In Grode v. Mutual Fire, Mar. & Inland Ins. Co., 132 Pa. Commw 196, 572 A2d 798 (1990), the Commonwealth Court of Pennsylvania, a trial-level court, determined that certain surety contracts were not entitled to the same priority in liquidation as claims made under traditional risk-insurance policies.
In reaching this conclusion, the Commonwealth Court first relied upon "the fundamental differences . . . between bilateral contracts of insurance and tripartite surety bond agreements," concluding that "surety bonds are in the nature of commercial guarantee instruments rather than policies of insurance" (id. at 806).
Second, while recognizing that Pennsylvania regulated the issuance of surety bonds, the Grode court nonetheless adopted "the usual view, grounded in commercial practice, that suretyship is not insurance" (132 Pa Commw at 214, 572 A2d at 806.)
And even accepting "that surety bond coverage might be regarded as insurance because it is regulated by the Commonwealth insurance laws," the court found "no abuse of discretion in subordinating the claims of the obligee lenders, who have recourse against investors through their own collection efforts, to those of policyholders, who will recover only what they can from the insolvent insurer's estate and guarantee funds" (132 Pa Commw at 214, 572 A2d at 807).
Finally, the Grode court relied upon the fact "the legislature has excluded surety claims from coverage under The Pennsylvania Insurance Guaranty Association Act," reasoning that "this exclusion evidences an intent not to afford surety holders the protections given . . . to consumers of insurance" (id.)