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Curtiss-Manes-Schulte, Inc. v. Safeco Insurance Company of America

United States District Court, W.D. Missouri, Central Division

January 29, 2015

CURTISS-MANES-SCHULTE, INC., Plaintiff,
v.
SAFECO INSURANCE COMPANY OF AMERICA, Defendant.

ORDER

NANETTE K. LAUGHREY, District Judge.

Plaintiff Curtiss-Manes-Schulte (CMS), a general contractor, filed this lawsuit against Defendant Safeco Insurance Company of America, a surety, alleging breach of contract and vexatious refusal. The lawsuit arises out of Safeco's denial of a claim filed by CMS under a performance bond issued by Safeco to one of CMS's subcontractors, Balkenbush Mechanical, Inc. Before the Court is Safeco's Motion for Summary Judgment, which is based on Safeco's argument that CMS did not provide notice of Balkenbush's default sufficient to trigger Safeco's duties under the performance bond. [Doc. 19]. For the reasons set forth below, the Motion is denied.

I. Undisputed Facts

Plaintiff, CMS, was the general contractor for a renovation project located at Fort Leonard Wood, Missouri. On October 19, 2010, it entered into a $1.5 million[1] subcontract with Balkenbush Mechanical to replace an air conditioning system for the Fort Leonard Wood project. [Doc. 20-3]. The subcontract between CMS and Balkenbush required Balkenbush to secure a performance bond for the work. Id. at 1. On October 26, 2010, Defendant Safeco, as the surety for Balkenbush, issued a performance bond with CMS as the obligee and Balkenbush as the principal. [Doc. 20-4].

The subcontract between CMS and Balkenbush outlines what remedies are available to CMS should Balkenbush render unsatisfactory performance. [Doc. 20-3]. Likewise, the performance bond issued by Safeco also lists what remedies are available should Balkenbush default on its obligations under the subcontract. [Doc. 20-4].

By October 2011, CMS was aware that Balkenbush's work on the project was behind schedule. That concern was communicated to Safeco and Liberty Mutual Surety (presumably affiliated with Safeco for the purpose of the bond) on July 30, 2012, through a "Contract Bond Status Query." [Doc. 29-4]. The Contract Bond Status Query, which was sent to CMS by Liberty Mutual Surety, [2] requested information from CMS "[i]n order to allow us to monitor the progress of our contractor." Id. In the Contract Bond Status Query, CMS stated that the contract had not been completed, that work had not progressed satisfactorily, and that the contract was "9 months past due - liquidated damages will be assessed." Id. CMS also stated that the probable completion date would be "? 30 days - been saying this for several months now."

At around that same time, in July 2012, and every month thereafter through September 2013, Safeco paid a construction consulting firm and a law firm to investigate, defend, and resolve other claims filed against Balkenbush on performance bonds Safeco had issued for other, unrelated projects that did not involve CMS. [Docs. 29-16, 29-21]. In December 2012, Safeco filed a lawsuit against Balkenbush alleging losses from claims on four of those other bonds. [Doc. 29-16]. In January 2013, the president of Balkenbush Mechanical filed a petition in the United States Bankruptcy Court for the Western District of Missouri. [Doc. 29-18]; see also Case No. 13-20008-drd7. That same month, Safeco's counsel entered their appearance on behalf of Safeco in the bankruptcy proceeding. [Doc. 29-20].

While Balkenbush's bankruptcy proceeding was ongoing, CMS took steps to finish the air conditioning work that was supposed to be completed by Balkenbush. After an April 2013 walkthrough by the owner of the property, the United States, CMS hired various contractors throughout the spring and summer to finish the work and to complete a "punch list" of items identified by the United States as incomplete. The project was completed in October 2013, and the United States assessed liquidated damages against CMS for its delay in completing the project.

On December 12, 2013, CMS submitted a "Notice of Claim on Subcontract Bonds" letter to Safeco. [Doc. 29-5]. The letter demanded $65, 449.93, which was the amount CMS incurred as a result of Balkenbush's default. The letter states that due to the default, CMS hired substitute performance to complete the project and to correct discrepancies. It lists costs incurred by CMS to complete the project and the amount of liquidated damages assessed against it by the United States. The letter also points out that CMS completed the Contract Bond Status Query in July 2012, which indicated that the project was not complete and was behind. On February 5, 2014, Safeco denied CMS's performance bond claim. [Doc. 29-10]. In its denial letter to CMS, Safeco stated:

Notwithstanding Balkenbush's numerous alleged delays and deficiencies that appear to have been known to CMS as early as October 2011, CMS did not notify and give Balkenbush an opportunity to cure those alleged defaults. CMS also failed to notify Safeco of Balkenbush's alleged defaults and did not notify Safeco of any allegedly incomplete and/or deficient Subcontract work until December 2013, long after CMS hired and paid for the completion and correction of that work.
CMS's correction and completion of Balkenbush's allegedly incomplete and deficient work without declaring a default and without notifying Safeco violated the terms of the Performance Bond, deprived Safeco of an opportunity to mitigate damages, stripped Safeco of its rights and nullified Safeco's duty to perform.

Id. at p. 2. This litigation ensued shortly thereafter.

II. Discussion

Safeco argues that summary judgment should be entered on CMS's claims for breach of contract and vexatious refusal claims for two reasons. First, Safeco asserts summary judgment is appropriate because Safeco's obligations under the performance bond were not triggered because Balkenbush and Safeco were entitled to a three-day written default notice which CMS never sent. Second, Safeco argues that CMS's failure to issue the written default ...


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