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United States Surety Co. v. Best Construction Drywall Services, Inc.

United States District Court, M.D. Florida, Tampa Division

May 17, 2018




         United States Surety Company issued bonds that secured Best Construction Drywall Services' payment and performance obligations on a construction project at the Brooksville National Guard Armory. Best Construction, Ronald G. Milinovich, and the plaintiff signed a general indemnity agreement[1] that obligates Best Construction and Milinovich to indemnify the plaintiff for any claim against the surety bonds.[2]

         The plaintiff received (1) a payment bond claim from Banner Supply Company Tampa, LLC, “for the materials it provided on the project at [Best Construction's] request, but for which [Pillar Construction Group] did not receive payment” and (2) a performance bond claim from Pillar, based on Best Construction's “alleged defective or incomplete work” on the project. (Doc. 21 at 5) The plaintiff asserts that Best Construction “advised” the plaintiff to honor fully Banner's claim. (Doc. 21-1 at 3) The plaintiff's “Loss and Recovery Transaction Report” shows that in October 2015 the plaintiff paid Banner $18, 290.47 and that in June 2016 the plaintiff paid Pillar $91, 666.52. (Doc. 21-1 at 56)

         Alleging that the defendants failed to indemnify and reimburse the plaintiff for losses sustained in satisfying both Banner's claim and Pillar's claim, the plaintiff sues for breach of contract (Count I), for equitable subrogation (Count II), for exoneration (Count III), and for common law indemnity (Count IV). The plaintiff asserts that the defendants failed to provide collateral despite repeated demands, [3] failed to provide any valid defenses to the claims, failed to indemnify the plaintiff, and failed to request that the plaintiff resist any claim despite the defendants' receiving If the defendants resist a claim against the bonds, the agreement requires the defendants to request in writing that the plaintiff resist the claim and to deposit cash or collateral with the plaintiff sufficient to cover the claim and to cover the plaintiff's expenses in defending the claim. (Doc. 1 at 16-17) collateral demand letters. (Doc. 21 at 10) Moving for summary judgment on Count I, the plaintiff argues (Doc. 21) that the indemnity agreement is enforceable, that the defendants' bad faith defense fails, and that the defendants fail to establish a genuine dispute of material fact about the defendants' contractual obligations to the plaintiff.



         In July 2014, Best Construction subcontracted with Pillar. (Doc. 21-1 at 9) Best Construction agreed for $91, 666.52 to provide Pillar with metal framing, insulation, and gypsum board and wall covering for the project. (Doc. 22 at 1) As part of the subcontract the defendants and the plaintiff executed a subcontract performance bond (Doc. 21-1 at 9) and a subcontract labor and material bond. (Doc. 21-1 at 10)

         In September 2015, Best Construction and Pillar disputed the quality of the work completed on the project and disputed the payment of the balance owed to Best Construction (Best Construction asserts that Pillar owes Best Construction $17, 826.45). (Doc. 22 at 2) In April 2016, Pillar received a warranty claim on the project. The warranty claim “centers on the failure to install clips to some walls causing the walls to sway.” (Doc. 22 at 2) The defendants assert that Pillar and the plaintiff “decided” that Best Construction was at fault for the purportedly faulty installation. Best Construction denies liability and states that the construction was performed according to specifications prepared by Pillar's engineer. (Doc. 22 at 2)

         The defendants argue that the plaintiff breached the subcontract performance bond by paying Pillar the full amount of the bond without crediting $17, 826.45 to Best Construction. Further, the defendants argue that the plaintiff's payment to Pillar resulted in Pillar's receiving a “windfall” to the detriment of the defendants and that the plaintiff ignored the defendants' defenses when negotiating with Pillar.[4](Doc. 22 at 3-5) The defendants assert that the plaintiff acted in bad faith and that the plaintiff's conduct “rises to the level of a disputed issue of fact.” (Doc. 22 at 7)

         Bad faith

         Despite the existence of a surety's liability, a surety can enforce a contractual right under an indemnity agreement if the surety acts in a good faith belief that the agreement requires payment. Liberty Mut. Ins. Co. v. Aventura Engineering & Const. Corp., 534 F.Supp.2d 1290, 1316 (S.D. Fla. 2008) (Gold, J.). To show bad faith, an indemnitor must show that the surety acted with “deliberate malfeasance, ” which is “an intentional wrongful act [that] the actor has no legal right to do or any wrongful conduct which affects, interrupts, or interferes with the performance of official legal duty.” Employers Ins. of Wausau v. Able Green, Inc., 749 F.Supp. 1100, 1103 (S.D. Fla. 1990) (Scott, J.).

         “A surety's failure to conduct an adequate investigation of a claim upon a . . . bond, when accompanied by other evidence, reflecting an improper motive, properly may be considered as evidence of the surety's bad faith.” Auto-Owners Ins. Co. v. Southeast Floating Docs, Inc., 571 F.3d 1143, 1146 (11th Cir. 2009). “[I]mproper motive can be evidenced by unreasonable conduct on the part of the surety.” Auto-Owners Ins. Co., 571 F.3d at 1146. Evidence of an inadequate investigation “must be accompanied by other evidence of improper motive, such as a self-interested settlement.” Auto-Owners Ins. Co., 571 F.3d at 1146. But if an indemnitor fails to post contractually required collateral, a surety's paying or settling a claim cannot amount to bad faith. Liberty Mut. Ins. Co. 534 F.Supp.2d at 1316.[5]

         The plaintiff argues (1) that the actions about which the defendants complain (including the plaintiff's “paying the penal sum to Pillar”) fail to constitute bad faith because the indemnity agreement “unequivocally permitted” the plaintiff to resolve the claims and (2) that the defendants' only bad faith defense derives from the defendants' disagreement with the results of the plaintiff's investigation and settlement. (Doc. 21 at 15-16)

         The defendants respond that Best Construction proffered the plaintiff several plausible defenses to the warranty claim, that the plaintiff “unilaterally” and “improperly” disregarded the defenses during the investigation of Pillar's claims (Doc. 22 at 5), and that ...

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