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Star Insurance Company v. A&J Construction of New York, Inc.

United States District Court, S.D. New York

December 22, 2017


          David C. Dreifuss Maddalena R. Zefferino Dreifuss Bonacci & Parker PC Florham Park, New Jersey Counsel for Plaintiff.

          J. Garth Foley Foley & Associates, P.C. New York, New York Counsel for Defendants.

          OPINION & ORDER

          CATHY SEIBEL, U.S.D.J.

         Before the Court is the Motion for Summary Judgment of Plaintiff Star Insurance Company. (Doc. 28.) For the reasons stated below, Plaintiff's motion is GRANTED.

         I. BACKGROUND[1]

         A. Factual Background

         1. The Construction Contract and the General Agreement of Indemnity

         In April 2013, Defendant A&J Construction of New York, Inc. (“A&J”) entered into a construction contract with the Dobbs Ferry Union Free School District (the “School District”) to renovate a cafeteria (the “Project”). (56.1 Stmt. ¶ 5.) Plaintiff, as surety, issued payment and performance bonds in the amount of $1, 379, 000.00, listing A&J as the “Contractor as Principal” and the School District as the “Owner.” (Id. ¶ 6; Doc. 32 (“Thompson Aff.”) Ex. A.)

         In July 2012, as a precondition for issuing the bonds, Defendants executed a General Agreement of Indemnity (the “GAI”) in favor of Plaintiff. (56.1 Stmt. ¶¶ 7-9; Thompson Aff. Ex. B (“GAI”).) The GAI's definition of “Surety” includes “Star Insurance Company, ” and the signature blocks list A&J as the “Principal/Indemnitor” and Defendants Jimmy J. Puthumana and Amala J. Puthumana as “Individual Indemnitors” (collectively, “Indemnitors” or “Defendants”).[2] (GAI at 7-8.) The GAI provides that Defendants, jointly and severally, will “indemnify and save harmless [Plaintiff] from any losses, costs or expenses arising out of any surety bonds executed or procured by [Plaintiff] on behalf of A&J.” (56.1 Stmt. ¶ 10.) Specifically, Section II.A of the GAI provides:

The Indemnitors hereby agree faithfully to perform and discharge, or see to the faithful performance and discharge of each and every obligation imposed on them (or any of them) by each and every Bond Issued by the Surety for the Principal, by each and every contract referenced in such Bonds, and by each and every provision of this Agreement. Accordingly, the Indemnitors further agree to exonerate, save harmless, indemnify, and keep indemnified the Surety from and against ANY AND ALL LOSS WHATSOEVER, including by [sic] not limited to all demands, claims, liabilities, damages, costs, charges, fees, expenses, suits, orders, judgments, adjudications, and any other Losses of whatsoever nature or kind, which the Surety pays or incurs or for which the Surety becomes liable or has reason to believe it is, may be, or may become liable (whether or not the Surety shall have paid out any sums on account of such Losses), for any reason whatsoever . . . .

(GAI at 1.) Section V.A.5 of the GAI provides:

The Indemnitors hereby authorize and empower the Surety, at its option and in its sole discretion with or without notice to the Indemnitors, to . . . [d]etermine whether any item of Loss shall be paid, settled, compromised, resisted, defended, or appealed and whether any effort to recover Losses shall be undertaken, settled, compromised, prosecuted, or appealed . . . and the Surety shall have the right to incur such expenses (and to receive reimbursement therefore from the Indemnitors) in handling a Loss or recovery as it shall deem necessary; and the Surety shall have the foregoing rights regardless of whether the Undersigned may have assumed or offered to assume the defense or prosecution of any item of Loss or recovery.

(Id. at 4.) Section II.E.1 of the GAI provides:

In any suit hereunder or in any accounting between the Surety and the Indemnitors, an itemized statement of Losses sworn to by an officer of the Surety shall be prima facie evidence of the fact and extent of the liability hereunder of the Indemnitors to the Surety; and the Indemnitors hereby waive any and all right to assert that the Surety, by its acts or omissions, incurred more Loss than necessary or failed to recover as much as it might have, it being expressly understood that swiftness may be critical than economy in fulfilling the spirit as well as the letter of the Surety's obligations under Bonds it Issues for the Principal.

(Id. at 2.)

         2. Notices of Default and Termination of Contract Between A&J and the School District

         On August 30 and September 3, 2013, the School District notified A&J that A&J was in default because it failed to achieve substantial completion of the Project. (56.1 Stmt. ¶¶ 16-17; Thompson Aff. Exs. C, D.) On April 11, 2014, the School District notified A&J that it was considering declaring A&J in default and terminating the contract because A&J abandoned its work and left the work in defective condition, failed to pay subcontractors, and failed to remove liens. (56.1 Stmt. ¶ 18; Doc. 31 (“Cashin Aff.”) Ex. D at 1-2.) The School District terminated A&J from the Project on July 31, 2014. (56.1 Stmt. ¶ 20; Cashin Aff. Ex. H.)

         3. Plaintiff's Payments to Subcontractors and Vendors

         Beacon Consulting Group (“Beacon”) investigated the matter on behalf of Plaintiff. (Cashin Aff. ¶ 4; id. Ex. G at 3.) Based upon advice and help from Beacon and Plaintiff's consultant Cashin Spinelli & Ferretti, LLC (“Cashin”), Plaintiff entered into settlement agreements or releases with subcontractors and vendors to satisfy the liens imposed. (Thompson Aff. ¶ 15.) Specifically, Plaintiff settled with the following subcontractors and vendors: (1) Ace Fire and Door for $24, 000 (the lien amount was $31, 095); (2) Crescent Contracting Corp. for $154, 000[3] (the lien amount was $319, 092.92); (3) Culinary Depot, Inc. for $135, 000 (the lien amount was $233, 274.46); (4) NSC Abatement for $8, 000 (the lien amount was $9, 000); (5) Dutchess Overhead Doors for $16, 800 (the lien amount was $10, 800);[4] and (6) AGV Electrical Contracting for ...

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