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Success in Public Official Bond Case with SFAA Amicus Brief

Friday, January 31, 2014  

Ohio Casualty Insurance Co. v. City of Providence, 2014 WL 92268 (Ky.App. January 10, 2014) reversed an erroneous judgment of the trial court. The bond principal was appointed City Clerk on October 1, 1997, for an indefinite term. The surety provided a public official bond "in the aggregate and non-cumulative penal sum” of $300,000 dated October 1, 1997 with no expiration date. In 2004 the Public Auditor discovered losses of slightly under $300,000 in each of the years 2001, 2002, and 2003 and a loss of $62,000 in 2004. The surety paid the City $300,000, but the City claimed that it was entitled to recover its losses of up to $300,000 in each year the bond was in force. The trial court thought that "aggregate and non-cumulative” was ambiguous and could mean any unused part of the limit one year did not carry over to the next year. The trial court also relied on the fact that the surety sent its agent, and the agent sent the City, "renewal notices” for "renewal premiums.” The trial court agreed with the City, and the surety appealed. SFAA filed a Brief as an amicus curiae in support of the surety’s position.

The Court of Appeals reversed and held that summary judgment should have been entered for the surety. The City Clerk’s appointment and the bond were both for a single, indefinite term. The penal sum for that term was $300,000. There was no basis in the bond to find an annual penal sum or any ambiguity, and the trial court erred in resorting to extrinsic evidence such as the renewal notices. The Court also stated, "We think it disingenuous that the City would expect its coverage to double, triple, quadruple, etc. while it paid the same annual premium. The City could not reasonably expect any surety to take that sort of risk for the same return.”

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