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RLI Ins. Co. v. St. Patrick's Home for the Infirm and Aged

September 27, 2006

RLI INSURANCE COMPANY PLAINTIFF,
v.
ST. PATRICK'S HOME FOR THE INFIRM AND AGED, DEFENDANT.



The opinion of the court was delivered by: Miriam Goldman Cedarbaum, United States District Judge

OPINION

Defendant St. Patrick's Home for the Infirm and Aged ("St. Patrick's") moves for partial summary judgment on its counterclaim against plaintiff RLI Insurance Company ("RLI") for liquidated damages under the Interim Funding Agreement ("IFA") executed by RLI and St. Patrick's in 2001. St. Patrick's also moves to dismiss RLI's claim for damages on the ground that the damages owed by RLI to St. Patrick's on St. Patrick's counterclaim are greater than the damages sued for by RLI.

RLI opposes St. Patrick's motion for partial summary judgment, arguing that St. Patrick's breached the terms of the bond by failing to give prompt notice to RLI of AFI's default, thereby forfeiting any claim against RLI under the bond. RLI also argues that the liquidated damages provision in the IFA was nullified by St. Patrick's delay in notifying RLI of the damages claim. RLI moves for summary judgment on St. Patrick's counterclaim for liquidated damages and on RLI's request for a declaration that RLI has no responsibilities to St. Patrick's under a performance bond issued by RLI.

For the reasons that follow, St. Patrick's motion for partial summary judgment on its counterclaim is granted and its motion to dismiss RLI's claim for damages is denied. RLI's motion for summary judgment is denied.

BACKGROUND

This dispute arises out of a December 1997 contract ("the Contract") between contractor Architectural Facades, Inc. ("AFI") and defendant St. Patrick's. St. Patrick's hired AFI to construct a new façade for the nursing home that St. Patrick's operated. Plaintiff RLI acted as surety and provided bonds to guaranty AFI's performance of the work. On May 7, 1998, RLI issued two bonds to AFI as principal and St. Patrick's as obligee -- a performance bond and a labor and material payment bond -- each for $5,740,000. The bonds incorporate by reference the terms and conditions of the Contract. The performance bond also includes the provision that:

Whenever Contractor [AFI] shall be, and declared by Owner [St. Patrick's] to be in default under the Contract, the Owner having performed Owner's obligations thereunder, the Surety may promptly remedy the default, or shall promptly 1) Complete the Contract in accordance with its terms and conditions, or 2) Obtain a bid or bids for completing the Contract in accordance with its terms and conditions . . . .

The Contract provides that "substantial completion" of the project was to be achieved by December 30, 1999 and that time was "of the essence." Contract ¶ 3.2. AFI and St. Patrick's later agreed that the work was not completed by the December 1999 deadline and so, on January 19, 2001, executed Change Order No. 4. In this Order, the total contract price increased by $153,517 and St. Patrick's was credited for several work items deleted from the original Contract in the amount of $150,000, so that the net contract price increased by $3,517. Change Order No. 4 ¶ D. The Change Order also provides that:

The Owner [St. Patrick's] and the Contractor [RLI] further agree that the damages that the Owner will suffer if Substantial Completion is delayed beyond December 31, 2000, including items such as extended architectural and engineering expenses, interest, and costs of disruption of its operations are difficult to calculate with precision. Accordingly, it is agreed that for every day beyond December 31, 2000, that Substantial Completion is delayed, the Contractor will pay the Owner liquidated damages of $1,600 per calendar day, which the Owner can offset against any amounts due and owing to the Contractor.

Id. ¶ E (emphasis added). In addition, St. Patrick's agreed that it would waive liquidated damages if "all Work" were completed by March 21, 2001. Id. "All Work" was defined as "specifically including panels, windows, caulking, the Bridge and the column covers." Id.

In June 2001, when the project was still not completed, St. Patrick's, RLI and AFI executed an Interim Funding Agreement ("IFA"), in which RLI acknowledged that AFI had not yet completed the project. The IFA notes that St. Patrick's assessed liquidated damages at a rate of $1,600 per day for every day between January 1 and May 31, 2001, totaling $241,600. The IFA accordingly provides that St. Patrick's can properly deduct the liquidated damages from the money St. Patrick's otherwise owes to AFI. IFA ¶¶ g, 4. The IFA also provides that St. Patrick's will waive liquidated damages for days after May 31, 2001 if "all Work" other than "punchlist work" is completed by August 17, 2001. Id. ¶ 6. All "Work" is defined as "including panels, windows, caulking, the Bridge, the column covers and the final cleaning." Id. Finally, the IFA requires RLI to make funds available to AFI to allow AFI to complete the project, id. ¶¶ 1.6, 1.6.1, although, according to RLI, AFI never requested any funds from RLI.

The parties now dispute whether St. Patrick's is entitled to recover any amount of liquidated damages under the IFA. They also disagree as to whether and when AFI completed "all Work" on the project, as "all Work" is defined in the IFA. St. Patrick's asserts that AFI did not complete "all Work" until after September 30, 2001, while RLI maintains that the work may have been substantially completed as early as spring 2001. However, RLI does not proffer any evidence in support of this contention.

AFI continued to work on the project until early 2003, promising to install the wall panels after they were shipped to AFI. In early 2003, when the missing wall panels had still not been installed, St. Patrick's contacted RLI and demanded that RLI finish the project. On May 14, 2003, AFI was terminated for cause. The parties dispute whether St. Patrick's met its notice of claim obligations under the Contract. The parties also dispute whether St. ...


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