Washington International Insurance Company et al v. Ashton Agency, Inc.

Filing 95

///ORDER granting in part and denying in part 82 Motion for Summary Judgment; granting in part and denying in part 83 Motion to Strike; granting in part and denying in part 86 Motion for Summary Judgment. Clerk is directed to enter judgment and close the case. 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

Ashton Agency, Inc.
O R D E R
In an order dated September 10, 2012, the court granted
summary judgment to plaintiffs (collectively “Washington”) as to
liability on their breach of contract claim against Ashton
Agency, Inc. (“Ashton”), but deferred a determination of the
amount of damages to which Washington is entitled.

It is

undisputed that Washington is entitled to $482,199.33, based
upon Ashton’s failure to remit premiums for Washington surety
bonds it sold and never replaced.

Still at issue is the amount

of damages to which Washington is entitled for Ashton’s failure
to remit premiums on between 551 and 578 Washington bonds that
Ashton later replaced with bonds issued by Great American
Insurance Company (“Great American”).

Before the court are: (1)

Washington’s motion for summary judgment; (2) Ashton’s motion to
strike the affidavit Washington submitted in support of its
motion for summary judgment; and (3) Ashton’s cross-motion for

summary judgment.

The court heard oral argument on the pending

motions on March 5, 2013.

For the reasons that follow, each of

those three motions is granted in part and denied in part.
Washington first argues that it is entitled to
$1,024.373.84, the full amount of the unremitted premiums for
the replaced bonds.

It bases that argument on: (1) the court’s

statement that “[t]he position that Washington bargained for was
to retain as profit the difference between net premiums it took
in and the claims it paid out,” Order (doc. no. 75), at 7-8; and
(2) the fact that it has paid out no claims on any of the
replaced bonds.

That argument, however, ignores the fact that

the position Washington bargained for also included remaining on
the risk for the full term of the bonds which, demonstrably, it
did not.

For that reason, Washington’s first argument is a

complete non-starter.
In the alternative, Washington argues that it suffered
damages of no less than $673,141.46 as a result of Ashton’s
failure to remit premiums for the bonds it later replaced.
Washington supports its motion with an affidavit from Kay Hull,
who is employed by NAS Surety Group as its Vice President for
Commercial Surety.
In a document that does double duty as a memorandum of law
in support of its objection to Washington’s summary-judgment
motion and as a memorandum in support of its own cross-motion

2

for summary judgment, Ashton argues that: (1) Washington may not
recover lost profits because it never asked for that form of
relief in either its complaint or its first motion for summary
judgment and because there is no procedural basis for
interposing a request for lost profits at this stage in the
litigation; (2) Washington has not provided evidence that
conforms with the court’s characterization of the damages to
which it is entitled; (3) Washington has produced no admissible
evidence to support its request for lost profits; and (4)
Washington is not entitled to pro rata damages.

Ashton further

argues that Washington’s claim for damages is both excessive and
inadequate.

Ashton has not, however, produced any evidence in

support of its summary-judgment motion.
Ashton’s first argument is a reiteration of an argument it
made in its motion to reconsider the order on Washington’s first
motion for summary judgment.

Specifically, Ashton argues that

Washington is precluded from recovering any damages based upon
Ashton’s failure to remit premiums for the replaced bonds
because Washington agreed to final resolution of this matter on
a “case-stated” basis, and the only relief it sought was the
full amount of the premiums it was owed.

In Ashton’s view, a

determination that it was not liable for the full amount it
failed to remit required a determination that it was not liable
for any of that amount.

3

In its memorandum of law, Ashton relies upon an opinion
that explains that a case stated is decided “on stipulated facts
in lieu of trial.”

Lange v. Wells Fargo Bank, N.A. (In re

Proctor), Bankr. No. BK09-42748-TLS, Adv. No. A09-4072-TLS, 2010
WL 3944694, at *1 (Bankr. D. Neb. Oct. 6, 2010).

The lack of a

set of stipulated facts in this case undermines Ashton’s claim
that the parties agreed to the case-stated procedural posture
before Washington submitted its first summary-judgment motion
and suggests, to the contrary, that Ashton injected the idea of
a case-stated disposition into this case only after the court
issued an order that Ashton found to be unfavorable.

Beyond

that, it is inaccurate to characterize Washington as pursuing a
new theory of liability.

From the outset, Washington has

claimed that Ashton breached its agreement to remit
approximately $1 million in premiums for the bonds Ashton later
replaced.

Washington’s theories of liability included breach of

contract.

That theory of liability, in turn, encompasses

standard contract damages, “[t]he goal of [which] is to
compensate for ‘actual losses suffered,’” Def.’s Obj. to Pls.’
Mot. Summ. J. (doc. no. 68), at 8 (quoting McLaughlin v. UnionLeader Corp., 100 N.H. 367, 371 (1956)).

If Ashton’s breach of

contract caused Washington to suffer actual losses in some
amount less than the full amount that Ashton failed to remit,
then Washington is entitled to that amount as damages.

4

In

short, the court is entirely unpersuaded by Ashton’s argument
that Washington has litigated the issue of damages in a way that
requires the court to resolve that issue on an all-or-nothing
basis.
Ashton’s next line of attack is its argument that
Washington has failed to carry its burden of proof on damages.
Before addressing the adequacy of the evidence Washington has
produced, the court turns to the allocation of the burden of
proof.
damages.

Ordinarily, a plaintiff bears the burden of proving its
But, this case involves several circumstances that

might call for a more nuanced application of that general
principal.
First, Washington has proven that Ashton agreed to remit
premiums for all the Washington bonds it sold and that as of
July 15, 2010, the agreed-upon date by which Ashton was to remit
those premiums, it was in breach, in the amount of $1.5 million.
As noted above, the parties’ dispute centers on approximately $1
million in premiums for the bonds that Ashton later replaced
with bonds issued by Great American.

Setting aside Ashton’s

argument that Washington is entitled to nothing because it only
asked for the full $1 million, its fallback position is that
Washington cannot prove any amount of damages less than the full
$1 million.

But, given Ashton’s undisputed breach of its

agreement to remit that $1 million, establishing an appropriate

5

amount of damages less than the full amount that Ashton failed
to remit seems more than a little like an affirmative defense on
which Ashton would bear the burden of proof.
There is another reason to question Ashton’s allocation of
the burden of proof.

Washington’s “actual losses suffered,”

McLaughlin, 100 N.H. at 371, consist of the $1 million in
premiums it should have received less the amount it would have
paid in claims.

The amount Washington would have retained after

paying claims is necessarily equal to the amount Great American
will retain once its exposure to claims has abated.

In other

words, the single best measure of Washington’s actual loss is
Great American’s actual profit.

Washington, however, has no

access to information about Great American’s profits on the
replacement bonds.

Moreover, Washington’s lack of access to the

best measure of its damages is entirely a result of Ashton’s
breaching its agreement with Washington and then deciding to
replace the bonds that Washington had issued with bonds from
Great American.

That set of circumstances supports the

proposition that Ashton should be the party required to produce
the evidence necessary to prove how much less that the $1
million it promised to remit it must pay as damages for its
failure to remit that $1 million.
If, indeed, it properly falls to Ashton to prove any
deduction from the $1 million it promised to remit, then, under

6

Ashton’s own argument, its failure to produce any evidence on
that matter would entitle Washington to the full $1 million it
seeks.

But, for reasons discussed above and in previous orders,

both “all” and “nothing” are off the table.1
to square one: what are Washington’s damages?

Thus, we are back
The court has

previously ruled that “Washington is entitled to . . . 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 for the ten weeks it spent on the risk without
any premiums from which to pay claims.”2

Order (doc. no. 75), at

9.
In support of its claim for $673,141.64 in lost profits,
Washington has submitted an affidavit from Kay Hull.

Rather

than producing a counter affidavit, Ashton devotes its

1

With regard to “all,” Washington reiterates an earlier
argument that it is entitled to the full $1 million based upon
the principal that once legal risk attaches to a surety bond,
the premium has been earned in full and is not subject to
apportionment. That principal, however, appears to apply in the
context of the relationship between the purchaser and the issuer
of a bond. See Smith v. Am. Sur. Co. of N.Y. (In re ParkerYoung Co.), 12 F. Supp. 987 (D.N.H. 1935). That, however, is
not the legal relationship that forms the basis for Washington’s
claims against Ashton, which renders the rule of law on which
Washington relies inapposite.
2

Based upon the foregoing language, Ashton is flatly
incorrect in arguing, in Section III of its memorandum, that
Washington misconstrued the court’s order on summary judgment
and erred by developing a record on lost profits rather than
focusing on the losses it incurred as a result of being on the
risk with no premiums.
7

attention, both in its summary-judgment memoranda and in its
motion to strike, to challenging the admissibility of Hull’s
testimony and an exhibit attached to her affidavit.
Specifically, Ashton argues that: (1) lost profits must be
established by expert testimony, and Washington may not rely
upon Hull’s opinions because she was never disclosed as an
expert; (2) Hull’s opinions are unreliable; (3) Hull’s opinions
are inadmissible under Rule 701 of the Federal Rules of
Evidence; (4) Exhibit 1 to Hull’s affidavit is inadmissible
hearsay; and (5) Exhibit 1 is not an admissible summary document
under Rule 1006.

Washington responds by arguing that: (1)

Hull’s affidavit meets the requirements of Rule 56 of the
Federal Rules of Civil Procedure; (2) Hull is a fact witness,
not an expert; (3) expert testimony is not necessary to prove
its damages; (4) Exhibit 1 to Hull’s affidavit would be
admissible at trial; and (5) Ashton will suffer no cognizable
prejudice if the court considers Hull’s entire affidavit.
Ashton’s arguments concerning the Hull affidavit provide no
basis for denying Washington’s motion for summary judgment.
Hull is a fact witness.

And, as is made clear below, the court

relies upon just two facts from that affidavit, Washington’s
gross premiums ($8,389,334) and its actual losses
($3,533,619.68) on the Standard Florida Motor Vehicle Dealer
Bonds it has issued since 1995.

As for the exhibit attached to

8

Hull’s affidavit, the court relies upon that exhibit for nothing
more than two figures that Ashton does not dispute, the net
premiums that Ashton was obligated by remit to Washington by
July 15, 2010, for Standard Florida Motor Vehicle Dealer Bonds
($148,958.87) and for Hard to Place Florida Motor Vehicle Dealer
Bonds ($862,344).

To restate, there is nothing in Ashton’s

arguments concerning the Hull affidavit to preclude the court
from using certain facts from that affidavit to determine
Washington’s damages in the manner described below.
Turning to the substantive issue, Ashton’s focus on the
term “lost profits” and its subsequent reliance upon the
requirements for proving that form of damages elevates form over
substance and fails to take into account the circumstances of
this case.

This case does not involve anything nearly as

speculative as: (1) the earnings that would have resulted if a
failed plan for business ownership had actually come to
fruition, see Fin Brand Positioning, LLC v. Take 2 Dough Prods.,
Inc., No. 09-cv-405-JL, 2012 WL 1416000, at *1 (D.N.H. Apr. 24,
2012); (2) the profits a subcontractor would have earned on
future projects if the contractor who hired it had not breached
the contract that was the basis for the subcontractor’s claim
against the contractor, see Indep. Mech. Contractors, Inc. v.
Gordon T. Burke & Sons, Inc., 138 N.H. 110, 115-18 (1993); (3)
the profit a logger would have earned from harvesting and

9

selling saw timber and firewood from a 150-acre woodlot, see
Fitz v. Coutinho, 136 N.H. 721, 722-23 (1993); or (4) the profit
that would have resulted from the manufacture of a line of
aircraft where the plaintiff had secured neither the right to do
so nor the financing necessary to secure that right, see Great
Lakes Aircraft Co. v. City of Claremont, 135 N.H. 270 (1992).
Rather, what is at issue here is how much Washington would have
earned on the bonds that Ashton sold, where Washington had a
fifteen-year history of issuing those same bonds in the same
market, with Ashton as the seller.

Based upon New Hampshire law

and the circumstances of this case, it is evident that in
reliance upon Hull’s testimony as a fact witness, this court is
able to make “a reasonably certain determination of the amount
of gains [to Washington that were] prevented” by Ashton’s breach
of contract.

Indep. Mech. Contractors, 138 N.H. at 118

(citation omitted).
Hull’s affidavit establishes the following.

Ashton

replaced two different kinds of bonds, Standard Florida Motor
Vehicle Dealer Bonds (“Standard bonds”), and Hard to Place
Florida Motor Vehicle Dealer Bonds (“HTP bonds”).

Washington

began issuing Standard bonds through Ashton in 1995, and began
issuing HTP bonds through Ashton in 2007.

Hull’s affidavit also

indicates, for each type of bond, Washington’s gross premiums
and its actual losses due to claims over the entire time that

10

Washington has issued each type of bond.

Washington has also

produced an exhibit to Hull’s affidavit which lists the net
premiums for each type of bond.

Having described the evidence

before it, the court turns to each of the two types of bonds at
issue in this case.
Standard bonds.

Since 1995, Washington has charged

$8,389,334 in gross premiums for Standard bonds and has
sustained $3,533,619.68 in actual losses on those bonds.

Thus,

on those bonds, Washington’s losses amounted to 42.1 percent of
the gross premiums.

In this case, Ashton collected $229,167.50

in gross premiums on the Standard bonds for which it failed to
remit premiums.

Based upon the historical pattern of losses

equaling 42.1 percent of gross premiums,3 Washington stood to pay
out $96,526.23 in claims on the Standard bonds at issue.
Subtracting that figure from the $148,958.87 in net premiums
that Ashton should have remitted to Washington, it is reasonable
to expect that Washington would have made a profit of $52,432.64
on the Standard bonds for which Ashton failed to remit premiums,
if the 42.1 percent loss ratio is reliable.
As the court noted in a previous order, given the nature of
the bonds in this case (“occurrence” rather than “claims made”),
3

While the 42.1 percent loss ratio appears in the exhibit
to which Ashton objects, it may be derived from the figures
related in Hull’s affidavit, which makes the admissibility of
the exhibit irrelevant as to the loss ratio.

11

Washington remains on the risk with regard to some of the bonds
used to calculate historical loss ratios, i.e., those issued
less than six years ago.

But, because Washington has been

issuing Standard bonds 1995, the fact that it is still subject
to claims on some of the bonds on which the historical loss
ratio has been calculated has a negligible effect of the
reliability of the loss 42.1 percent loss ratio.

Still, in the

interest of accounting for that fact, it is necessary to
diminish, by a small measure, the estimate of Washington’s lost
profits.

The court concludes that if Ashton had remitted the

premiums on the Standard bonds it later replaced, and if
Washington were to pay all the claims made on those bonds, it
would be left with about $50,000.

That lost profit constitutes

Washington’s damages for Ashton’s breach of contract as to the
Standard bonds.
HTP bonds.

The HTP bonds are a different story.

The

problem with calculating Washington’s losses vis à vis the HTP
bonds is that Washington has been issuing those bonds only since
2007, which means that the time for filing claims against many
of those bonds, if not all of them, has yet to expire.

Because

it appears that Washington remains exposed to claims on a large
proportion of the HTP bonds it has issued, any loss ratio
calculated on the basis of Washington’s current actual losses on
those bonds is likely to significantly underestimate its

12

ultimate losses and overestimate its ultimate profits on those
bonds.

Thus, the 22.4 percent loss ratio to which Hull

testified in her affidavit does not provide a reliable basis for
calculating the damages that resulted from Ashton’s failure to
remit premiums on HTP bonds.
Still, Ashton breached its agreement to remit $862,344 in
premiums for the HTP bonds, and it cannot be doubted that
Washington was damaged by that breach of contract.

Washington

was exposed to claims on those bonds from May 1, 2010, through
September 30 of that year.

During that time, it never had the

benefit of a single dollar of the premiums that purchasers had
paid Ashton for those bonds.

Between May 1 and July 15,

Washington had Ashton’s promise to remit those premiums, but
after July 15, it did not even have that.

Yet, had a claim been

made, Washington would have been obligated to pay it.

Thus, it

was harmed to the extent that it needed to marshal the financial
resources necessary to pay out of its own pocket any claims that
might be made on the bonds it issued.

Based upon the evidence

before the court, Washington’s reasonably ascertainable damages
with respect to the HTP bonds are $59,885.
upon the following.

That figure is based

Had Ashton not replaced the HTP bonds for

which it did not remit the premiums, Washington would have been
exposed to claims for a total of seventy-two months, the twelve
months of the bond term plus another sixty months, based upon

13

the limitation period for some of the statutory violations that
can give rise to claims on a bond.

Ashton’s actions left

Washington on the risk and without premiums for five months.4
Five divided by seventy-two, times the amount of net premiums
due on the HTP bonds, i.e., $862,344, equals $59,885.

As to the

HTP bonds, no greater an award than that is supported by the
record.
Conclusion
For the reasons and to the extent described above,
Washington’s motion for summary judgment, document no. 82,
Ashton’s motion to strike, document no. 83, and Ashton’s crossmotion for summary judgment, document no. 86, are all granted in
part and denied in part.

Specifically, Washington is entitled

to judgment in the amount of $592,084.33, which represents a
recovery of $482,199.33 for Ashton’s failure to remit premiums
for the bonds it never replaced, $50,000 for Ashton’s failure to
remit premiums for the Standard bonds it replaced, and $59,885
for Ashton’s failure to remit premiums for the HTP bonds it

4

While the parties’ agreement contemplated that Washington
could be on the risk and without premiums from May 1 through
July 15, their agreement to that possibility was based on
premiums being remitted on July 15, which they were not. Thus,
on the facts of this case, leaving Washington without premiums
between May 1 and July 15 was just as harmful as leaving it
without premiums from July 15 through September 30.
14

replaced.

The clerk of the court is directed to enter judgment

in accordance with this order and close the case.
SO ORDERED.

__________________________
Landya McCafferty
United States Magistrate Judge
March 7, 2013
cc:

Bradford R. Carver, Esq.
Geoffrey M. Coan, Esq.
Eric H. Loeffler, Esq.
Jeffrey C. Spear, Esq.

15