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Hartford Fire Insurance v. Saunders Concrete Company

September 1, 2012

HARTFORD FIRE INSURANCE COMPANY, PLAINTIFF,
v.
SAUNDERS CONCRETE COMPANY, INC., CANASTOTA CONCRETE COMPANY, INC., CORTLAND READY-MIX, INC., MICHAEL T. SAUNDERS, AND TRACY SAUNDERS, DEFENDANTS.



The opinion of the court was delivered by: Scullin, Senior Judge

MEMORANDUM-DECISION AND ORDER

I. INTRODUCTION

Plaintiff Hartford Fire Insurance Co. brings this action against Defendants to enforce a written General Indemnity Agreement ("Agreement") under which Defendants agreed, among other things, to indemnify Plaintiff and hold it harmless from and against any losses, liability, or claims resulting from its issuance of surety bonds on Defendants' behalf. Currently before the Court is Plaintiff's motion for partial summary judgment and final judgment as to its second claim, or, alternatively, for a preliminary injunction directing Defendants to deposit funds in the amount of $2,250,000 with Plaintiff.

II. BACKGROUND

On July 6, 2010, at Defendant Saunders Concrete Company, Inc.'s ("Defendant Saunders") request, Plaintiff issued a $1,926,022 surety Subcontract Performance Bond, Bond No. 01 BSB AA6691, ("Bond"), in favor of M.A. Mortenson Company ("Mortenson"), securing Defendant Saunders' performance on a subcontract between Defendant Saunders and Mortenson in connection with a wind turbine construction project ("Subcontract"). Mortenson contends that Defendant Saunders breached the Subcontract by defectively performing its work on the project; and, on November 12, 2010, Mortenson declared that Defendant Saunders was in default. On March 31, 2011, pursuant to the Subcontract, Mortenson filed a demand for arbitration against Defendant Saunders and Plaintiff.*fn1

Following Defendant Saunders' alleged default, Mortenson called upon Plaintiff, as surety, to perform under its Bond by way of a claim in the amount of $1,926,022 plus interest and expenses ("Claim"). Pursuant to the Agreement, which Defendants executed on June 17, 2010, in favor of Plaintiff in consideration of Plaintiff's issuance of the Bond guaranteeing Defendant Saunders' performance under the Subcontract, Plaintiff demanded that Defendants immediately deposit funds, as collateral, in the amount necessary to protect it from any losses or liability on the Claim. In its motion for partial summary judgment on its second claim, or, alternatively, for a preliminary injunction, Plaintiff contends that the Court should enforce Defendants' collateral deposit obligation under the Agreement.*fn2

The Agreement provides, in pertinent part, the following:

The Indemnitors [Defendants] shall at all times indemnify, exonerate and hold [Plaintiff] Hartford harmless from and against any Loss, claims, demands, liabilities, suits and causes of action which are in any way related to any Underwriting activities, Bonds or this Agreement.

Upon Hartford's demand, the Indemnitors shall immediately deposit with Hartford funds, as collateral, in an amount Hartford deems necessary at the time of said demand to protect itself from actual or anticipated Loss. Demand may be made as soon as a) Hartford determines that liability exists; or b) Hartford has a reasonable basis to believe that it may incur Loss; . . . or d) in the event Hartford deems itself insecure, whether or not Hartford has made any payment or established any reserve and whether or not it has received notice of, accepted or denied any claim in whole or in part. . . . The Indemnitors acknowledge and agree that their failure to immediately deposit with Hartford any sums demanded under this section shall cause irreparable harm to Hartford for which it has no adequate remedy at law. Indemnitors agree and shall stipulate in any legal proceeding that Hartford is entitled to injunctive relief for specific performance of said collateral deposit obligation and do hereby expressly waive and relinquish any claims or defenses to the contrary.

See Dkt. No. 1, Exh. "A" attached thereto.

III. DISCUSSION

A suretyship is a three-party relationship in which the surety (Plaintiff) is obligated to perform for an obligee (Mortenson) if the principal (Defendant Saunders) fails to do so. As surety, Plaintiff contends that it became and remains exposed to Mortenson's Claim and/or its arbitration demand for the full penal sum of the Bond plus interest and expenses; and, accordingly, by letters dated April 11, 2011, April 21, 2011, and May 11, 2011, under the terms of the Agreement, Plaintiff demanded that Defendants provide collateral.

Defendants do not contest that, pursuant to the Agreement, Plaintiff can demand collateral if and when it "determines that liability exists," or it "has a reasonable basis to believe that it may incur liability or Loss," or it "deems itself insecure, whether or not Hartford has made any payment or established any reserve and whether or not it has received notice of, accepted or denied any claim in whole or in part." See Dkt. No. 17 at 3 (emphasis added). Defendants emphasize that "[n]ot until on or about March 31, 2011, did Mortenson make such a claim, by filing and serving a demand for arbitration against Saunders and Hartford . . . ." See id. Thus, Defendants argue, Plaintiff's right to demand collateral was triggered only by Mortenson's arbitration demand; and, since that action has since been dismissed and Plaintiff has not been compelled to arbitrate, Plaintiff cannot invoke its right to demand collateral under the Agreement because it is not facing any risk of liability. In short, Defendants contend that the basis upon which Plaintiff based its right to demand collateral is no longer valid.

However, Plaintiff contends that it remains exposed to the Claim and the arbitration regardless of whether or not it voluntarily engages in the arbitration proceeding.*fn3 As discussed, Plaintiff issued the Bond in favor of Mortenson, which secured Defendant Saunders' performance on the Subcontract between Defendant Saunders and Mortenson. The Court agrees with Plaintiff that, although the court in the Minnesota Action did not compel Plaintiff ...


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