Opinion on Bail Bonds and Insurance Regulations in Ohio, Study notes of Business

Download Opinion on Bail Bonds and Insurance Regulations in Ohio and more Study notes Business in PDF only on Docsity! 618 OPINIONS BONDS, BAIL, RECOGNIZANCES AND APPEAL-INDIVIDUAL WHO EXECUTES SUCH BONDS-NOT ENGAGING IN BUSI­ NESS OF INSURANCE-SUCH INDIVIDUAL NOT ENTERING INTO CONTRACTS "SUBSTANTIALLY AMOUNTING TO IN­ SURANCE"-WITHIN MEANING OF SECTION 3905-42 RC. SYLLABUS: Where an individual engages in the business of executing hail ,bonds, recog­ nizances, and appeal ,bonds, such individual is not engaging in the business of insurance nor is such individual entering into contracts "substantially amounting to insurance" wit,hin the meaning of Section 3905.42, Revised Code, Section 665, G. C. Columbus, Ohio, December 7, 1954 Hon. Walter A. Robinson, Superintendent of Insurance Columbus, Ohio Dear Sir: I have ,before me your request for my opinion which reads as follows: "It is my understanding that a considerable number of indi­ viduals throughout the state of Ohio are engaging in the, business of executing bail bonds, recognizance bonds, appeal bonds and other similar undertakings for compensation, depositing cash or other securities with the court or certifying to the court that the,y are possessed of certain property and are worth certain sums in excess of all debts, liabilities, and lawful claims against them and in excess of all liens, encumbrances, and lawful claims against said property. In certain instances they are licensed to do so under ordinances adopted by the cities in which they do business. I request your advice as to whether such individuals may legally do so, though not licensed by this Division, in view of the laws of this state relating to insurance and in particular view of the, provisions of Sections 3905.42, 39ou5 and 3929.01 (B) (4) of the Revised Code. "I am attaching a copy of the type of recognizance bond being executed by such individuals." 619 ATTORNEY GENERAL The attached copy of the recognizance reads as follows : "IN THE MUNICIPAL COURT OF ......... . RECOGNIZANCE FOR APPEARANCE THE STATE OF OHIO, COUNTY OF .......... , ........ , CITY OF ....................... . THE CITY OF ........... . CHARGE ............... .Plaintiff, vs. Defendant BE IT REMEMBERED, That on this clay personally ap­ peared the above-named defendant, and the surety, whose signa­ ture appears on this recognizance with that of the defendant, and they jointly and severally acknowledged themselves to owe unto THE CITY OF................ the sum of ............... . . . . . . . . . . . . . . . . . . . . . Dollars ($.............oo) to be levied of their goods and chattels, lands and tenements if default be made in the conditions following, to-wit: The CONDITIONS OF THIS RECOGNIZANCE are such that if the above-named and bound defendant shall personally be and appear before the Municipal Court of. ................ . at its next session following the clay of the entering into of the within recognizance, and so from day to clay until finally disposed of, then and there to answer unto the CITY OF ............. . upon the charge appearing above, opposite the name of the said defendant, and abide the judgment of the Court, and not depart without leave, then this recognizance to be void; otherwise, it shall be and remain in full force and virtue in law. And .................... , who offers .... self as surety on this recognizance, being first duly sworn, says that .... he resides at No................. Street, and that .... he owns in h ... own legal right, real property, subject to execution, located in the County of .................... , State of Ohio, consisting of . . . . . . . . . . . . . . . . . . . . . . . . and described as follows, to-wit: that the title to the same is in h. . . . own name; that the value of same is not less than ................ Dollars, and is sUibject to no encumbrance whatever except. ....................... ; that .... he is not surety upon any unpaid or forfeited recogniz­ ance, and that .... he is not a party to any unsatisfied judgment upon any recognizance; that .... he is worth not less than 622 OPINIONS The first situation clearly is not an insurance transaction. It involves a purely private transaction, with no element of risk distribution among many insureds. Is the ,bondsman any more an "insurer" when he holds himself out as being engaged in the bail :bond business? Suretyship and insurance have evolved historically quite independently of each other. Suretyship, at its inception, generally took the form of one person gratuitously going surety for another person who owed a debt or other o:bligation. In the last hundred years or so companies have fo111ned for the purpose of realizing a business profit from the writing of bonds for compensation. It is clear that a company may be organized or admitted in Ohio under Section 3929.or, Revised Code, Section 9510, G. C., to "guarantee the performance of contracts other than insurance policies, and execute and guarantee bonds and undertakings required or permitted in all actions or proceedings, or allowed by law." Companies organized for such purposes have been placed by the legislature under the supervision of the superintendent of insurance, and among other requirements they must each make a deposit of $200,000 with the superintendent for the security and ,protection of its policyholders. These companies' organizational structure and ,business methods closely parallel the structure and business methods utilized and employed by insurance companies. As I view the matter, however, where an indivulual is engaged in the execution of bail !bonds as his livelihood and business, other con­ siderations come to the fore when it is attempted to apply to him statutes regulating insurance companies or even statutes regulating corporate sureties. It will he noted from an examination of the attached recognizance, that the city or state is guaranteed that if the accused does not appear for trial or charges on a given date, the bondsman will pay a specified sum, and certain listed unencumbered property of the surety may be looked to for satisfaction. The surety's obligation is to produce the accused or to pay. There is a specific pledge of property. Thus there is no actual common insurance .fund or reserve which the insurer ordinarily must maintain for the payment of losses. Neither are the so-called "premiums" which are charged and collected, necessarily carefully calculated so as to 623 ATTORNEY GENERAL bear any direct relationship to the estimated or anticipated forfeitures on the bonds written. Furthermore, the bondsman is regulated by the court. In this con­ nection, I direct your attention to Section 2937.23, Revised Code, formerly Section 13435-3, General Code, which provides: "One surety in each recognizance under section 2937.22 of the Revised Code, must be a resident of the county in which the prosecution is pending, and the sureties must own real prop­ erty worth double the sum to be secured, over and a,bove all incumbrances, and have property in this state lia:ble to execution equal to that amount. ''When two or more sureties are offered on the same recog­ nizance, they must have in the aggregate the qualifications pre­ scribed in this section. Such sureties may •be required to exhibit to the judge or officer taking the recognizance, satisfactory evi­ dence of ownership of such real property. The judge or magis­ trate may accept as sole surety on any such recognizance a surety company authorized to do business in this state, and a judge or magistrate may accept cash, !bonds of the United States or of the state of Ohio, or any subdivision thereof, or a certificate of deposit of a financial institution authorized to do business in this state, in an amount equal to said bond, in lieu of a real property bond." It will be observed that the court itself exercises a good deal of control over the bondsman. The judge may require the sureties to exhibit satis­ factory evidence of ownership of the real property he claims to own. The judge or magistrate may accept a surety company as sole surety on a recognizance, and he may accept cash or bonds in lieu of the real property bond. \I It is readily understandable why the legislature has adopted a policy of providing for fairly stringent court control over bail and recognizance •bonds executed ;by one or more individua-ls as sureties, as compared with its more lenient attitude toward court policing of 1bond business written by the surety companies. The reason, no doubt, lies in the fact that the financial solvency of surety companies is more adequately insured due to the supervision and regulation accorded these companies under the state division of insurance. They must submit annual statements, make finan­ cial reports, maintain adequate reserves, and must place $200,000 on deposit with the superintendent of insurance as security. From a study of the typical bail ,bond transaction it becomes readily apparent that such a transaction is not basically an insurance transaction OPINIONS at all, even though the legislature has seen fit to place safety co111panies under the general supervision of the division of insurance. First of all, the bondsman and the accused are co-o'bligors on the obligation owed the state. An insurer's liability arises at the time of loss; the surety's liability exists co-incidentally with the principal's liaibility. Secondly, in theory at least, once the bond or recognizance is accepted, thus releasing the accused from the custody of the sheriff or police officer, the accused passes into the custody of his bail. This means that the hail has a measure of control over the occurrence or the non-occurrence of the event loosely said to be that which has ,become insured, namely, the appearance of the accused for trial or charges. Insurance, on the other ha1:Jd, is generally thought to contain as one of its elements a risk strictly attri:butable to a fortuitous event. Next, it should be remarked that insurance is very rarely, if ever, taken out with reference to such a short time peril or risk. The bail trans­ action is strictly a single, isolated, one-shot guarantee, directed toward one elate or event. Further, as has already been mentioned, the individual bail bondsman pledges specific 4Jroperty to answer for the default in appearance. The adequacy of the security is determined and controlled by the court or magistrate. This is in contrast to the operational methods of a bonding company which has a general insurance reserve fund comprised of pre­ miums actually collected. The assets of the :bonding company are the backbone of its security. In the case of the individual bail bondsman reliance must be placed upon his personal financial securitv and his pledged property. There is a further factor which should not be ignored, and that is the fact that it is actually impossible under the insurance laws of Ohio (as they are presently constituted) for an individual who engages in the hail bond business to obtain a license from the division of insurance. The statutes in the bonding field envision a cor•porate entity, enjoying per­ petual life, and utilizing the business methods employed by the ordinary insurance company. It will not do to classify a professional bail bondsman as an insurer or quasi-insurer, merely because surety companies have been placed under the supervision of the state division of insurance. Historically, the writing of bail ,bonds was just as separate and distinct