Gulf Coast Bldg. Systems, Inc. v. UA SURETY CO. LTD.

Citations: 614 So. 2d 1360; 1993 WL 57766Docket: 92-255

Court: Louisiana Court of Appeal; March 2, 1993; Louisiana; State Appellate Court

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The appeal involves Gulf Coast Building Systems, Inc. (plaintiff) and several defendants, including The Insurance Center and Employers Reinsurance Corporation, regarding a performance and payment bond for a construction project in South Carolina. In 1988, Gulf Coast secured a contract requiring a bond of $2,685,715.00 but faced difficulties due to its financial status. The Insurance Center, which had previously assisted Gulf Coast, attempted to secure the bond but struggled to find a suitable provider.

Eventually, The Insurance Center contacted Larry Peterson of Financial Surety, who facilitated Gulf Coast’s membership in the United American Contractors Association to obtain the bond through United American Surety. Gulf Coast paid $500 for membership, followed by $67,143 for the bond, which required a promissory note, a letter of credit, and specific payment arrangements.

Ultimately, Gulf Coast received two bonds, both significantly lower than the required amount, at $597,985.00 each. The Insurance Center was unaware of the bond's terms and did not approve its content, nor did it receive a commission, although it expected one. The trial court ruled in favor of Gulf Coast, leading to the defendants' appeal on liability and Gulf Coast's appeal regarding the damage award.

Gulf Coast informed Hebert that the bonds provided were insufficient, amounting to less than the required $2,685,715.00. Hebert acknowledged awareness of this discrepancy but denied advising Gulf Coast to submit the bonds to Primesouth. Conversely, Gulf Coast asserts that Hebert recommended signing the bonds and assured a refund if they were rejected. After Gulf Coast submitted the bonds, Primesouth found them non-compliant with contract requirements due to several deficiencies, including improper amounts, lack of licensing in South Carolina, and unsuitable surety ratings. Additionally, disciplinary actions against United American Surety were discovered. Consequently, Primesouth rejected the bonds and informed United American Surety on December 22, 1988. Gulf Coast then negotiated a letter of credit with Primesouth, eliminating the need for a bond and sought a refund for its payment. United American Surety and others refused the refund, citing exposure due to Gulf Coast's work prior to rejection of the bonds. Gulf Coast subsequently filed a lawsuit against multiple defendants, including Financial Surety and United American Surety, later amending the petition to include ERC, the errors and omissions insurer of The Insurance Center. Gulf Coast claimed all defendants were jointly liable for damages stemming from the issuance of defective bonds. Cross-claims followed among the defendants. ERC filed for partial summary judgment, arguing that it did not cover Gulf Coast's claim for the return of the premium payment per the policy terms, leading to the trial judge granting the partial summary judgment. The claim for return of premium was excluded under Section VI(f) of the errors and omissions policy issued to The Insurance Center by ERC.

Trial proceedings commenced on September 3, 1991, concluding with the trial court's ruling on September 17, followed by Amended Reasons for Ruling on September 25. A judgment was signed on October 3, 1991, which included the following key points:

1. Gulf Coast Building Systems, Inc. was awarded $515.95 against United American Contractors Association, with legal interest from the date of judicial demand until paid.
2. Gulf Coast was awarded $72,349.50 against multiple defendants (William D. Quinlan Agency, Inc., Larry R. Peterson, United American Surety Company, Ltd., Financial Surety Underwriters, Inc., and Employers Reinsurance Corporation), with legal interest from the date of judicial demand until paid.
3. William D. Quinlan Agency was granted a judgment against United American Surety Company and Financial Surety Underwriters for the full amount of the judgment against it, plus judicial interest from the date of judicial demand.
4. Employers Reinsurance Corporation received a judgment against United American Surety Company, Financial Surety Underwriters, and Larry R. Peterson for the full amount of the judgment against it, plus legal interest from the date of judicial demand.
5. Expert witness fees were established at $250.00 each for four witnesses, and defendants were ordered to cover all costs, including a court reporter fee of $562.50.

Employers Reinsurance Corporation filed a motion for a new trial, challenging the applicability of a 'return of premium' exclusion related to a $67,143.00 claim, which was denied. 

Subsequent appeals were filed by the Insurance Center, Gulf Coast, and ERC, raising various claims of error regarding the trial court's rulings, including the award to Gulf Coast, the negligence in procuring bonds, and the denial of certain claims by Gulf Coast. Despite these appeals, the trial court's judgment was affirmed on all issues presented.

The Insurance Center asserts it fulfilled its obligations to Gulf Coast by attempting to procure the requested coverage and notifying Gulf Coast if unsuccessful. It claims that its duty ceased when Gulf Coast began dealing directly with Financial Surety and Larry Peterson. However, the determination of whether an insurance broker acts as an agent for the insured or the insurer is fact-dependent. The court found that The Insurance Center was not merely acting as a courtesy; it had a long-standing relationship with Gulf Coast and was acting as its agent throughout the transaction. The court concluded that The Insurance Center initiated the events leading to Gulf Coast's loss and failed to verify whether the bonds met contract requirements, thus breaching its fiduciary duty to advise and investigate on behalf of Gulf Coast.

The trial court held Employer's Reinsurance Corporation liable for The Insurance Center's negligence. Although the insurance policy included an exclusion for premium return claims, the plaintiff's suit centered on damages resulting from negligence, not premium returns, making the exclusion inapplicable. The court confirmed that The Insurance Center's breach of duty was the direct cause of Gulf Coast's damages. The objective of awarding damages is to restore the injured party to their pre-injury state, which in this case involves compensating Gulf Coast for the defective bonds, affirming the trial court's findings.

Gulf Coast seeks to recover $25,372.00, claiming it reflects losses from the defendants' negligence. The trial court awarded Gulf Coast $70,143.00 but denied additional interest on a bond and letter of credit fee, which Gulf Coast argues amounts to over $25,000.00 in denied interest. Gulf Coast contends the interest from borrowed funds should be included as damages. However, precedent established in Stewart v. Ainsworth indicates that legal interest under LSA-R.S. 13:4203 is the exclusive remedy for tort claimants regarding interest losses, and any claim for conventional interest requires a written contract, which does not exist here. The trial court's denial of interest payments to Premier Bank is deemed proper. Additionally, Gulf Coast's claims of fraud, recoverable attorney's fees, lost profits, and loss of use of funds lack substantiation, as the evidence does not meet the required clear and definite proof standard. The appellate court finds no error in the trial court's factual findings or discretion in the damages awarded, affirming the judgment. Costs of the appeal are shared among The Insurance Center, Employers Reinsurance Corporation, and Gulf Coast.