The Georgia Supreme Court has ruled the issuer of a surety bond is not responsible for a $150,000 punitive damages award a probate court levied against it and the conservator of an incapacitated woman after the judge determined the conservator had looted the funds.

The finding overturns a Georgia Court of Appeals ruling that left Ohio Casualty Co., which served as the surety for the conservator, on the hook not only for $167,000 in misappropriated funds, but jointly and severally liable for $150,000 in punitive damages as well.

“Our argument was that there's never been a case in Georgia where a surety was assessed for punitive damages unless the statute calling for the bond—which are required by law—specified that penalties were available,” said Bovis, Kyle, Burch & Medlin partner Tim Burson.

“These bonds are essentially guarantees that guardians and estate administrators will fulfill their fiduciary duties,” he said. “Probate cases like this are ripe for people who don't just mishandle the estate's assets, but get sticky fingers and actually take money.”

If the lower courts' rulings had stood, such relatively pricey bonds could have been more difficult for sureties to write, he said.

“These bonds have become among the hardest to get, and they're getting harder. To conceptualize that we could be responsible for unlimited punitive damages is one of those things that make us take a second look,” said Burson, who represented Ohio Casualty Insurance and parent Liberty Mutual, along with firm partners William Bryant and John Burch.

The attorney for the current conservator, Richard Neville of Cummings' Neville & Cunat, declined to discuss the case.

Craig Oakes of Lawrenceville's Bryant & Oakes, who represents the now-replaced conservator, Emanuel Gladstone, said the decision “speaks for itself.”

As detailed in the justices' ruling and other documents, the case began in 2015 when Forsyth County Probate Court Judge Lynwood Jordan Jr. appointed Gladstone to be the conservator for his wife, Jacqueline, who suffered from dementia.

Jordan set a $430,000 bond that Ohio Casualty posted and appointed an attorney to oversee the management of the conservatorship.

Several months later, the attorney raised concerns that Emmanuel Gladstone had not provided a proper asset management plan and was making unapproved expenditures.

Jordan removed Gladstone and appointed another conservator. Following a hearing, Jordan issued an order finding that—while some of Emmanuel Gladstone's expenditures were justified—there were improper withdrawals from the account, including $80,000 he withdrew just before Jordan replaced him.

Jordan ordered Gladstone and Ohio Mutual to repay $167,000 and, finding Gladstone breached his fiduciary duty, another $150,000 in joint and several punitive damages.

Ohio Casualty immediately paid the $167,000, Burson said, then both Gladstone and Ohio Casualty filed separate appeals with the Georgia Court of Appeals, with the surety challenging only the punitive damages awarded against it.

In March 2017, the appeals court upheld both the actual and punitive damages award against Gladstone and Ohio Casualty.

In the section dealing with Ohio Casualty's appeal, the appeals court found that, while the relevant law “requires that a conservator's bond 'be in a value equal to the estimated value of the estate,' if it is secured by a licensed commercial surety, it does not necessarily follow, as the surety argues, that recovery is limited to actual loss.”

“Because Gladstone failed to discharge all of his duties faithfully, both he and the surety are jointly and severally liable up to the amount of the bond,” it said.

But Justice Michael Boggs, writing for the unanimous Supreme Court, said the law contained no such provision. Justice Nels Peterson did not participate.

“We find no authority in the conservator's bond statutes authorizing punitive damages against the surety and the surety is not engaged in any wrongful conduct, so the punishment and deterrent purpose of punitive damages would be entirely misplaced,” Boggs wrote.

The opinion cited a 1941 ruling, Nat. Surety Corp. v. Gatlin, 192 Ga. 293, “which provided that the measure of damages recoverable in actions on official bonds for the misconduct of the officer was, 'unless otherwise specially enacted,' the amount of the injury actually sustained.'”

Burson said the opinion still leaves Gladstone open for efforts by Ohio Casualty to recoup the $167,000 it paid, and for the current conservator to also pursue him for the punitive damages.