Joe Shifflett, Inc. v. Property & Casualty Insurance Guaranty Corp.

GILBERT, Chief Judge. Joe Shifflett, Inc., a Virginia corporation, and the Property and Casualty Insurance Guaranty Corporation (PCIGC), an entity created by the Maryland Legislature in 1971, disagree as to whether Shifflett is entitled to collect from a fund administered by PCIGC. The Circuit Court for Prince George’s County agreed with PCIGC, thereby foreclosing Shifflett’s claim. Dissatisfied with that result, Shifflett ⁷⁰⁸ asks that we reverse the judgment of the circuit court.

We shall, and we herein explain why. The Facts Joe Shifflett, Inc., contracted in 1984 to perform plumbing and duct work in the State of Maryland for SEICO Construction Company. SEICO had covenanted to perform certain construction for Foxglenn Associates Limited Partnership, a Maryland partnership. Foxglenn, as a condition of awarding the contract to SEICO, insisted upon a payment bond.

Eastern Indemnity Company of Maryland, a surety, wrote the payment bond, naming SEICO as principal and Foxglenn as obligee. That bond undergirds this litigation. Shifflett performed work as provided in its subcontract and submitted bills to SEICO. The latter sent checks to Shifflett which, in the vernacular, “bounced” because of insufficient funds.

Shifflett promptly demanded payment from Eastern but, instead of money, received a notice of Eastern’s insolvency. Shifflett then filed a claim with PCIGC. The claim was denied on the ground that the obligee, Foxglenn, was not a resident of the State of Maryland for the purposes of Md.Ann.Code art. 48A, § 505(h)(2). 1 Shifflett then sued PCIGC in the circuit court, seeking damages of $27,405 as well as interest and costs. Both Shifflett and PCIGC moved for summary judgment.

The hearing judge concluded that Shifflett was not a resident of Maryland and, therefore, was not entitled to be paid by PCIGC. The judge granted PCIGC’s motion. The Issue Shifflett raises two issues for our review which we distill to one: Did the hearing court err in denying appellant relief because Shifflett is not a resident of the State of Maryland? ⁷⁰⁹ To solve the enigma, we must look to the purpose behind the passage of the statute. The Law During the middle to late 1960’s, with some spillover continuing into the early 1970’s, there was a rash of casualty insurance company failures.

The inevitable result was that a vast number of persons who had paid premiums for insurance suddenly found themselves without any coverage. Worse than that, many discovered that they were facing substantial liability claims that they were simply unable to defend or pay. Innocent injured individuals were left with uncollectible paper judgments. To provide a remedy for the particular societal malady caused by defunct insurance carriers, the Legislature enacted Laws 1971, Ch. 703.

The avowed purpose of that statute was “to provide a mechanism for the prompt payment of covered claims under certain insurance policies 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 for the assessment of the cost of such payments and protection among insurers.” See also then Md.Ann.Code art. 48A, § 504(a). The act, as originally passed, was directed to “all kinds of direct insurance, except life ..., health ..., workmen’s compensation ..., annuities, and motor vehicle security fund.” Laws 1971, Ch. 708, then Md.Ann.Code art. 48A, § 504(b). Following Eastern Indemnity’s financial collapse, the 1986 session of the General Assembly amended § 504(a) so that covered claims caused by Eastern’s insolvency could be paid. See Md.Laws 1986, Ch. 440.

Section 504(a) now reads: “(a) Purpose—(1) The purposes of