 51 F.Supp.2d 1347
• Parties: SHANNON R. GINN CONSTRUCTION COMPANY and Shannon R. Ginn, Plaintiffs, v. RELIANCE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — Southern District of Florida

51 F.Supp.2d 1347

SHANNON R. GINN CONSTRUCTION COMPANY and Shannon R. Ginn, Plaintiffs, v. RELIANCE INSURANCE COMPANY, Defendant.

No. 98-8196-Civ.

United States District Court, S.D. Florida.

March 17, 1999.

Jon D. Derrevere, Derrevere & Associates, West Palm Beach, FL, for plaintiffs.

W. Frank Greenleaf, Welbaum, Guernsey, Hingston, Greenleaf & Gregory, Miami, FL, for defendant.

ORDER GRANTING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

HURLEY, District Judge.

THIS CAUSE is before the court upon defendant Reliance Insurance Company's ("Reliance") motion for summary judgment. The main issue is whether section 624.155(1)(b)1, Florida Statutes (1997), authorizes a principal to sue a surety for bad faith. For the reasons set forth below, the court answers in the negative and, therefore, grants summary judgment.

On February 16, 1990, Shannon R. Ginn, as president of Shannon R. Ginn Construction Company, entered into a construction contract with Palm Beach County (the "County") to build the a stockade.¹ As required by Florida law, Ginn contemporaneously executed a performance bond with a surety insurer, defendant Reliance.² The performance bond required Reliance to fulfill Ginn's contractual obligations in the event of a default.³ See Compl.Ex. A. Ginn paid a premium to Reliance to secure the performance bond, see Pls.' Resp. at 6; and, as is customary, Ginn executed an indemnity agreement, obligating it to reimburse Reliance for any expenses Reliance might incur due to claims against the bond. See Def.Mot. for Sum.Judg.Ex. B.

In August 1992, Ginn sued the County in state court, alleging anticipatory breach of the construction contract. The County promptly notified Reliance in writing that it considered Ginn to be in breach of the contract and that it intended to terminate Ginn from the project as of September 17, 1992, if the alleged deficiencies were not corrected. Pursuant to the bond, the County requested Reliance, as surety, to arrange for completion of the project. At the same time, the County filed a counterclaim against Ginn and Reliance in the state action. The County terminated Ginn from the project on September 17, 1992. Reliance "tendered its defense" to Ginn with regard to the County's counterclaim against it, but took no steps to complete the construction project. The County independently hired a new contractor to finish the remaining work.

Almost three years later in May 1995, Ginn and the County settled the state case, resulting in Ginn receiving a total of $425,000 from the County and its architect. On February 26, 1998, Ginn filed a two-count complaint against Reliance in state court, alleging that (1) Reliance failed in its duty to "attempt[] in good faith to settle claims when, under all the circumstances, it could and should have done so, had it acted fairly and honestly toward its insured and with due regard for her or his interests," in violation of section 624.155(1)(b)1, Florida Statutes (1997); and (2) Reliance engaged in unfair claim settlement practices, such as failing to investigate and act promptly on claims, as a general business practice, in violation of section 626.9541(1)(i)(3), Florida Statutes (1997). Based on diversity jurisdiction, Reliance removed the action to federal court.

Summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). "The purpose of summary judgment is to pierce the pleadings and to assess the proof in order to see whether there is a genuine need for trial." Wouters v. Martin County, Fla., 9 F.3d 924, 928 (11th Cir.1993) (quoting Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). It is inappropriate at the summary judgment stage for the court to weigh the evidence and determine the truth of the matter. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Rather, the court's function is to determine whether there exists an issue for trial. Where, as here, the non-moving party bears the burden of proof on an issue at trial, the moving party, in order to prevail, must do one of two things: show that the non-moving party has no evidence to support its case, or present "affirmative evidence demonstrating that the non-moving party will be unable to prove its case at trial." United States v. Four Parcels of Real Property, 941 F.2d 1428, 1437-38 (11th Cir.1991) (en banc). In order to determine whether the movant has met its burden, this court reviews the facts in the light most favorable to the non-movant and resolves all factual disputes in favor of the non-movant. Smith v. Jefferson Pilot Life Ins. Co., 14 F.3d 562, 566 (11th Cir.1994). "If the movant successfully discharges its burden, the burden then shifts to the non-movant to establish, by going beyond the pleadings, that there exist genuine issues of material facts." Hairston v. Gainesville Sun Publ'g Co., 9 F.3d 913, 918 (11th Cir.1993) (citing Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). "An issue of fact is genuine if the record as a whole could lead a rational trier of fact to find for the nonmoving party. It is material if it might affect the outcome of the case under governing law." Burke Co. v. Hilton Dev. Co., 802 F.Supp. 434, 436 (N.D.Fla.1992) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). "[A] complete failure of proof concerning an essential element of the non-moving party's case necessarily renders all other facts immaterial." Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

Suretyship

Suretyship involves three parties: a principal, a surety and an obligee. (In this case, Ginn is the principal, Reliance is the surety, and the County is the obligee.) Normally, the principal and the obligee have an underlying contract (here, the contract to construct the stockade). The surety agrees to perform the principal's obligations under the contract should the principal become unable to perform the obligations himself. See Richard S. Wisner & James A. Knox, Jr., The ABCs of Contractors' Surety Bonds, 82 Ill.B.J. 244, 244 (1994) (citing Balboa Ins. Co. v. United States, 775 F.2d 1158, 1160 (Fed.Cir.1985)). "[T]he core purpose of the suretyship agreement ... is to insulate the obligee from the risk of a default [by the principal]." See Transamerica Premier Ins. Co. v. Brighton School Dist. 27J, 940 P.2d 348, 353 (Colo.1997). In addition, the surety is entitled to indemnification by the principal for monies it expends in fulfilling the principal's obligations on the underlying contract. See Wisner & Knox, supra, at 244; Western World Ins. Co. v. Travelers Indem. Co., 358 So.2d 602, 604 (Fla. 1st DCA 1978).

Suretyship versus Insurance

Suretyship and insurance have similar characteristics and sometimes are discussed as related concepts; nonetheless, they are distinct. See Western World, 358 So.2d at 604 ("[T]he usual view, grounded in commercial practice, [is] that suretyship is not insurance.") (quoting Pearlman v. Reliance Ins. Co., 371 U.S. 132, 140 n. 19, 83 S.Ct. 232, 9 L.Ed.2d 190 (1962)). The Indiana Supreme Court underscored this distinction when it said: "Insurance has been defined as a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from an unknown or contingent event; whereas the contract of suretyship is one to answer for the debt, default, or miscarriage of another." Meyer v. Building & Realty Serv. Co., 209 Ind. 125, 196 N.E. 250, 253-54 (1935); accord Airlines Reporting Corp. v. United States Fidelity and Guar. Co., 31 Cal.App.4th 1458, 37 Cal.Rptr.2d 563, 567 (1995). Another difference is that sureties are entitled to indemnification from their principals, while insurers are not. See Western World Ins., 358 So.2d at 604 ("The surety, unlike the liability insurer, however, is entitled to be indemnified by the one who should have performed the obligation.").

Notwithstanding the above noted differences, many states, including Florida, categorize suretyship under the general heading of "insurance." See, e.g., Financial Indem. Co. v. Steele & Sons, Inc., 403 So.2d 600, 602 (Fla. 4th DCA 1981) (applying Florida law); Brighton School District, 940 P.2d at 352 (Colorado includes sureties within its insurance code) Dodge v. Fidelity and Deposit Co., 161 Ariz. 344, 778 P.2d 1240, 1241-42 (1989) (Arizona includes suretyship in its definition of insurance); Windowmaster Corp. v. Morse/Diesel, Inc., 722 F.Supp. 1532 (N.D.Ill.1988) ("Under Illinois law, contracts of compensated suretyship are deemed to be contracts of insurance.").⁴ Indeed, Florida defines "insurer" as "every person engaged as indemnitor, surety, or contractor in the business of entering into contracts of insurance or of annuity." § 624.03, Fla.Stat. (1997).⁵ "Surety insurance" is defined, inter alia, as "[a] contract bond ... or a performance bond, which guarantees the execution of a contract." § 624.606, Fla.Stat. (1997). The inclusion of surety and surety insurance in its insurance code is strong evidence that Florida intended to hold surety insurers to the same standards as ordinary insurers.

Bad Faith Actions in Florida

Under certain circumstances, Florida law permits both first-party and thirdparty actions for bad faith against insurers.⁶ At common law, Florida allowed an injured third party to bring a bad faith action against the tort-feasor's insurer when the third party had obtained a judgment in excess of the tort-feasor's policy limits. See Thompson v. Commercial Union Ins. Co., 250 So.2d 259 (Fla.1971). Third parties can also bring bad faith claims under section 624.155(1)(a)...