District of Columbia Insurance Guaranty v. Algernon Blair, Inc.

565 A.2d 564, 1989 D.C. App. LEXIS 202, 1989 WL 123015

• Court: District of Columbia Court of Appeals
• Decided: September 26, 1989
• Docket: 88-512
• Status: Published

Opinions

PER CURIAM:

This appeal grows out of an action by appellee Algernon Blair, Inc. (“Blair”), against appellant, the District of Columbia Insurance Guaranty Association (“DCIGA” or “the Association”), for payment of nine surety bonds. Upon the insolvency of the original surety, Blair sought payment of the bonds by DCIGA, a mandatory membership organization of insurers who do business in the District of Columbia, created by law to guarantee claims against insolvent member insurers. When DCIGA sought a declaratory judgment absolving it of liability on the bonds, the trial court dismissed its complaint and entered a declaratory judgment in favor of Blair. On appeal, DCIGA renews its contention that Blair’s demands are not “covered claims” within the meaning of the District of Columbia Insurance Guaranty Association Act, D.C.Code §§ 35-1901 et seq. (1988 Repl.), because the claims fail to meet either of the two alternative predicates to “coverage” under the Act: the claimant is not a legal resident of the District of Columbia, and the claim does not “arise from” property permanently located within the District. Although the trial court ruled for Blair on both predicates, we reach only the latter issue, and resolving it in Blair's favor, we affirm.

I

A

Claimant-appellee Blair is a Delaware corporation with its principal place of business in Montgomery, Alabama. On November 4, 1982, Blair qualified to transact business in the District of Columbia by obtaining from the Recorder of Deeds a certificate of authority pursuant to D.C. Code § 29-399(a) (1981). On November 8, 1982, Blair contracted to construct an equipment maintenance facility at the Ivy City Railroad Yard in Washington, D.C., for the National Railroad Passenger Corporation (Amtrak). On January 3,1983, Blair entered into a subcontract to pay $2,431,-538.70 to Snow’s General Services, Inc. (“Snow”), a contractor with its principal place of business in Richmond, Virginia, for structural demolition and excavation at the project site. This work was subsequently divided into nine separate subcontracts, secured by nine performance and payment bonds executed in Maryland on Snow’s behalf by the Eastern Indemnity Company of Maryland (“Eastern”).

Snow initiated work under four of the nine subcontracts in February 1983. By late March 1983, a dispute arose between Blair and Snow regarding Snow’s inefficiency and undermanning of the work, which caused delays and complications for Blair and its other subcontractors. When, by repeated correspondence, Blair attempted to implement a priority work schedule, Snow responded with charges of harassment, and walked off the project. By telegram of April 15, 1983, Blair notified Eastern that Snow was in default under four of its subcontracts, and demanded Eastern’s response as surety under Snow’s bonds. Pursuant to a separate indemnity agreement with Snow, Eastern assumed the subcontracts and directed Blair to prosecute the subcontract work in the most economical fashion possible. Blair complied with this directive, charging Snow’s accounts for expenses incurred and crediting them for progress payments received in performing the subcontracts.

Alleging that it had incurred losses under each of the nine subcontracts, in 1984 Blair sued Eastern for payment under the surety bonds. However, in February 1985 a Maryland circuit court adjudged Eastern insolvent and ordered the cancellation of all the bonds it had issued. Consequently, on February 7, 1986, Blair submitted its claims to DCIGA for payment under the Insurance' Guaranty Association Act, supra, which provides that the Association shall pay covered claims under policies issued by insolvent member insurers authorized to transact business in the District of Columbia. Although Eastern was authorized to transact business in the District, DCIGA denied the claims, contending that they were not “covered claims” under the Insurance Guaranty Act, since Blair was not a “resident” business entity of the District within the meaning of the Act, and the losses it sustained did not “arise from” property permanently located within the District, as the Act requires. Rejecting these contentions, the trial court awarded judgment to claimant Blair. This appeal followed.

B

The statute governing this case is the District of Columbia Insurance Guarantee Association Act, supra, which gave existence to appellant DCIGA. This statute was based on the Post-Assessment Property and Liability Insurance Guaranty Association Model Act (“Model Act”), prepared by the National Association of Insurance Commissioners in 1969. See H.R.Rep. No. 257, 93d Cong., 1st Sess., 1 (1973). Congress enacted this legislation

to provide a mechanism for the payment of covered claims under certain insurance policies to avoid excessive delay in payment and to avoid financial loss to claimants or policyholders because of the insolvency of an insurer, to assist in the detection and prevention of insurer insolvencies, and to provide an association to assess the cost of such protection among insurers.

D.C.Code § 35-1901. The District of Columbia Insurance Guaranty Association Act applies to all kinds of direct insurance except life, title, disability and mortgage guaranty insurance, and therefore its scope includes claims of the kind now on appeal.¹ Id., § 35-1902. For purposes of the Act,

[t]he term “covered claim” means an unpaid claim ... which arises out of and is within the coverage and not in excess of the applicable limits of an insurance policy ... issued by an insurer, if. such insurer becomes an insolvent insurer after August 14, 1973, and: (A) The claimant or insured is a resident of the District of Columbia at the time of the insured event; or (B) the property from which the claim arises is permanently located in the District of Columbia.

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Id., § 35-1903(2). To come within the coverage of the Act, such an insolvent insurer must be a “member insurer” of DCIGA, licensed to issue insurance, id., § 35-1903(4)(B), and authorized to transact business, id., § 35-1903(3), within the District. A prerequisite of the insurer’s authority to transact business within the District is its membership in DCIGA, a nonprofit unincorporated legal entity established to carry out the purposes of the Act, including the payment of claims against insolvent member insurers. Id., §§ 35-1904, 35-1906(a)(l)-(2).

Because the original insolvent surety was a licensed “member insurer” authorized to do business in the District, the only question before this court is whether the claim on appeal meets either of the legal predicates of D.C.Code § 35-1903(2): legal residency of the claimant, or domestic origin of the claim.

II

We choose to address only the disputed status of Blair’s claim as arising from property permanently located in the District of Columbia, and conclude that the logic of the law, the syntax of the provision, the accepted meaning of the term “arising from,” the internal consistency of the Act, and the relative weight of the interests that the relevant jurisdictions have in the case, support “coverage” of the claim at issue in this appeal. We do not reach the issue of Blair’s asserted residency for purposes of section 35-1903(2).

Undeniably, the Ivy City project site is permanently located in the District of Columbia. In arguing that the claim on appeal nevertheless does not “arise from” property permanently located in the District, DCIGA essentially relies on a two-part argument. First, DCIGA contends that for the purposes of the Insurance Guaranty Association Act, the property from which the claim arose was not the construction site, but Blair’s right to Snow’s performance on the nine subcontracts. This property, DCIGA asserts, was a chose in action, or object of intangible property, and therefore lacked definite or permanent situs. Second, because the Act defines a “covered claim” as an “unpaid claim ... which arises out of and is within the coverage ... of an insurance policy to which this chapter applies ... and ... (B) the property from which the claim arises is permanently located in the District of Columbia,” D.C.Code § 35-1903(2), the Association contends that “the property from which the claim arises” must itself be covered by the policy for “coverage” to apply to the claim. DCIGA thus equates “the property from which the claim arises” with the insured object of the unpaid claim under the terms of the provision. For a claim to be within the coverage of a policy, appellant argues, it must therefore arise from property that is within the coverage of the policy. If recovery is sought for contractual nonperformance, it follows that the right to performance is the underlying property, and as a chose in action, that right can have no permanent location for the purposes of the Act.

The logic and legislative history of the Act do not support this approach. Notably, the Model Act excluded surety insurance from its scope. See Model Act § 3. Nevertheless, in enacting the District of Columbia Insurance Guaranty Association Act, Congress chose to omit this exclusion, and thus required DCIGA to guaranty surety bonds written by DCIGA members. We cannot read this conspicuous omission — the only change in scope from Model Act to District law — as accidental. Rather, it evinces an obvious intent to include surety guaranties within the scope of the legislation. Moreover, it would be inconsistent to include surety guaranties within the scope of the legislation, yet hold that such contracts, as choses in action, are excepted from DCIGA coverage because they are not themselves property permanently located in the District of Columbia. This would be to exclude nondomestic corporations entirely from the coverage of the Act, with respect to surety insurance, notwithstanding any significant contacts with or impact on the District such a contract had.

Both parties agree that in order to be a “covered claim,” a claim must “arise from” property permanently located in the District of Columbia. They also agree that a chose in action, such as a contractual right to performance, is not property permanently located in the District. Their disagreement therefore lies in their divergent readings of the phrase “arising from.” Under the Association’s theory, a claim “arises from” the insured interest, which, in this case, is a contractual right to performance. Whether or not such a right is property, it lacks permanent location, and therefore cannot form the basis of a “covered claim” within the meaning of the Act. By contrast, under Blair’s theory, a claim “arises from” any permanently located property to which it bears a substantial nexus: but for the presence of that underlying property, the claim would not exist. The claimant need not have an ownership interest in the underlying property itself; the claim must merely be predicated on some interest dependent on that property.

Manifestly, the Association’s argument must stand or fall on the basis of its equation of “the property from which the claim arises” with the insured object. Yet an examination of the language of section 35-1903(2) reveals that the clause referring to “the property from which the claim arises” is entirely independent of the clause that states the alternative additional requirement that the claim arise out of and be within the coverage of an insurance policy within the scope of the Act. Since, in a grammatical sense, neither clause of the provision modifies the other, only the following separate outcomes are compelled by the provision:

(1) A covered claim is an unpaid claim which arises out of and is within the coverage of an insurance policy to which the Act applies; and

(2) The property from which the claim arises must be permanently located in the District of Columbia.

The rules of grammar do not compel our finding that the objects of the two propositions are the same. On the contrary, the object of the first proposition is “an unpaid claim ... within the coverage of an insurance policy to which the Act applies,” and that to which it is purportedly to be equated in the second proposition is “property ... permanently located within the District of Columbia,” and notably, not “a claim arising out of property permanently located within the District of Columbia.” These two objects are facially disparate. Had the drafters intended to equate them, they might simply have framed a single-clause provision defining a covered claim as “an unpaid claim for injury to property permanently located in the District of Columbia within the coverage of an insurance policy to which the Act applies.” The fact that the drafters did not do so, but instead opted for a more complicated grammar, separating the insured object from “the property from which the claim arises,” actually lends support to the view that they intended a distinction between the objects of the two clauses.

This view is reinforced by the drafters’ choice of the broad term “arising from” rather than some modifier of the word “property” clearly identifying it as the insured object for the injury of which the unpaid claim was lodged. It is well settled that statutory language employing the phrase “arising from” is broad, Tandy & Wood, Inc. v. Munnell, 540 P.2d 804, 806, 97 Idaho 142 (1975); Fidelity & Casualty Co. v. North Carolina Farm Bureau Mutual Insurance Co., 192 S.E.2d 113, 118, 16 N.C.App. 194, cert. denied, 192 S.E.2d 840, 282 N.C. 425 (1972), and thus effects a “broad, general, and comprehensive” coverage. Fidelity & Casualty, supra, 192 S.E.2d at 118. It has been held to suffice, where a claim is said to “arise from” some predicate, that there be a “substantial connection” or nexus between that predicate and the claim. Tandy & Wood, supra, 540 P.2d at 806; Hernandez v. Protective Casualty Insurance Co., 473 So.2d 1241, 1242 (Fla.1985). Direct causation is not required; it is enough that the claim would not have arisen but for the presence of the asserted predicate. Auto-Owners Insurance Co. v. Transamerica Insurance Co., 357 N.W.2d 519, 521-22 (S.D.1984). In the case on appeal, it is fair to assert that there was a substantial connection between the Ivy City project and the injury alleged by appellee; but for its participation in the Ivy City project, appellee would have suffered no injury. In this sense, then, and accounting for the inherent breadth of the language chosen by the drafters, the claim “arose from” property permanently located in the District.

Moreover, the internal consistency of the Insurance Guaranty Association Act, which comprises a single, comprehensive legislative act, supports the proposition that the term “arising from” requires only a substantial connection between the permanently located property and the injury suffered, and not insurance of the underlying property. This is clear from a review of the provision in the Act which addresses the possible duplication of recovery in foreign workers’ compensation claims. To avoid such duplication, section 35-1910(b) requires, among other things, that a person having a worker's compensation claim “seek recovery first from the association of [his] residence.” From this it is clear that a foreign claimant could seek recovery from DCIGA if recovery were unavailable from an insurance guaranty association in his home state. But it is also obvious that the insured object in a worker’s compensation claim is the worker’s ability to perform work, an object of intangible property which, like a chose in action, cannot have a permanent location. Thus, if we are to credit the Association’s argument that a claim cannot “arise from” an object of intangible property permanently located in the District, then a foreign worker should never have a claim against DCIGA, since such a claim would necessarily infract that very rule. The fact that section 35 — 1910(b) does make provision for such a claim belies DCIGA’s argument, and demonstrates that claims “arising from” property located in the District must encompass claims substantially connected with that property, even if the property itself is not the insured object.

Finally, an analysis of the interests involved in this case supports the broad interpretation described above. In the case on appeal, a foreign corporation sought to insure work undertaken on a major project in the District by contracting with an insurer authorized to do business here. The jurisdiction with the greatest interest in the transaction is the District of Columbia, where the project was undertaken. Maryland has relatively little interest in protecting a foreign company doing construction work in the District of Columbia from the insolvency of a Maryland insurer, since neither the claimant nor the insured activity was located within its jurisdiction. Further, there is no record evidence that Eastern was even a member of an insurance guaranty association in Alabama, the claimant’s legal domicile. Only the District of Columbia, as the situs of the underlying project, had a meaningful interest in enforcing the claim.²

III

In short, we conclude that the logic and grammar of this legislation, and the statutory phrase “arising from,” as it is used in that provision, must be construed broadly in determining the location of an interest that has suffered injury, and therefore, that claims “arising from” property permanently located in the District include those substantially connected with contract work performed on another’s property here. This conclusion is supported by the requirements of internal consistency of the statute and by our analysis of relevant jurisdictional interests. Thus, appellee’s claims were within the coverage of the Insurance Guaranty Association Act, and the trial court properly entered summary judgment. Accordingly, the judgment on appeal is

Affirmed.

1 . We note that the original Post-Assessment Insurance Guaranty Association Model Bill excluded surety insurance from the scope of its coverage. Model Act § 3. In enacting this bill, however, our legislature opted to include surety insurance within the coverage of the District of Columbia Insurance Guaranty Association Act (or stated differently, left off the exclusion of surety insurance). Putting aside any asserted difficulties this modification may have engendered, it is clear that the legislature intended to include claims of the type considered on this appeal within the scope of the Act.

2 . While, strictly speaking, the issue on appeal is not a conflict of law problem, the Restatement (Second) of Conflict of Laws § 188 (1971) is instructive as to the relative interests of the jurisdictions connected with this suit. It identifies five relevant contacts that must be weighed in determining the governing law: (1) the place of contracting; (2) the place of negotiation of the contract; (3) the place of performance; (4) the location of the subject matter of the contract; and (5) the domicile, residence, nationality, place of incorporation and place of business of the parties.

In the case on appeal, Maryland was the place where the contract was technically executed, and therefore it is the “place of contracting.” It is notable, however, that “[standing alone, the place of contracting is a relatively insignificant contact.” Id., Comment e. However, because the parties were variously domiciled and negotiated across several jurisdictions, neither the place of negotiation nor the domiciles of the parties is dispositive here. Id. (place of negotiation "is of less importance when there is no one single place of negotiation and agreement”; domicile only "assumes greater importance when combined with other contacts"). The Restatement instructs us that the remaining contacts, i.e., the place of performance and the situs of the subject matter, both favor the District of Columbia's interest:

When the contract deals with a specific physical thing, such as land or a chattel, or affords protection against a localized risk ... [tjhe state where the thing or the risk is located will have a natural interest in transactions affecting it. Also the parties will regard the location of the thing or of the risk as important. Indeed, when the thing or the risk is the principal subject of the contract, it can often be assumed that the parties, to the extent that they thought about the matter at all, would expect that the local law of the state where the thing or risk was located would be applied to determine many of the issues arising under the contract.

Id. Since the risk secured by the surety bonds was that Snow would fail to perform adequately under the nine subcontracts on a project located in the District of Columbia, both the risk and the performance contemplated by the surety bonds were within the District. The combination of these contacts gives the District the most substantial interest in the outcome of this suit.