DocketNumber： 825SC475
Judges： Phillips, Arnold, Becton
Filed Date： 9/6/1983
Status： Precedential
Modified Date： 10/19/2024
Court of Appeals of North Carolina.
*165 Nichols, Caffrey, Hill, Evans & Murrelle by William L. Stocks, Greensboro, for defendant-appellant Nat. Bonding and Acc. Ins. Co.
Poisson, Barnhill & Britt by L.J. Poisson, Jr., Wilmington, for defendants-appellees Stanley A. Gertzman, Jeri A. Gertzman and William H. McMullen, Jr.
PHILLIPS, Judge.
G.S. 58-54.23 and the several other statutes in Article 3C of Chapter 58 that it depends upon and relates to have no application to this case and it was error to close the court to National Bonding's cross-claims against the appellee indemnitors under authority of it. Since these are confiscatory and punitive statutes in fundamental derogation of the common lawstatutes which abrogate the right of those affected to sue, as basic a right as the common law knows, and authorize the imposition of penalties in the amount of $1,000 a daythey, of course, cannot and will not be extended beyond their express terms by us. Ellington v. Bradford, 242 N.C. 159, 86 S.E.2d 925 (1955). The statutes concern only "unauthorized insurers" who write "contracts of insurance" or otherwise transact "insurance business" in the state; they have nothing whatever to do with those who sign payment and performance bonds for building contractors and seek to obtain reimbursement from indemnitors who induce them to issue bonds by promising to hold them harmless with respect thereto.
Before examining the statutes that were deemed to apply to appellant's cross-claims, however, a resort to the ABC's of insurance and suretyship law would seem to be in order. In the law, insurance and suretyship are not synonymous terms, and if any appellate court anywhere has ever so held, our research has failed to disclose it. They involve different functions, relationships, rights and obligations; and have been recognized and treated by the profession as distinctive fields of law for generations. *166 See 44, 45 and 46 C.J.S. Insurance; 72 C.J.S. Principal and Surety; 32 and 33 C.J. Insurance; 50 C.J. Principal and Surety. "While insurance contracts are in many respects similar to surety contracts, there is a very wide difference between them." 44 C.J.S. Insurance § 1, p. 473. The statutory provisions that control and regulate insurance in this state are contained in Chapter 58 of the General Statutes entitled "Insurance;" those that regulate suretyship in Chapter 26 entitled "Suretyship."
Insurance is "[a] contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils. The party agreeing to make the compensation is usually called the `insurer' or `underwriter;' the other, the `insured' or `assured;' the agreed consideration, the `premium;' the written contract, a `policy;' the events insured against, `risks' or `perils;' and the subject, right, or interest to be protected, the `insurable interest.' " Black's Law Dictionary 943 (rev. 4th ed. 1968).
"A contract of insurance is an agreement by which the insurer is bound to pay money or its equivalent or to do some act of value to the insured upon, and as an indemnity or reimbursement for the destruction, loss, or injury of something in which the other party has an interest." G.S. 58-3.
A surety is one "who engages to be answerable for the debt, default or miscarriage of another." Pingrey, Treatise on the Law of Suretyship and Guaranty 2 (1901).
A contract of suretyship is "[a] lending of credit to aid a principal having insufficient credit of his own; the one expected to pay, having the primary obligation, being the `principal,' and the one bound to pay, if the principal does not, being the `surety.'" Black's Law Dictionary 1611 (rev. 4th ed. 1968).
"In law, suretyship is a lending of credit to aid a principal who has insufficient credit of his own, and is a direct contract to pay the principal's debt or perform his obligation in case of his default, ..." 83 C.J.S. Suretyship, p. 911.
The statutes that the appellees contend rendered their agreement to indemnify National Bonding unenforceable in the courts of this state are all in Article 3C of Chapter 58 of the General Statutes. Article 3C, entitled "Unauthorized Insurers," contains six statutes. Two of themG.S. 58-54.24, empowering the Commissioner to enjoin unauthorized companies, and G.S. 58-54.25, permitting service of process on the Secretary of State as agent for unauthorized companiesare irrelevant to this appeal; and a thirdG.S. 58-54.23, which deprives unauthorized insurers of the right to sue in our courtsis already quoted above in pertinent part. G.S. 58-54.20, which enumerates the acts forbidden, is hereafter quoted in its entirety, and so much of the other two statutes as is relevant to the question before us:
§ 58-54.20. Purpose of Article.
It is the purpose of this Article to abate and prevent the practices of unauthorized insurers within the State of North Carolina, and to provide methods for effectively enforcing the laws of this State against such practices. The General Assembly finds that there is within this State a substantial amount of insurance business being transacted by insurers who have not complied with the laws of this State and have not been authorized by the Commissioner of Insurance to do business. These practices by unauthorized insurers are deemed to be harmful and contrary to public welfare of the citizens of this State. The difficulties which arise from the acts and practices of unauthorized insurers is compounded by the fact that such companies are licensed in foreign jurisdictions and conduct a long-range business without having personal representatives or agents in proximity to insureds. The General Assembly further declares that it is a subject of vital public interest to the State that unlicensed and unauthorized companies have been and are now engaged in soliciting by way of direct mail and other advertising media, insurance risks within this State, and that such companies enjoy the many benefits and privileges provided by the State as *167 well as the protection afforded to citizens under exercise of the police powers of the State, without themselves being subject to the laws designed to protect the insurance consuming public. The provisions of this Article are in addition to all other statutory provisions of Chapter 58 relating to unauthorized insurers and do not replace, alter, modify or repeal such existing provisions.
§ 58-54.21. Transacting business without certificate of authority prohibited; exceptions
Except as hereinafter provided, it shall be unlawful for any company to enter into a contract of insurance as an insurer or to transact insurance business in this State as set forth in G.S. 58-54.22 of this Article, without a certificate of authority issued by the Commissioner of Insurance. § 58-54.22. Acts or transactions deemed
to constitute transacting insurance business in this State.
The following acts, if performed in this State, shall be included among those deemed to constitute transacting insurance business in this State:
(1) a. Maintaining any agency or office where any acts in furtherance of an insurance business are transacted, including, but not limited to the execution of contracts of insurance with citizens of this or any other state;
b. Maintaining files or records of contracts of insurance; or
c. Receiving payments of premiums for contracts of insurance.
(2) Likewise, any of the following acts in this State, whether effected by mail or otherwise by an unauthorized insurer, is included among those deemed to constitute transacting insurance business in this State:
a. The issuance or delivery of contracts of insurance to residents of this State or to corporations authorized to do business therein;
b. The soliciting of applications for contracts of insurance through the use of the United States mail or any other media, method or device;
c. The collections of premiums, membership fees, assessments or other considerations for such contracts; or
d. The transaction of any matters prior to or subsequent to the execution of such contracts in contemplation thereof or arising out of them.
Any company violating any of the provisions of this section, by doing any of the foregoing acts or transactions while not authorized to do business within this State, shall be subject to penalty of not less than one hundred dollars ($100.00) nor more than one thousand dollars ($1,000) for each offense; ... Provided, that each day in which a violation occurs shall constitute a separate offense.
A reading of these provisions makes it obvious that they do not apply to this case. They say nothing of surety performance bonds, or contracts to pay the debts of others, but mention only insurers, contracts of insurance, and transacting insurance business. Their purpose, plainly stated, is to protect unwary North Carolinians against the overreaching machinations and solicitations of unauthorized out-of-state insurers in selling insurance policies; certainly, their purpose is not to immunize from liability indemnitors who travel to other states and induce foreign sureties to bond fledgeling North Carolina building contractors that have no credit of their own and that require bonds to stay in business. The acts prohibited and punishable by the statutes are also too explicitly stated to be easily confused with others or misunderstood; in essence, they are soliciting insurance contracts, and contracting to pay insureds or their beneficiaries under insurance policies. Agreeing to stand good for the debts of others, as happened here, is not condemned, and we know of no reason why it should be.
The appellees contend that the terms "contracts of insurance," "insurer," and "insurance business," as used in the statute are interchangeable with "surety," "contracts of suretyship," and "surety bonding business" because of language contained in two decisions of the North Carolina Supreme Court.
*168 In the first decision, Guilford Lumber Mfg. Co. v. Johnson, 177 N.C. 45, 97 S.E. 732 (1919), a suit by suppliers and laborers against a defaulting building contractor and his performance bond, the Court, in strictly construing the bond against the surety, used this language: "... guarantee or indemnity bonds of this character are regarded in this jurisdiction and under well-considered authority elsewhere as being in the nature of insurance contracts and, for like reasons, subject to similar rules of interpretation." (Emphasis supplied). Id. at 48, 97 S.E. at 734. But this, of course, no more justifies the conclusion that sureties are insurers and performance bonds are contracts of insurance than does the commonly known fact that sheep are somewhat like goats justify the conclusion that sheep are goats.
The second, Maxwell, Comr. of Revenue v. Southern Fidelity Mutual Ins. Co., 217 N.C. 762, 765-66, 9 S.E.2d 428, 431 (1940), contains the following:
"The law does not have the same solicitude for corporations engaged in giving indemnity bonds for profit as it does for the individual surety who voluntarily undertakes to answer for the obligations of another. Although calling themselves sureties, such corporations are in fact insurers, and in determining their rights and liabilities, the rules peculiar to suretyship do not apply." See 193 N.C., 710, 138 S.E. 338.
Why the Court directed us to 193 N.C. 710, 138 S.E. 338 we have been unable to ascertain, as that decision (Forest City Building and Loan Association v. Davis) contains nothing whatever that is relevant to either that case or this, or to the remarks quoted. Nor have we been able to deduce why the quoted remarks were made in the first place. In that suit by a creditor against the debtor's surety company, the only question before the Court was whether the surety was discharged when the creditor took additional security from the debtor and extended the time of payments. The answer and decision that the surety was not discharged was dictated, as the Court, after many digressions, recognized, by the fact that the surety bond expressly gave the Commissioner of Revenue the right to take other or additional security from the distributor as he saw fit. Rhetoric so random, irrelevant, and unsound is no basis for this or any other court deciding that the General Assembly had surety bonds in mind when it undertook to curb unauthorized insurers by enacting Article 3C of Chapter 58 of the General Statutes.
But even if the payment and performance bonds in this case fell within the purview of Article 3C, the order dismissing the bonding company's cross-claims would have still been without authority. This is because G.S. 58-54.23 deprives unauthorized insurers only of the right "to maintain an action at law or in equity" in regard to their prohibited business, it says nothing at all about maintaining cross-claims against co-defendants. The appellant has maintained no action against anybody, least of all the creditors for whose benefit the bonds were given; it has only defended the twenty actions brought against it by the contractor's creditors and sought to enforce cross-claims against its co-defendantsnot because of the bonds or anything in them, but because of the appellees' separate promises of indemnity. The words, "action at law or in equity," designed only to prevent unauthorized insurers from suing their victimized policyholders or beneficiaries, cannot be interpreted to prevent cross-claims among defendants sued by others.
But this decision does not rest on just the rules of statutory construction. Just and equitable principles fundamental to our jurisprudence require that these appellees not be exonerated from liability in this case; for those who willingly gather unto themselves all the fruits of bargains fairly made, as the appellees did here, but look for technical loopholes through which to squirm when called upon to meet the burdens agreed to cannot and should not be aided by our law. Having sought out the appellant in a distant state when no one here would bond their contractor, with the entire real estate purchase and construction *169 project hanging in the balance; having induced it to execute the bonds by solemnly promising to repay any losses sustained thereby, and enterprises that they owned having benefited therefrom; the appellees will not be heard by this court to claim that they are immune from liability because the appellant obtained no certificate in this state before standing good for and paying what, in essence, were their debts! The utter absurdity of the contention requires no demonstration; it offends every principle of equity and good morals, and will not be heeded by this court. And under fundamental principles of law, we are not obliged to. "It is a rule of general application that, where a bond has accomplished the purpose for which it was given, or the principal has derived benefit from it, both the principal and sureties are estopped to deny liability on the bond on any ground whatever." 31 C.J.S. Estoppel § 110(4), p. 571. See also 21 C.J. Estoppel § 213, p. 1211 and the cases there cited. A fortiori, since the principal and surety are estopped, the indemnitors, for whose benefit the projects were conceived and promoted, from aught that the record shows, are likewise estopped.
Since the appellees admit executing the indemnity agreement and both the contractor's default and the monies paid out by the bonding company before this appeal was taken have already been judicially established, upon remand the bonding company's motion for summary judgment, not yet ruled on apparently, should be allowed, after the expenses incurred by the bonding company because of this appeal have been ascertained.
Reversed and remanded.
ARNOLD and BECTON, JJ., concur.