Slack v. Ohio Casualty Insurance

Taylor, J.

Respondent The Ohio Casualty Insurance Company, appeals as of right the judgment of the probate court awarding petitioners $250,000, the full amount of its bond, for the breach of the fiduciary duty of the estate’s original personal representative. We reverse.

The deceased, a man with adult children, remarried and then passed away in April 1986. Before his death he executed a will giving his shares in the Masco Corporation to his children and making his wife (the children’s stepmother) the personal representative of his estate. After his death, the children agreed that their stepmother could serve in that capacity without bond, but after she ignored their repeated requests to turn over to them the Masco Corporation stock as provided by the will, the children joined in a petition to remove their stepmother as personal representative. The probate court did not immediately remove her, but ordered her to post a bond, which she did on November 19, 1987. At issue is the risk undertaken by respondent in this bond.

One month before the personal representative executed the surety bond, the stock market crashed, and the value of the stock that remained in her possession diminished. The probate court held that respondent is liable to pay for that decrease in stock value, even though the diminishment occurred before the bond was executed. We disagree.

A suretyship is a contract, and as a contract it cannot be construed to operate retrospectively. Nevertheless, petitioners rely on a construction of provisions of the Probate Code to argue that retrospective application of the suretyship is required. To reach that conclusion, they rely on MCL 700.502(1); MSA 27.5502(1). Specifically, petitioners contend that liability was triggered by the personal representative’s failure to perform the duties of her office set forth as conditions of a bond in subsections a through d of subsection 1 of § 502:

(a) To collect, care for, manage and preserve all the property of the estate and to make a return to the court, within 60 days, a true and perfect inventory of all the goods, chattels, rights, credits and property of the estate or trust, which shall come to his possession or knowledge, or the possession of any other person for him.

(b) To administer the estate according to law, and out of the estate to pay and discharge all debts and charges, chargeable on the estate, or the dividends thereon, as may be ordered by the court.

(c) To render a true and just account of his administration to the court within 1 year, and at any other time when required by law or by the court; and the surety by execution of the bond guarantees that if the principal does not render an account, the surety will render it for him and on the principal’s behalf.

(d) To perform all orders and decrees of the court, by the fiduciary to be performed, and to pay over the residue of. the estate or trust to the proper parties as ordered by the court.

However, petitioners’ position fails to take into account the language of subsection 1 that introduces those conditions, which provides:

(1) If a fiduciary is required to file a bond to qualify, the fiduciary shall give a bond . . . before he enters upon the execution of his trust .... [Emphasis supplied.]

Here, the personal representative was not required to file a bond in order to qualify, therefore the bond conditions in subsections 1(a) through 1(d) do not apply.

Even if the language of § 502 could properly be read into and made conditions of this bond, the statutory language itself evidences a prospective view, i.e., payment in the event of a fiduciary’s failure to properly perform her duty after the time the bond was given. It would be surprising were it otherwise: it is a well-established principle in the law that, in the absence of a clearly expressed contrary intent, guaranty contracts have prospective operation only and do not cover events occurring before the date the contract becomes effective. 13 Couch, Insurance, 2d (rev ed), § 46:176, p 137, ns 12, 13, and cases cited therein; 9A Appleman, Insurance Law & Practice, § 5665, p 314, n 3; see also Leucadia, Inc v Reliance Ins Co, 864 F2d 964 (CA 2, 1988).

Further, the explicit language of the bond itself shows that the bond was a guarantee against future, not past, improprieties:

[We jointly and severally agree] to pay . . . the full sum of $250,000.00 if the Principal fails [not failed] to truly perform any of the duties and obligations of his appointed office or fails [not failed] to observe and keep any of the conditions imposed .... [Emphasis supplied.]

We decline to rewrite the bond, i.e., in effect predating it by approximately a month, as petitioners would have us do.¹

Reversed.

Brennan, P.J., concurred.

1 Contrary to the statement made in the dissent, we do not find or suggest that the final accounting occurred before the bond was executed. We do find that the final accounting does not trigger coverage under the bond because it operated as nothing more than an after-the-fact summary of the personal representative’s indecorous acts before bonding.