Polk v. American Casualty Co. of Reading, PA.

WINTERSHEIMER, Justice. This appeal is from a decision of the Court of Appeals which affirmed the circuit court's award of prejudgment interest on a surety bond loss against the parents but did not award prejudgment interest against the bonding company. The medical malpractice lawsuit filed by the parents of Holly Dawn Gish was settled in January of 1985 for $165,000, with a net settlement of $90,200.46. Of this amount, Holly’s parents claimed $25,200.42 for themselves and the American Casualty Co. became obligated on a guardian’s bond for the remaining $65,000. Holly’s parents were appointed as guardians over her estate. Within three months, Holly’s parents, who were drug addicts, had wasted the entire settlement. The date of the loss was fixed as April 15, 1985. In 1987, the parents were removed as guardians and the court substituted William F. Polk, the named appellant herein. Polk brought a civil lawsuit against the parents for $90,-200.46 and against American Casualty for $65,000. The jury found against both defendants. American Casualty obtained a judgment on its cross claim against the parents for $65,000. In a post-trial motion, the court awarded Holly interest dating from the loss of the funds against her parents, but denied prejudgment interest against the insurance company. An appeal was taken to the Court of Appeals which affirmed the decision of the trial court as to denial of interest against American Cas [179] ualty. This Court granted discretionary review. The issue is whether the surety on a guardian’s bond can be charged with interest from the date of the loss of the ward’s estate when that interest will result in a recovery larger than the face amount of the bond. The language of K.R.S. 62.070 is clear and unambiguous. The maximum recovery against a surety on a guardian’s bond .is limited by that statute to the penal sum fixed in the bond. At the time relevant to this case, K.R.S. 387.070 provided that no guardian can act until he has been appointed by the proper district court and given bond to the state with good surety approved by the court for the faithful discharge of the trust or guardian. K.R.S. 387.080(2) provides that a guardian and his surety are liable for the award of damages for waste of the estate of the ward. The amount of the guardian’s bond is controlled by K.R.S. 62.060 which provides that the fiduciary’s bond shall be fixed in a penal sum not less than the estimated value of the estate which the fiduciary has charge of. K.R.S. 62.070 is a statute with a long history and involves many words and phrases, but the pertinent words may be found in the clear statement as follows: “Recovery against the surety shall be limited to the amount of the penalty fixed in the bond, but recovery against the principal shall not be limited by the amount of the penalty fixed in the bond.” The judgment of the trial court against American Casualty was for $65,000, exactly the same as the penal sum fixed in the guardian’s bond for the parents. The award of prejudgment interest is prohibited by K.R.S. 62.070 because such an award would make the liability of the surety exceed the penal sum fixed in the bond. K.R.S. 62.070 replaced Kentucky statutes § 3752 and § 186d-l when the laws were codified in 1942. Section 3752 was originally enacted in 1893 and provided that recovery against both the principal and surety was not limited by the penalty fixed in the bond. Section 186d-l was enacted in 1908 and provided that a surety’s liability was limited to the penalty fixed in the bond which repealed the earlier section with respect to extending the liability of the surety beyond the bond penalty. See Waddle v. Wilson, 164 Ky. 228,175 S.W. 382 (1915). Kentucky’s court of last resort recognized the limitation on the liability of a surety imposed by Section 186d-1 in a number of cases prior to the 1942 codification of statutes. Bankers’ Surety Co. v. City of Newport, 162 Ky. 473, 172 S.W. 940 (1915); Morton v. Sanders, 178 Ky. 836, 200 S.W. 24 (1918); National Surety Co. v. Commonwealth, 253 Ky. 607, 69 S.W.2d 1007 (1934); Fidelity & Casualty Co. of New York v. Downey, 284 Ky. 72, 143 S.W.2d 869 (1940); and Rider’s Exec’r v. Sherrard’s Guardian, 231 Ky. 112, 21 S.W.2d 147 (1929). National Surety Co., supra, acknowledges the right of a surety under the old Section 186d-1 to limit its liability on a bond. It was pointed out by the court that it was the duty of the officer taking the bond to fix the bond penalty. Polk relies on Poynter v. Smith, 290 Ky. 169, 160 S.W.2d 380 (1942) and National Surety Co. v. McNeill’s Guardian, 251 Ky. 509, 65 S.W.2d 721 (1933) to support his position. Our review of these cases indicates that neither opinion acknowledges the existence of Section 186d-l of the statute at the time of their decision. Poynter, supra, held that Kentucky statute § 2035a-1, which is now K.R.S. 387.270 required recovery of interest from a surety in excess of the bond penalty. Clearly that statute, both in its older form and its present form imposes liability for interest only on the guardian and not on the surety. National Surety Co. v. McNeill’s Guardian, supra, involved the common law as it existed prior to the enactment of Section 186d-1 in 1908. The adoption of the statute and the subsequent statutes overruled the common law rule. The holdings in both Poynter and National Surety Co. v. McNeill, were in conflict with the existing statutory system at the time of their decision as well as in conflict with the current statutory requirements. [180] The language of the statute, K.R.S. 62.-070 is clear and unambiguous. It is now abundantly clear that the statute in question has superseded the cases of Poynter and National Surety. Poynter and National Surety Co. v. McNeill are overruled to the extent they conflict with the statute and the holding of this case. The Circuit Court and the Court of Appeals were correct in applying the general rule that interest should begin to accrue against the surety on the entry of a judgment against the principal. See Fidelity & Casualty Co. of New York v. Downey, supra; Atlantic Painting & Contracting, Inc. v. Nashville Bridge, Ky., 670 S.W.2d 841 (1984); Ohio Casualty v. Kentucky Natural Resources, Ky.App., 722 S.W.2d 290 (1986). K.R.S. 387.270 provides only for interest to be charged against guardians and not sureties. It is the guardian, not the surety, who creates the loss, not only of the principal but of any interest that might have accumulated through the proper investment of the funds. The obligation of the surety is fixed at the time of the judgment against the principal. At this point it becomes a liquidated claim and interest can begin to run in accordance with K.R.S. 360.040. Cf Downey, supra; Atlantic Painting & Contracting, supra. It should be observed that the alternate argument of Polk, as guardian of Holly Dawn Gish, is not properly before this Court. Polk asks that this Court hold American Casualty liable for interest in excess of the bond penalty from the- date that the surety was notified of the loss. This date is not in evidence, nor was any argument presented to the trial court or the Court of Appeals regarding notice. Clearly, an issue not argued before the trial court and raised only on appeal is not properly before a reviewing court. Kentucky Milk Marketing and Antimonopoly Com’n v. Kroger Co., Ky., 691 S.W.2d 893 (1985). If such a legal doctrine should be established is within proper legislative authority of the General Assembly. On cross-appeal, American Casualty argues that the trial court erred in failing to permit certain deposition testimony to be read to the jury. We agree with the Court of Appeals that there may have been error, but we do not believe American Casualty suffered any prejudice as a result. Therefore the cross-appeal is dismissed. It is the holding of this Court that a surety on the bond of a guardian is not chargeable with interest from the date of the loss to the estate of the ward when the interest will result in a recovery larger than the face amount of the bond. K.R.S. 62.070 is clear and unambiguous. The decision of the Court of Appeals is affirmed. COMBS, REYNOLDS and SPAIN, JJ., concur. LEIBSON, J., dissents by separate opinion in which STEPHENS, C.J., and LAMBERT, J., join.