Washington International Insurance Company et al v. Ashton Agency, Inc.
Filing
75
///ORDER granting in part 64 Motion for Summary Judgment. So Ordered by Magistrate Judge Landya B. McCafferty.(gla)
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW HAMPSHIRE
Washington International
Insurance Company and North
American Specialty Insurance
Company
v.
Civil No. 10-cv-526-LM
Opinion No. 2102 DNH 156
Ashton Agency, Inc.
O R D E R
This case now consists of claims asserted by Washington
International Insurance Company and North American Specialty
Insurance Company (collectively “Washington”) against Ashton
Agency, Inc. (“Ashton”) for: (1) breach of contract; (2) breach
of fiduciary duty; and (3) specific performance.
All three
claims arise from Ashton’s alleged failure to remit premiums it
collected for commercial surety bonds it sold as Washington’s
agent.
Before the court is Washington’s motion for summary
judgment.
Ashton objects.
For the reasons that follow,
Washington’s motion for summary judgment is granted in part.
Summary Judgment Standard
“To prevail on summary judgment, the moving party must show
that ‘there is no genuine dispute as to any material fact and
the movant is entitled to judgment as a matter of law.’”
Markel
Am. Ins. Co. v. Díaz-Santiago, 674 F.3d 21, 29 (1st Cir. 2012)
(quoting Fed. R. Civ. P. 56(a)).
Here, the parties have
“stipulate[d] that the remaining issues in this case can be
resolved on a motion for summary judgment.”
Stip. (doc. no.
56), at 1.
Background
Washington issues surety bonds.
In 2004, Ashton entered
into an agreement with Washington (hereinafter “Agreement”),
under which Ashton sold Washington’s bonds, collected premiums,
took a commission, and remitted the remainder, i.e., the net
premium, to Washington.
Under the Agreement, Ashton “agree[d]
to pay [Washington] [the] net premium due on all business placed
by or through the Agent [i.e., Ashton] with [Washington] not
later than forty-five (45) days after the end of the month in
which the business written [became] effective . . . .”
Loeffler
Aff., Ex. 1, Part B (doc. no. 65-2), at 7.
Pursuant to the Agreement, Ashton sold 834 Florida motorvehicle-dealer surety bonds for which Washington was the surety.
On each bond, the principal was a Florida motor vehicle dealer,
and the obligee was the Director of the Florida Division of
Motor Vehicles.
The bonds ran to the benefit of persons who
purchased motor vehicles from dealers who violated certain
Florida statutes.
Each bond had a term of May 1, 2010, through
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April 30, 2011.
It appears to be undisputed that the bonds
operate on an “occurrence” basis rather than a “claims-made”
basis.
That means that the surety is on the risk for up to five
years after the end of the term of a bond, depending upon the
limitation period for the statutory violation underlying a claim
on the bond.
Ashton collected premiums for all 834 of the
Washington bonds it sold, but, to date, has not remitted the net
premiums on any of those bonds to Washington.
In mid August of 2010, for reasons that are not material,
Ashton told Washington that it intended to “move” the 834
Washington bonds it had sold to the Great American Insurance
Company (“Great American”).
Washington objected, but, on
October 1, 2010, Ashton issued between 551 and 578 Great
American bonds to the same auto dealers to which it had
previously issued Washington bonds.1
It appears to be undisputed
that Ashton remitted to Great American the premiums it initially
collected for the Washington bonds it replaced, to pay for the
replacement bonds.
The Great American “replacement bonds” had
the same term as the Washington bonds they replaced, and,
according to Ashton, once Great American issued its bonds, the
Washington bonds they replaced “ceased to exist.”
(doc. no. 68-5) ¶ 10.
Ashton Decl.
Based on the number of Great American
1
Even though the parties stipulated that their dispute could
be resolved on summary judgment, they disagree about the number
of replacement bonds Ashton issued.
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bonds Ashton issued, between 256 and 283 of the Washington bonds
Ashton issued remained in force for their full terms.
The
parties agree that the net premiums associated with those bonds
amount to $482,199.33.
On September 24, 2010, Washington
initiated the process for terminating the Agreement, and the
termination became effective on December 25, 2010.
Based on the foregoing, Washington sued Ashton in nine
counts, three of which remain unresolved.
In Count I,
Washington asserts a claim for breach of contract, and seeks to
recover the premiums Ashton collected for all 834 of the
Washington bonds it sold, both the ones that were replaced and
the ones that were not.
fiduciary duty.
Count IV is a claim for breach of
It alleges more or less the same conduct that
underpins Count I and seeks essentially the same damages.
Count
VII is a claim for specific performance, based on Ashton’s
alleged failure to: (1) hold the premiums it collected in trust;
and (2) remit those premiums to Washington in a timely manner.
Discussion
Washington argues that Ashton breached the Agreement and
its fiduciary duties by: (1) failing to remit the net premiums
it collected for the Washington bonds that were never replaced;
(2) failing to remit the net premiums it collected for the
Washington bonds that were replaced; and (3) replacing 551
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Washington bonds with Great American bonds.
Ashton agrees that
it owes Washington $482,199.33, i.e., the amount of the net
premiums it collected for Washington bonds that were not
replaced with Great American bonds.
Necessarily, then, Ashton
admits liability on Washington’s claims as to the bonds that
were not replaced.
But, Ashton argues that it owes Washington
nothing with respect to the bonds that were replaced, because:
(1) it did not breach the Agreement by replacing Washington
bonds with Great American bonds; (2) it did not act in its own
self-interest by replacing Washington bonds with Great American
bonds; and (3) even if it did breach the Agreement by replacing
the Washington bonds, Washington cannot meet its burden of
proving damages.
First things first.
Ashton devotes considerable attention
to what may be a meritorious argument that no provision of the
Agreement prohibited the replacement of Washington bonds with
Great American bonds.
But, Ashton seems to ignore Washington’s
claim that it also breached the Agreement by failing to remit
net premiums for the bonds it later replaced.
However, if
Ashton breached the Agreement by failing to remit net premiums
on the bonds it did not replace, which it concedes, it also
breached the Agreement by failing to remit net premiums on the
rest of the Washington bonds it sold.
As of July 15, 2010,
forty-five days after the last day of the month in which all 834
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of the Washington bonds that Ashton sold became effective,
Ashton owed Washington the net premiums for all 834 bonds.
When
July 15 came and went without Ashton remitting those premiums,
Ashton was in breach of the Agreement.
Whether Ashton further
breached the Agreement ten weeks later by replacing the
Washington bonds with Great American bonds is an interesting
legal question, but one the court need not resolve, as
Washington does not indicate how the damages available for that
purported breach would be any greater than the damages available
for the breach that occurred on July 15.
To sum up, Washington
is entitled to judgment as a matter of law that Ashton breached
the Agreement and its fiduciary duties by failing to remit the
net premiums it collected on the Washington bonds it later
replaced with Great American bonds.
Because Washington is entitled to judgment as a matter of
law on liability, all that remains is the matter of damages for
Ashton’s breach of its contractual obligation to remit the net
premiums it collected on the bonds it later replaced.
Washington argues that it is entitled to the $1,024,373.84 it
was owed on July 15, 2010, for the subsequently replaced bonds.
In Washington’s view, recovery of the full amount it was owed on
July 15, 2010, would place it in the same position it would have
been in if Ashton had fully performed its obligations under the
Agreement.
In Ashton’s view, awarding Washington the full net
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premium would result in an enormous windfall because Washington
is no longer on the risk, due to the issuance of the Great
American replacement bonds.
Ashton also argues that Washington
is not entitled to any amount of pro rata damages, because it:
(1) has not expressly asked for such relief; (2) is not on the
risk; and (3) has suffered no actual damages.
Based on the parties’ briefing, several things are clear.
First, if the court were to award Washington the full amount of
the net premiums Ashton collected for the bonds it later
replaced, Washington would receive an unwarranted windfall.
To
be sure, “the goal of damages in actions for breach of contract
is to put the non-breaching party in the same position it would
have been in if the contract had been fully performed.”
George
v. Al Hoyt & Sons, Inc., 162 N.H. 123, 134 (2011) (quoting
Robert E. Tardiff, Inc. v. Twin Oaks Realty Trust, 130 N.H. 673,
677 (1988); citing Hawkins v. McGee, 84 N.H. 114, 117 (1929)).
Had the contract been fully performed, Washington would have
collected $1,024,373.84 in premiums from Ashton, and would be on
the risk until April 30, 2016.
risk; Great American is.
But, Washington is not on the
Awarding Washington over $1 million in
premiums without exposure to any risk is a much better position
than the one Washington bargained for.
However, awarding Washington nothing would leave it in a
worse position than the one it bargained for.
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The position that
Washington bargained for was to retain as profit the difference
between net premiums it took in and the claims it paid out.
The
profit that Washington would have realized from the bonds that
Ashton replaced cannot be known with exact certainty until April
30, 2016, the date on which Great American is no longer on the
risk that Washington initially insured.
That said, the court is
confident that Washington’s lost profits could be determined to
a reasonable degree of certainty, based on past history, current
trends, and all the other relevant statistical information that
is commonly relied upon in the actuarial realm of the insurance
world.
But the record in this case, as currently developed,
does not permit the court to make a properly supported award of
lost profits.
Ashton’s argument that Washington is entitled to no damages
for breach of contract is misguided for at least two reasons.
First, Ashton did breach the Agreement by failing to remit
premiums for 834 bonds to Washington.
While Ashton now argues
that it remedied its breach by putting Great American on the
risk in place of Washington, the court is aware of no rule of
law that permits a breaching party to choose the manner in which
its breach is remedied, especially where, as here, the course of
action selected by the breaching party deprives the party that
was wronged of the very benefit it bargained for, i.e., the
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profit resulting from paying less in claims than it received in
premiums.
Second, Ashton’s position ignores the fact that regardless
of the retroactive effect of the bonds Great American issued on
October 1, when those bonds were issued, Washington had been on
the risk for five full months, despite having received no
premiums from Ashton.
That may be a compensable injury, as
there is a reasonable argument to be made that Washington’s
operations, and in particular its decisions about cash
management, were affected by the risk to which it was exposed.
Under the terms of the Agreement, Washington was prepared to be
on the risk without the benefit of premiums until July 15, but
it did not agree to be on the risk for another ten weeks without
the benefit of premiums from which to pay claims.
But, thanks
to Ashton’s breach, that is precisely the position in which
Washington found itself.
So, here is where things stand.
Washington is entitled to
judgment as a matter of law on liability; Ashton breached both
the Agreement and its fiduciary duties by failing to pay the net
premiums on 834 bonds on July 15.
For that breach, Washington
is entitled to: (1) $482,199.33, i.e., the net premiums for the
bonds that were not replaced; and (2) the profits it would have
earned from the replaced bonds, an award that both puts
Washington in the position it bargained for and compensates it
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for the ten weeks it spent on the risk without any premiums from
which to pay claims.
Because the parties have framed their arguments concerning
damages on an all-or-nothing basis, the court has no good way to
calculate Washington’s lost profits.
Accordingly, the hearing
currently scheduled for September 19, 2012, shall serve as a
case-management conference focusing on the procedural framework
for determining the correct measure of damages.
As a guide to
the parties, the court notes Robert Ashton’s testimony about
Washington’s “‘continuing concern’ with the Florida DMV bond
program loss ratio,” Ashton Decl. (doc. no. 47-5) ¶ 5.
If that
testimony is accurate, it is possible that Washington’s lost
profits may not be large enough to justify the expense of
documenting and litigating them.
But, that is for the parties
to determine, in their own best interests.
Finally, as Ashton
insists that Washington is no longer on the risk, and faces no
exposure to claims on the bonds it issued, Washington is
entitled to be held harmless by Ashton in the event that any
person attempts to make a claim against Washington on any of the
replaced bonds.
Conclusion
For the reasons and to the extent stated above,
Washington’s motion for summary judgment, document no. 64, is
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granted in part.
The court will meet with the parties on
September 19 to make a plan for determining the correct measure
of damages.
SO ORDERED.
__________________________
Landya McCafferty
United States Magistrate Judge
September 10, 2012
cc:
Bradford R. Carver, Esq.
Geoffrey M. Coan, Esq.
Eric H. Loeffler, Esq.
Jeffrey C. Spear, Esq.
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