Creative Lawyering Can Avoid Pitfalls in Bonding Judgments to Stay Execution Pending Appeal
February, 2006
by Edward M. Kay and Melinda S. Kollross
The Problem
The scenario is familiar. Defendant has just been hit with a judgment in excess of policy limits. The trial record has error that may lead to reversal on appeal, but plaintiff is taking steps to execute on the judgment to squeeze settlement on plaintiff’s terms. Defendant’s carrier cannot bond the entire judgment, otherwise it will be liable for the excess amount. What should the insured and carrier do to obtain a stay of execution pending appeal?
Change the above facts somewhat: Defendant had a $1 million SIR but is in bankruptcy; or defendant’s primary layer is in liquidation. An appeal should be prosecuted but how can a stay be obtained in order to prevent plaintiff from garnishing the excess policy or attaching assets during the appeal?
Creative appellate lawyering can provide solutions to these problems that will provide a basis to obtain a stay of execution so that full attention can be devoted to reversing the judgment on appeal.
Partial Stays Limited To The Amount Of Insurance Coverage
A majority rule allows an insurer to obtain a stay of judgment up to its policy limit by posting a bond in an amount equal to the policy limit rather than the full judgment. Merritt v. J. A. Stafford Co., 440 P.2d 927 (Cal. 1968), exemplifies the majority rule. Merritt applied § 942 of the California code which provided, in part, for a stay upon the filing of a surety bond in an amount of 1.5 times the amount of the judgment. The Supreme Court found § 942 to be silent about the appropriateness of a lesser surety bond and interpreted that silence as providing room to carve out a “good cause” type exception allowing a bond furnished by a liability insurer to stay the part of a judgment within its policy limits. Merritt’s detailed explanation best summarizes the reasoning common to the majority rule that permits an insurer to post a bond in the amount of its policy limit:
Protection of the right of appeal of insurers, and consideration of the rights of insureds and of the judgment creditor require such a result. Liability insurance is ordinarily written with limits, and when a judgment is obtained in excess of those limits, an insurer should not be faced with the alternatives of either posting a bond for the entire judgment or refusing to post a bond at all. In every contract, including policies of insurance, there is an implied covenant of good faith and fair dealing that neither party will do anything which will injure the right of the other party to receive the benefits of the agreement. Failure of the insurer to file any bond may result in the insured losing large amounts of property due to execution sales during the appeal and thus losing in large part, if not entirely, the benefits of the insurance. On the other hand, the insurer cannot be required to post a bond for the entire judgment when the liability does not extend to the entire judgment. Fairness to the insurer and the insured requires that the insurer be permitted to fulfill its covenant of good faith and fair dealing by filing an appeal bond in an amount sufficient to cover the part of the judgment for which it is liable and that the respondent be denied his right to seek execution with regard to such part of the judgment. Such a rule does no harm to the respondent. As to the excess part of the judgment he may seek execution or enter into an agreement to stay execution with the insured, and as to the part of the judgment within the policy limits he will be protected by the bond.
In other words, where there is a judgment in excess of the policy limits, the insurer and the insured have separate and differing interests; the insurer may furnish a bond for the portion of the judgment within the policy limits, and the bond will be given effect pending appeal to stay execution on that portion of the judgment.
Many jurisdictions, through either legislation or court decision, also allow an insurance carrier to obtain a partial stay. See, Cansler v. Harrington, 643 P.2d 110 (Kan. 1982); Wilcox v. Board of Ed. of Warren County, 779 S.W.2d 221 (Ky. 1989); Bowen v. Government Employees Ins. Co., 451 So. 2d 1196 (La. Ct. App. 1984); O’Donnell v. McGann, 529 A. 2d 372 (Md. 1987); Missouri ex rel. Brickner v. Saitz, 664 S.W.2d 209 (Mo. 1984); Courvoisier v. Harley Davidson of Trenton, Inc., 742 A. 2d 542 (N.J. 1999); N.Y. Civ. Prac. L. & R. § 5519.
Creative Stays For Uninsured Portions Of A Judgment
While a partial stay may be obtained, a certain portion of the judgment will be left subject to execution unless a trial court can be convinced to stay the entire judgment upon certain conditions. In those states where a trial court possesses the discretion to grant a partial stay, arguments can be made to support a stay of execution upon the entire judgment -- even without the posting of a bond for the uninsured portion of the judgment. The Illinois Supreme Court recently amended its court rules regarding stays (Rule 305) to provide this discretion to a trial court to approve “other forms of security” instead of only a cash bond as a condition for staying execution of a judgment. According to the committee comments regarding amended Rule 305, the Illinois Supreme Court made these changes to allow trial courts to implement alternatives to a cash bond that would effectuate a stay of execution pending appeal:
[T]he amended rules gives the court discretion in a money judgment case to approve a bond or other form of security that covers less than the entire amount of the judgment plus anticipated interest and costs. This does not lessen the judgment debtor’s obligation on the judgment, but simply allows the judgment debtors to obtain a stay of execution on the judgment pending appeal. In such a case, the last sentence of the amended rule makes clear that appropriate conditions shall be imposed to prevent the judgment debtors from dissipating assets that would otherwise be available for payment of the judgment if the appeal is unsuccessful. Thus, depending on the circumstances, a business may be precluded from selling or otherwise disposing of any of its assets outside the ordinary course of its business, or an individual might be prohibited from spending any sums other than are required ordinary living expenses.
Recommended Strategy
In the usual case, where enough insurance coverage exists, bonding the judgment may not present any problems. In those cases involving excess judgments or bankrupt insureds with large SIRs or primary layers in liquidation, there must be some ingenuity employed in obtaining a stay of execution pending appeal. A partial stay to the extent of insurance coverage should be sought along with the imposition of other conditions to effectuate a complete stay pending appeal.•
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