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Washington International Insurance Company and North American v. Ashton Agency

September 10, 2012

WASHINGTON INTERNATIONAL INSURANCE COMPANY AND NORTH AMERICAN SPECIALTY INSURANCE COMPANY
v.
ASHTON AGENCY, INC.



The opinion of the court was delivered by: Landya McCafferty United States Magistrate Judge

Opinion No. 2102 DNH 156

ORDER

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. Diaz-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 motor-vehicle-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 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.*fn1 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." Ashton Decl. (doc. no. 68-5) ¶ 10. Based on the number of Great American 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. Count IV is a claim for breach of fiduciary duty. 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 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 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 ...


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