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T.G.I. EAST COAST CONSTR. CORP. v. FIREMAN'S FUND

January 9, 1985

T.G.I. EAST COAST CONSTRUCTION CORP., Plaintiff,
v.
FIREMAN'S FUND INSURANCE COMPANY and NATIONAL PREFERRED RISKS, INC., Defendants -and- TITAN GROUP, INC., Additional Defendant On Counterclaim FIREMAN'S FUND INSURANCE COMPANY, Third-Party Plaintiff, vs. COTRONEO & COLLETTI CONCRETE, INC., COLLETTI & LAGUIDARA, INC., individually and as co-venturers doing business under the name of COTRONEO & COLLETTI CONCRETE, INC., and COLLETTI & LAGUIDARA, INC., a Joint Venture, VINCENT COLLETTI, and ORLANDO COTRONEO, Third-Party Defendants



The opinion of the court was delivered by: LASKER

MORRIS E. LASKER, U.S.D.J.

I.

T.G.I. East Coast Construction Corp. ("TGI") is a general contractor which contracted with the Town of Parsippany-Troy Hills for the construction of an advanced wastewater treatment plant in 1977. It negotiated an agreement with Cotroneo & Colletti Concrete Inc. ("C & C") as subcontractor to do the concrete work on the project. Upon learning that C & C was not in a position to secure a bond for $6 million dollars (the value of the job), TGI and C & C agreed to divide the concrete work into two overlapping subcontracts of approximately $3 million dollars each designated as Phase I and Phase II. Each of the subdivided subcontracts required that C & C furnish a payment and performance bond in the amount of the subcontract price: the Phase I bond was to be furnished forthwith, and at the same time, C & C was to furnish TGI with a commitment that a bond for Phase II would be furnished at a later date.

 In response to the requirement for a commitment as to Phase II bonding, C & C arranged for its insurance agent, National Preferred Risks Inc. ("National") to write the following letter dated June 30, 1977 to TGI (the June 30 letter), which is quoted as written:

 
Please be advised that upon successful completion of 80% of phase I concrete work, Parsippany Wastewater Treatment Plant, awarded to the above captioned, in the amount of $2,720,000. We will provide a Performance and Payment bond for the second phase in the amount of $2,988,000.
 
This bond will be executed on a form suitable to us as surety and subject to our normal underwriting requirements. The oblegee [sic] under the bond will be T.G.I. East Coast Construction Corporation.

 Although the parties knew that National was an insurance agent that did not itself underwrite bonds, TGI accepted the letter and it entered into the two subcontracts with C & C that summer.

 In September, 1977, C & C provided TGI with payment and performance bonds for Phase I of the project. The bonding was issued by Fireman's Fund as surety. For reasons not material here, commencement of the work on Phase I was delayed for almost one year until August 4, 1978. Phase II began in December, 1978. In September, 1979, Phase I was 80% completed.

 In the period between National's letter of June 30, 1977 and September, 1979 (when Phase I was 80% completed and TGI expected a Phase II bond to issue), C & C experienced serious financial difficulties that impaired and ultimately killed its ability to obtain further bonding. Fireman's Fund, the surety for C & C on Phase I, notified National in 1978 of suspensions of C & C's bonding line of credit. *fn1" In July, 1979, without a Phase II bond ever having issued, Fireman's Fund advised National that it would no longer bond C & C at all. *fn2" National allegedly never informed TGI of these facts. *fn3"

 At the point of 80% completion of Phase I in September, 1979, TGI made demands upon C & C to furnish the Phase II bond. At no time did TGI make any demands on National directly. C & C failed to produce the bond before abandoning the job unfinished due to financial difficulties in December, 1979. TGI then declared C & C in default and instituted suit against both Fireman's Fund and National to recover damages incurred to complete Phase II. *fn4" TGI's complaint against National alleges that the June 30 letter was a representation either willfully false or negligently made upon which it reasonably relied to its detriment.

 II.

 National moves for summary judgment on the grounds that 1) TGI could not, as a matter of law, reasonably rely upon the June 30 letter as a representation that C & C would be unconditionally bonded for Phase II upon 80% completion of Phase I regardless of C & C's financial status at the time; 2) when TGI permitted C & C to remain on the job without a Phase II bond from September, 1979 until the December abandonment, it waived any right it might otherwise have had to rely upon on any alleged representations contained in the June 30 letter from National; and 3) TGI's claim that National breached a duty to advise TGI of C & C's bonding status is unpleaded, and in any event, unactionable because National owed no duty to TGI that would mandate such disclosure.

 Reasonable Reliance

 National argues that TGI could not, as a matter of law, reasonably rely on its June 30 letter as a representation that C & C would be bonded for Phase II upon 80% completion of Phase I if C & C was not financially sound at that time because (a) the letter itself stated that the bond was "subject to our normal underwriting requirements" which were not met in this instance, and (b) any reliance on National's June 30 letter as a bonding commitment was ...


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