TWENTY NINTH ANNUAL SOUTHERN SURETY AND FIDELITY CLAIMS

Transcription

1 TWENTY NINTH ANNUAL SOUTHERN SURETY AND FIDELITY CLAIMS CONFERENCE Clearwater Beach, Florida th th APRIL 18 & 19, 2018 PUNISHING A SURETY FOR THE PUNITIVE ACTS OF A PRINCIPAL PRESENTED BY: TIMOTHY J. BURSON Bovis, Kyle, Burch & Medlin LLC 200 Ashford Center North, Suite 500 Atlanta, Georgia Tel: Fax: tjb@boviskyle

2 Punishing a Surety for the Punitive Acts of a Principal By Tim Burson INTRODUCTION What happens to a surety when its bond principal is dishonest, makes misrepresentations, and/or commits a series of actions demonstrating willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care which would raise the presumption of conscious indifference to consequences? In other words can the innocent surety be liable for punitive damages assessed for the conduct of the bonded principal? This is often very important because a punitive damage award can be for much more than the actual loss even if the amount with the actual loss is within the penal sum of the bond limitation. As often as not a court assessing punitive damages against a surety will ignore the penal sum limitation and pile them on top of the actual damages awarded despite the penal sum limitation. This paper addresses these concepts. The topic is limited to situations where the bond coverage is silent as to coverage of punitive damages and does not include circumstances where the bond incorporates the terms of a contract that allows for recovery of punitive damages, exemplary damages, smart money, or similar penalties.. This paper does not address a surety s liability for punitive damages, bad faith damages or attorneys fees for its own conduct or conduct imputed to the surety which are of themselves covered by numerous other authors and scholars. * * * * * I. PREVAILING VIEW- The Restatement of Suretyship and Guaranty recognizes the view that when the surety s obligation is mandated by a statute, the obligation does not include any penalties imposed upon the principal for failure to fulfill the underlying obligation, unless the bond or statute so provide. 1 The comment to this section notes that when the bonded principal violates duties, he may be liable for punitive damages, but that those damages are penalties, not compensatory damages, and that the liability of the surety is limited to compensatory damages. 2 American Jurisprudence (Second) provides, Generally, sureties, upon official or other bonds, are not liable for exemplary damages that may be awarded against the principal. 3 See also 39 Am.Jur.2d, Guardian and Ward 190, and 72 CJS, Principal and Surety 92, p Restatement Third of Suretyship and Guaranty, Id Comment A, Am.Jur.2d Damages 614 (2006). See also 39 Am.Jur.2d Guardian and Ward 188 ( [I]n the absence of express statutory authorization, punitive damages cannot ordinarily be assessed against a surety on a guardian s bond. ). 1

3 II. Leading Cases A. The Majority Rule is that Surety Bonds do not Cover Punitive Damages. The majority of American courts have held that surety bonds cover only actual damages, not punitive damages. The rule that a surety is not liable for punitive damages even if the bonded principal may be liable for punitive damages has been followed in many other jurisdictions. In Guardianship Estate of Smith (Koch) v. Merchant s Mutual Bonding Co., 507 P.2d 189 (Kan. 1973), a guardian and his surety were sued. The Kansas statute in Smith allowed for recovery of double the amount of assets wrongfully converted. However, the Kansas Supreme Court held this penalty statute did not apply to the surety. Quoting both 39 Am.Jur.2d, Guardian and Ward 190, and 72 CJS, Principal and Surety 92, p. 573, the Smith court recognized that the surety was not liable for exemplary or punitive damages. 4 Judicial bodies in other states have recognized the rule that a surety is not liable for punitive damages against its principal. For example, in C&I Steel, LLC v. Travelers Casualty and Surety Co. of America, 876 N.E.2d 442 (Mass Ct. App. 2007), an arbitration panel awarded contract damages and exemplary/punitive damages against a contractor and the contractor s surety. The appellate court reversed the award of punitive damages against the surety for the bad acts of its principal, stating, In reaching that conclusion, we join the authors of the Restatement of Suretyship and Guaranty and the vast majority of other courts that have considered the issue. 5 United Pacific Insurance Co. v. Berryhill, 620 So.2d 1077, 1079 (Fla. Dist. Ct.App.1993) involved a motor vehicle dealer bond and a statute that required the bond to provide for recovery of any loss or damage which a person shall sustain as a result of odometer tampering. The Berryhill court stated that the clear meaning of the quoted words suggested that only actual damages or losses could be recovered against the bond. Accordingly, it held that treble damages recovered against the principal obligor were not recoverable against the surety. Similarly, in Tomlinson v. Camel City Motors, Inc., 330 N.C. 76, 408 S.E.2d 853, 855 (1991), a statute provided for recovery from a surety of loss or damages suffered by a purchaser as a result of a motor vehicle dealer's actions. The Tomlinson court held that a purchaser was able to recover only for compensatory damages against the motor vehicle dealer bond that had been obtained pursuant to the statute. Hence, it reversed the award of treble damages against the surety. See Ferris v. Haymore, 967 F.2d 946 (4th Cir.1992); Darr v. Long, 210 Neb. 57, 313 N.W.2d 215 (1981); In Butler v. United Pacific Ins. Co., 509 P.2d 1184 (Or. 1973), the Oregon Supreme Court ruled that the surety was not liable for punitive damages that may be owed by its principal under an automobile dealer s bond. Quoting 11 Appleman, Insurance Law and 4 Smith, 211 Kan. at 400, 507 P.2d at 192. See also 39 Am.Jur.2d Guardian and Ward 188 ( [I]n the absence of express statutory authorization, punitive damages cannot ordinarily be assessed against a surety on a guardian s bond. ). 5 C&I Steel, 876 N.E.2d at

4 Practice 6361, p. 86 (1944), the Butler court stated that the general rule is that a surety is liable only for the payment of actual damages caused by the principal, and may not be held for exemplary or punitive damages in the absence of any statutory provision imposing such liability. 6 In an often quoted decision, the Supreme Court of Indiana reversed a judgment against a surety for punitive damages tied to a guardian s misconduct for failing to pay over money received for a ward in Peelle v. State, 21 N.E. 288 (Ind. 1889): It is not the object of the law to punish sureties, but to fairly compensate beneficiaries. A surety does not occupy the position of a guardian who has committed a wrong, although he is responsible for the loss occasioned by that wrong. The Peelle court further stated, It is doubtful whether in any case a surety guilty of no personal wrong can be punished, for all that should be required of him is that he make adequate compensation to the injured party. 7 Similar rulings have been issued in Alabama, 8 Arkansas, 9 Arizona, 10 Arkansas, 11 California, 12 Colorado, 13 Connecticut, 14 Illinois 15, 16 Kansas, Kentucky, 17 Massachusetts, 18 6 Butler, 509 P.2d at Peele, 21 N.E. at Bull v. Albright, 47 So.2d 266 (Ala. 1950) (citing The sureties on an official bond are not liable for punitive damages. Walker v. Graham, 233 Ala. 539, 172 So. 655; Holland v. Fidelity & Deposit Co., 225 Ala. 669, 145 So. 131; Hain v. Gaddy, 219 Ala. 363, 122 So. 329).. 9 Harper v. Home Ins. Co. 553 P.2d559, 560 (Ark Ct. App. 1975). 10 Rogers v. Speros Constr. Co., Inc., 580 P.2d 750 (Ariz. 1978) (payment-bond surety was liable for wages of employees, but was not liable for treble damages against the employer). 11 Goodbar v. Lindsley, 11 S.W. 577 (Ark. 1889) (recovery under attachment bond is restricted to compensatory damages and does not include damages for principal s malicious conduct). 12 Carter v. Agriculture Ins. Co., 266 Cal. App.2d 805 (Cal.Ct.App. 1968).. 13 Edmonds v. Western Sur. Co., 962 P.2d 323, 326 (Colo. Ct. App. 1998) (surety bond mandated by statute does not include penalties imposed on principal). see also State Bank of Monte Vista v. Brennan, 7 Colo.App. 427, 43 P (1896) (sureties on sheriff's official bond cannot be held liable for treble damages). 14 Ames v. Comm r of Motor Vehicles, 839 A.2d 1250 (Conn. 2004) (punitive damages are not recoverable under a used-car dealer bond). 15 Koch v. Merchants Mutual Bonding Co., 211 Kan. 397, 507 P.2d 189 (1973).. 16 Larson v. Mobile Home Fin. Co., 226 N.E.2d 882 (Ill. App. Ct. 1967) (punitive damages could not be recovered under replevin bond). 17 Growbarger v. United States Fid. & Guar. Co., 102 S.W. 873 (Ky. 1907) (while plaintiff might recover punitive damages against principal, only compensatory damages could be recovered against surety on public official bond). 18 C&I Steel, LLC v. Travelers Casualty & Surety Co. 70 Mass. App. Ct. 653, 2007 Mass. App. LEXIS (App. Ct. Nov. 6, 2007). But see International Fidelity Ins. Co. v. Wilson, 387 Mass. 841, 443 N.E,2d 1308 (1983). 3

5 Mississippi, 19 Missouri, 20 Nevada, 21 New Mexico, 22 North Dakota, 23 Ohio, 24 Oklahoma, 25 Pennsylvania, 26 South Carolina, 27 and Texas. 28 In 2017 in a non-surety case, the Georgia Supreme Court addressed the availability of punitive damages against a party when the statutory basis of the underlying statutory cause of action does not provide for punitive damages. See Lyman v. Cellchem International, Inc., 300 Ga. 475, 796 S.E.2d 255 (2017), which concerns when punitive damages are recoverable under a statute. 29 In Lyman, the Court considered whether the Georgia Computer Systems Protection Act ( GCSPA ) authorized an award of punitive damages under OCGA (g)(1). That statute provides that a claimant may recover any damages sustained but does not mention punitive damages. 30 The issue was whether punitive damages were included as part of any damages sustained. 31 The Lyman Court concluded that the legislature did not intend for punitive damages to be recoverable under the statute, noting that punitive damages are not the same as compensatory damages, because punitive damages are awarded not as compensation to a 19 U.S. Fid. & Guar. Co. v. Mississippi ex rel. Stringfellow, 182 So.2d 919 (Miss. 1966) (surety is not liable for punitive damages on public official bond). 20 Coates v. U.S. Fid. & Guar. Co., 525 S.W.2d 654 (Mo. App. 1975) (holding payment bond surety not liable for punitive damages). 21 New Hampshire Ins. Co. v. Gruhn, 670 P.2d 941 (Nev. 1983) (surety on mortgage company s bond was not liable for punitive damages, as policy behind punitive damages is to punish wrongdoer, not to compensate plaintiff). 22 State ex rel. Nichols v. Safeco Ins. Co. of Am., 671 P.2d 1151 (N.M. Ct. App. 1983) (surety not obligated to pay punitive damages assessed against bonded principal). 23 Yesel v. Watson, 226 N.W. 624, 626 (N.D. 1929) (surety on a public official bond is not liable for punitive damages). This Court cited the Georgia Gatlin decision.. 24 Troyer v. Horvath, 468 N.E.2d 351 (Ohio Ct. App. 1983) (punitive damages may be recoverable from the principal but not the surety). 25 Stumpf v. Pederson, 70 P.2d 101 (Okla. 1937) (exemplary damages not recoverable against the surety on an attachment bond). 26 Pennsylvania Turnpike Comm n v. United States Fid. & Guar. Co., 194 A.2d 423, 428 (Penn. 1963) (decisions uniformly hold that liability of surety limited to actual damages sustained). 27 Aiken County v. BSP Division of Envirotech Corp., 657 F.Supp 1339 (D.S.C. 1989) aff d in part, rev d in part 866 F.2d 661 (4 th Cir. 1989)(subcontractor s surety not liable for punitive damages due to subcontractor s fraud); 28 Dawson v. Reliance Ins. Co., 482 S.W.2d 882 (Tex. Ct. App. 1972) (surety on a real estate broker s bond is not liable for exemplary damages). 30 OCGA (g)(1) provides in full, Any person whose property or person is injured by reason of a violation of any provision of this article may sue therefor and recover any damages sustained and the cost of the suit without limiting generality of the term, damages shall include loss of profits and victim expenditure. 31 Lyman v. Cellchem Int l, Inc., 300 Ga. 475, 477, 796 S.E.2d 255, 256 (2017).. 4

6 plaintiff, but solely to punish, penalize, or to deter a defendant. 32 The Lyman Court recognized that where the legislature has indicated that punitive damages are recoverable, it has generally done so through express language to include punitive damages among the types of damages that a plaintiff may recover in addition to compensatory damages. 33 The Lyman Court held that the Court of Appeals erred in determining that an award of punitive damages was authorized under OCGA (g)(1), given the absence of any express language authorizing the recovery of punitive damages. [I]f the legislature had intended for such damages to be recoverable under the statute, it could have expressly stated so. 34 The principles of Lyman reinforce the argument that, punitive damages should not be recoverable against a surety under Georgia statutory bonds, unless the bond expressly provides for such.. 35 Like the GSCPA, most Georgia bond statutes like conservator bonds (OCGA through ) do not expressly provide for an award of punitive damages. Instead, these statutes repeatedly demonstrate that the amount of the bond is based on the value of the bonded property, indicating that the bond is intended to protect the conservatorship from loss of its property. 36 Although the surety is liable for all acts of the conservator in relation to the trust up until the time of settlement under OCGA (d), the damages for which the surety is liable are limited to the actual loss of the trust property, i.e., compensatory damages, consistent with Lyman and the well-established law of Georgia under OCGA and National Surety Corp. v. Gatlin, 192 Ga. 293, 297, 15 S.E.2d 180, 183 (1941). B. A Bond Can Cover Punitive Damages. In National Surety Corp. v. Gatlin, 192 Ga. 293 (1941), the Georgia Supreme Court held that a penalty could be recovered under a statutory surety bond, because the statute at issue expressly stated that the penalty could be recovered from the surety. The Gatlin Court recognized there were numerous decisions that the liability of sureties under bonds does not ordinarily include liability for mere penalties imposed upon the principals for a dereliction of official duties, but is limited to injury sustained. 37 The Gatlin Court noted that this 32 Id. at 477 (quoting OCGA (c)). 33 Id. at 477 (listing statutes where the legislature expressly provided for punitive damages in addition to compensatory damages). 34 Id. at As a statutory bond, the scope of a conservator s bond is governed by what is required by the conservator-bond statutes. See, e.g., Lord v. Lowe, 318 Ga. App. 222, 226 (2012) ( a bond given under the authority of a statute can provide no more protection than that which is required by the statute. ) (citation and punctuation omitted). 36 See OCGA (c) ( The bond shall be in an amount equal to the estimated value of the estate secured by a licensed commercial surety ); OCGA and (allowing the bond amount to be reduced or increased to correspond to changes in the bonded estate s value); OCGA (a surety is responsible on the bond for any property received by the conservator. [emphasis supplied). 37 Gatlin, 192 Ga. at 297. See also 39 Am.Jur.2d Guardian and Ward 188 ( [I]n the absence of express statutory authorization, punitive damages cannot ordinarily be assessed against a surety on a guardian s bond. ); Restatement Third of Suretyship and Guaranty, 73 (when a surety s obligation is mandated by statute, the obligation does not include any penalties imposed upon the principal for failure to fulfill the underlying obligation unless the bond or statute so provide). 5

7 rule was in accord with former Georgia Code, (now at OCGA ), which limited the damages recoverable under official bonds, unless otherwise specially enacted, to the amount of injury actually sustained. In Gatlin former of the Code of 1933 (now OCGA ) provided that an ordinary who improperly issued a marriage license to a minor was liable for a $500 penalty and that a recovery shall be had against the offending ordinary and his bondsmen. 38 Following are analysis of the theories upon which advocates argue and courts decide whether a bond covers punitive damages assessed for the acts of the bond principal. III. JOINT AND SEVERAL LIABILITY When there is an issue about the liability of a surety for punitive damages assessed against the bonded principal, virtually every surety is going to encounter the often zealous, unexplained, and/or unsupported argument that the surety is jointly and severally liable with its bond principal. Resist the advocacy of the claimant or the claimant s counsel, or the premature leanings/decision of the judge.. Joint and severally liable with the principal begs the for what? question. The answer to that question depends on more than the simple reference to joint and several provisions under the law, the bond, or the claim of some lawyer. What is the purpose of the bond? What can you derive from the statutory basis for the bond? Why was a bond required? What does the bond protect? Additional more thorough analysis seeks to determine What is the purpose of punitive damages? How would assessing a surety with punitive damages for the acts of the bond principal accomplish or further a purpose of bad action deterence? Will assessing the surety with punitive damages for the acts of the principal defeat or frustrate the purpose of punitive damages? Provision for joint and several liability, does not set forth the scope of that joint and several liability and begs the question joint and several liable for what damages? In other words, even though a surety is jointly and severally liable with its principal for the actual loss under the bond, it is not liable for penalties that could be imposed against the principal for liablitiy under a cause of action outside the statutory bond basis for causing that loss, unless the bond or statute requiring the bond expressly require such damages to be covered. For example, a person could guarantee a bank loan for a borrower to purchase a car. If the borrower later fails to repay the loan and intentionally destroys the car by setting it on fire, both the guarantor and the borrower would be jointly and severally liable for the unpaid loan under the contract (the guaranty), but only the borrower could be liable to the bank for punitive damages for his intentional tortious misconduct (conversion/destruction). 39 There are jurisdictions that hold a surety jointly and severally liable for punitive damages assessed against a bond principal. 40 III. STRICT CONSTRUCTION OF BOND COVERAGE 38 The current version of this statute is at OCGA , which specifically provides that a penalty may be recovered against the offending [probate] judge and his bondsmen. 39 See OCGA ( There shall be no distinction between contracts of suretyship and guaranty. ). 40 An informative and useful compilation of the various approaches of the 50 state jurisdictions is available through the link: 6

8 A guiding principle of your claim analysis will be the appropriate jurisdictional construction of coverage of bonds. Many jurisdictions look at bonds as insurance and many of these jurisdictions construe insurance as providing coverage when there is an ambiguity or uncertainty. But many jurisdictions that have considered the origins and principles of suretyship and guarantees consider such to be aberrations of the common law and strictly construe guarantees and suretyship commitments. Georgia law for example under OCGA , requires that bonds must be strictly construed in Surety s favor: The contract of suretyship is one of strict law; and the surety s liability will not be extended by implication or interpretation. 41 In construing a statute, courts must presume that it was enacted with full knowledge of the existing condition of the law and with reference to it and interpret it in connection and in harmony with the existing law, and as a part of a general and uniform system of jurisprudence, and its meaning and effect is to be determined in connection, not only with the common law and the constitution, but also with reference to other statutes and the decisions of the courts. 42 The principle of strict construction in favor of the surety militates against a finding of coverage for punitive damages awarded for the acts of the bonded principal if the bond and statute are silent with respect to such coverage. IV. BOND TERMS AND PROVISIONS A. Actual Loss/Injury Sustained Principles Another consideration is what the applicable jurisdictional bond provisions provide about bond coverage. These may vary or may not even exist. Georgia for example has a statutory provision that address the measure of damages against a bond. OCGA Measure of damages -- Breach of bond. (a) Provisions in bonds stipulating the damages to be paid in the event of breach shall be deemed penalties and shall not be enforceable unless the amount stipulated is reasonably related to the amount of the loss resulting from the breach and the damages resulting from the breach are uncertain in nature or amount or are difficult of ascertainment. (b) Where provisions in bonds stipulating damages to be paid in the event of breach do not comply with the requirements prescribed in subsection (a) of 41 See also York v. RES-GA LJY, LLC, 336 Ga. App. 253, (2016) (stating rule); Capital Color Printing, Inc. v. Ahern, 291 Ga. App. 101, 107 (2008) (court is required by statute to honor limits placed on a surety s obligation and is prohibited from expanding the surety s liability by implication or interpretation); Johns v. Leaseway of Georgia, Inc., 166 Ga. App. 472 (1983) ( A contract of suretyship must be strictly construed in the interest of the surety. ). 42 Atlanta v. City of College Park, 292 Ga. 741, 744 (2013). See also Deutsche Bank Nat l Trust Co. v. JP Morgan Chase Bank, N.A., 307 Ga. App. 307, 313 (2010) (courts must favor a construction in conformity with the common law, rather than in derogation of it. ). 7

9 this Code section, only actual damages shall be recoverable in the event of a breach. 43 Likewise Georgia s probate conservator statute addresses its coverage in the provisions for requiring a bond. OCGA (a) provides, A conservator appointed by the court shall give bond with good and sufficient security. OCGA (c) describes the protection is for the value of bonded property: The bond shall be... in an amount equal to the estimated value of the estate if secured by a licensed commercial surety authorized to transaction business in the state. The value of the estate for purposes of the bond shall be determined without regard to the value of any real property or improvements thereon; but, upon conversion of the real property into personal property, a bond shall be given based upon the value of the estate including the value of the personal property into which the real property was converted. OCGA allows the amount of the conservator bond to be reduced [i]f the value of the ward s bonded estate decreases. These statutes demonstrate that conservator bonds are meant to cover actual losses of conservatorship property. This Georgia conservator bond does not specify the kinds of damages that it covers but as a statutory bond in Georgia it only covers what the statute requiring it provides and nothing more. 44 The Court applied the actual-damage rule in Dart v. Southwestern Building & Loan Association, 99 Ga. 794 (1896), holding that when a bond binds a surety to pay a specified penal sum in the event of failure to comply with the covenants of the bond, only the actual damages arising from a breach thereof can be recovered. Similarly, the court in City of Brunswick v. Aetna Indemnity Co., 4 Ga. App. 722 (1908), addressed a bond conditioned on the faithful performance of obligations and held that a recovery in an action upon the bond will be limited to the amount of the actual damage sustained and proved. 45 By contrast, Georgia s conservator bond statutes (OCGA and ) do not contain any statement or reference that punitive damages are covered by the conservator s bond. If the General Assembly wanted conservator bonds to cover punitive damages, it should 43 Emphasis added. Actual damages, by definition, do not include punitive damages. See, e.g., Ginsberg v. Termotto, 175 Ga. App. 265, 268 (1985) ( Only actual (i.e., compensatory) or nominal damages are recoverable in a breach of contract case. Punitive damages or damages for aggravation are not allowed. ); DeJong v. Stern, 162 Ga. App. 529, 530 (1982) ( actual damages are those which show an actual and real loss or injury. ); Black s Law Dictionary (10th ed. 2014) (defining actual damages as [a]n amount awarded to a complainant to compensate for a proven injury or loss; damages that repay actual losses also termed compensatory damages and punitive damages as [d]amages awarded in addition to actual damages.... ). OCGA (c) confirms that punitive damages are not actual or compensatory damages, stating, Punitive damages shall be awarded not as compensation to a plaintiff but solely to punish, penalize, or deter a defendant. 44 Campbell v. Benton, 217 Ga. 368, 371 (1961). See also Lord v. Lowe, 318 Ga. App. 222, 226 (2012) ( a bond given under the authority of a statute can provide no more protection than that which is required by the statute. ) (citation and punctuation omitted). 45 See also Ripley v. Eady, 106 Ga. 422 (1899) (when breach of a bond occurs, obligee should sue for, and is entitled to recover, only the damages actually sustained. ). 8

10 specifically provide for such coverage in the bonding statutes, as it has in other bonding statutes. 46 The legislature s decision not to provide for punitive damages in the conservatorbond statutes precludes coverage for them under the bond. 47 Under principles similar to these, the bond statutes and their requirements for bonds should be evaluated in connection and in harmony with the actual-loss rule. B. Statutory Bond Coverage Rules It is important to distinguish between statutory bond and conventional bonds in determining the extent of coverage. As alluded earlier conventional bonds may be construed to incorporate obligations and liability of a bonded principal with respect to the oblige that may not exist or be covered by a statutory bond. The distinction between coverages available under a conventional as opposed to a statutory bond were recently addressed in Law Enf t Dist. of Jefferson Parish v. MAPP Cons, LLC , 196 So.3d 896 (La. App. Cir ), where the court found that a subcontractor s bond to a general contractor on a public project was a conventional bond, not a statutory bond. For statutory bonds coverage construction will usually be based on what is required by the statute called Read-In. Some states will exclude coverage of anything not required by the statute called Read-Out. Some states will include coverage of anything provided by the bond, called Keep-In. 48 Read-In/Read Out. As referenced above Georgia follows the read-in/read out statutory construction rule: Whatever is included in the bond, and is not required by law, must be read out of it, and whatever is not expressed, and ought to have been incorporated, must be read as if inserted into it. In Campbell v. Benton, 217 Ga. 368 (1961), the Court applied the read in-read out rule to restrict bond coverage to what was required by statute, even though the bond provided for more expansive coverage See, e.g., OCGA (specifically providing that a penalty may be recovered against the offending [probate] judge and his bondsmen. ); and OCGA (specifically providing for exemplary damages against public official bonds). Unlike these statutes, the Georgia conservator-bond statute makes no reference to any penalty, punitive or exemplary damages, double or treble damages, or sanctions. 47 The exclusive remedy for recovering extra-contractual damages against a surety under Georgia law (for the conduct of the suety) is found in OCGA This statute requires a demand for payment upon the surety 60 days before litigation and a denial of the claim in bad faith, which was never provided to Surety in this case and therefore precludes the award of extra contractual punitive damages against it. Ayers Enters., Ltd. v. Exterior Designing, Inc., 829 F. Supp. 1330, 1332 (N.D. Ga. 1993); McCall v. Allstate Ins. Co., 251 Ga. 869, 872, (1984); Columbus Fire & Safety Equip. Co v. American Druggist Ins. Co., 166 Ga. App. 509 (1983). 48 Jack Burch presented a topic on various jurisdictional statutory bond construction principles at this conference in Campbell, 217 Ga. at (statute requiring agricultural bond only allowed Commissioner of Agriculture to institute action on the bond, so only commissioner could file suit, despite bond language allowing any injured person to maintain an action in his own name). See also Wooten v. G.M.H. Auto Sales, Inc., 187 Ga. App. 331, (1988) (car dealer bond was a statutory bond and proper claimants were determined by statute); Denny & Associates v. Southern Aggregates Co., 184 Ga. App. 832 (1987) (requirements of Georgia s Little Miller Act were read into bond, and omission of 90-day notice requirement in bond language did not eliminate 90-day notice required by statute); Talmadge v. General Cas. Co. of America, 88 Ga. App. 234 (1953) (real estate broker bond must be construed in accord with statute; the bond language allowing any person to bring an action was read out of the bond as being beyond what the statute required). 9

11 Read-in/Keep-In. Other jurisdictions look not only to the requirements of the statute, but also provided for any additional coverage contained in the face of the bond. When you have a claim for punitive damages in one of these states, you have to determine if the statute requiring the bond could allow for coverage of punitive damages for the acts of the bond principal, or if the bond itself has language broad enough to cover them. CONCLUSION The prospect of punitive damages against a bond are daunting particularly in the situations where a bond principal has clearly acted out and demonstrates open and indiputeable willful misconduct, malice, fraud, wantonness, oppression, or that entire want of care which would raise the presumption of conscious indifference to consequences. But surety claims professionals and advocates must remain resolute and remind claimant s, their counsel, and the courts about both the actual loss purpose of bonds, and the fact that holding an innocent surety liable for punitives damages, not only fails to accomplish the deterrence purposes of punitive damages, but actually frustrates them by having a surety pay for the damages which should be paid by the principal. For those who understand the principles and authorities behind the compensation purposes of bonds and the deterrence goals of punitive damages at the outset of these kind of cases, protection and insulation of the surety from such assessments are easier. 10

12 Tim Burson joined Bovis, Kyle & Burch, LLC s Surety, Fidelity, and Construction practice in 1989 as an associate. He became a member of the firm in His primary area of practice is for commercial surety clients and most recently argued beforwe the Georgia Supreme Court in a case where punitive damages were assessed by a probate court against a surety for the acts of a bond principal. Tim has several reported decisions for suety clients the most recent where he successfully defended an appeal of a surety defense judgment including an award of attorneys fees for the surety. In Re Haring, 726 S.E.2d Ga. App. 770 (2012). Tim also successfully defended another appeal of discharge of a surety for a property guardian in Ray v. Stewart, 287 Ga. 789 (700 S.E.2d 367) (2010). Tim has written and frequently presents subjects at this and other industry seminars and discussions, including a chapter in the ABA Torts and Insurance Practice Section's The Law of Probate Bonds (first and second editiions) and The Law of Motor Vehicle Bonds. He has contributed numerous papers and topics at the annual Southern Surety and Fidelity Claims Association since the early 1990s.. Tim is admitted to a number of courts:the State Bar of Georgia (1990); The Louisiana State Bar (1986); The United States Court of Appeal for the Eleventh Circuit; The United States Court of Appeal for the Fifth Circuit; United States District Court-Western and Middle Districts of Louisiana, Northern District of Texas, Northern and Middle Districts of Georgia; The United States Claims Court. Tim has also been admitted on a pro hac vice basis in Alabama, the District of Columbia, Mississippi, North Carolina, South Carolina, Tennessee, Texas, and Virginia. Tim received his law degree at The University of Alabama School of Law (J.D. 1985). He served as a member of the John A. Campbell Moot Court Board. He served as an editor on the University s Law and Psychology Review He was a member and officer of the Bench and Bar Legal Honor Society. Tim served as an Honor Court Justice as a law student. He co-chaired the orientation program for first year law students in He was the student recipient of the Dean Thomas A. Christopher Leadership Award in his final year at Alabama. Tim was born in Birmingham Alabama. Tim has three sons (Jonathon-35, John-34, Davis-22) and a daughter (Claire-12). Tim and Melody Burson are celebrating their 28 th year of marriage. Considerable credit and recognition for research and assistance and writing for this paper goes out to Randy Bryant an accomplished senior counsel in the Bovis- Kyle Surety and Fidelity practice area. Randy Bryant is senior counsel with Bovis, Kyle, Burch & Medlin, LLC, whose primary practice areas include surety and fidelity law, construction litigation, insurance coverage and defense, general civil litigation, and appellate practice. After graduating from Duke University, 11

13 he worked as an insurance underwriter in Macon, Georgia, before attending the University of Georgia School of Law. Randy was a published author and notes editor for the Georgia Law Review. Randy practiced law in the area of general civil litigation with a firm in Statesboro, Georgia before joining Bovis, Kyle, Burch & Medlin in Randy was born in Shaw Air Force Base, South Carolina, and grew up in an Air Force family, living in Florida, England, Maine, Ohio, and Georgia. Randy currently lives in Kennesaw, Georgia and has two children. Randy enjoys CrossFit, collecting comic books and following Duke basketball. PUBLICATIONS What Was Old Is New Again The Revised A312 Bond Forms, Twenty Second Annual Southern Surety and Fidelity Claim Conference, 2011 (co-author) Subdivision & Maintenance Bonds - What Kind of Critter Is This Anyway?, Twentieth Annual Southern Surety and Fidelity Claims Conference, 2009 (co-author) 12