Security Construction Co. v. Pennsylvania National Mutual Casualty Insurance

399 F. Supp. 611, 1975 U.S. Dist. LEXIS 11395
CourtDistrict Court, E.D. Virginia
DecidedJuly 18, 1975
DocketCiv. A. No. 74-0304-R
StatusPublished

This text of 399 F. Supp. 611 (Security Construction Co. v. Pennsylvania National Mutual Casualty Insurance) is published on Counsel Stack Legal Research, covering District Court, E.D. Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Security Construction Co. v. Pennsylvania National Mutual Casualty Insurance, 399 F. Supp. 611, 1975 U.S. Dist. LEXIS 11395 (E.D. Va. 1975).

Opinion

MEMORANDUM

WARRINER, District Judge.

Plaintiff is a Virginia corporation and defendant is a Pennsylvania corporation. The amount in controversy is in excess of $10,000 and the Court proceeds in this case under diversity jurisdiction.

Plaintiff presents an appealing case. It had the solution to its problems within its grasp but didn’t realize it until too late. In January of 1975 Security entered into a general contract for the construction of a 250-unit housing development in Hagerstown, Maryland. In the early part of February 1975, Security engaged Maietta Trucking Company to do preliminary grading and clearing and at the same time Security asked Maietta to bid on the excavation, grading, foundation and other site work contained in Section 2A of the specifications for the project. Pursuant to Maietta’s proposal, Security and Maietta entered into a contract for the principal sum of $138,500 on a form prepared and customarily used by Security. The contract form required that Maietta provide a payment and performance bond to assure Security that Maietta’s contractual obligations would be performed in accordance with the contract, plan and specifications.

Work under the contract commenced but Maietta did not provide Security with the payment and performance bond. Maietta acquired such a surety bond on 18 March 1971 but for reasons of its own, Maietta informed Security that it was unable to obtain the bond required by the contract.

Though Security, under its contract, then and there had a right to terminate the agreement, it chose to waive the bond requirement and permit Maietta to proceed to perform the work. Unformulated alternate provisions to assure performance were mentioned by Security but none were ever agreed to.

Defendant, Pennsylvania National Mutual and Casualty Insurance Company, from whom Maietta had obtained the surety bond, forwarded to Security under date of 30 March, a “General Form Status Inquiry.” The inquiry disclosed that a surety bond number SB-26647 had been issued by Pennsylvania to Maietta effective 18 March 1971, that the bond covered site preparation for [613]*613the Hagerstown, Maryland job subcontracted from Security for a contract price of $138,500, and that the bond had been issued in that amount. After giving this information, the inquiry stated:

Without prejudicing your right or affecting our liability under our bond(s) described above, we would appreciate such of the following information as is now available.

The inquiry then went on to ask certain specific questions about percentage of completion and the like. Security did not answer any of these questions but in the portion of the inquiry reserved for remarks Security, through its Vice-President, answered as follows:

We have not received the bond which you are referring to (SB-26647) in this office. May we suggest that you have this firm supply us with the executed bond in order that our records will be complete. We will then be in a position to complete this form without further delay.

Security’s response was dated 9 April 1971 and was apparently forwarded to defendant Pennsylvania on or shortly after that date.

During the latter part of April, Security reached the conclusion that Maietta’s April requisition for percentage payment under the contract was in excess of the percentage of work actually done as of that time, and that if payment were made under the requisition there would be insufficient funds remaining unpaid to complete the job if Maietta were to default.

Although earlier that month Security had received specific information as to the existence of the surety bond, including such information as the name of the obligee, the name of the obligor, the name of the surety, the effective date, the amount of the contract, the amount of the bond, and the project covered by the bond, Security has filed an affidavit herein that it assumed there was no surety bond. This assumption was predicated on Maietta’s earlier representation that it had been unable to obtain a bond. On this basis, Security refused to make payment under the requisition to Maietta, believing it was necessary for its own protection to hold back funds in the event of a default. Efforts to resolve the differences were unavailing and Security ordered Maietta off the job. A subsequent arbitration ruling held that in so doing, Security had breached the contract and it was required to pay substantial damages to Maietta.

Security then commenced this action against Pennsylvania, not on the bond, but “upon its contention that the relationship of [Pennsylvania] as a surety and [Security] as obligee gave rise to a duty on the.part of [Pennsylvania] to respond to [Security’s] request that it be furnished with the executed bond as set forth in [Security’s] response to the ‘General Form Status Inquiry’.” (Plaintiff’s Brief p. 2) Security says that had Pennsylvania seen to it that Security received a copy of the surety bond in response to Security’s request of 9 April 1971, then Security would never have become involved in the imbroglio with Maietta toward the latter part of that month. Security says that if it had had the assurance of the surety bond, it would not have felt the necessity of holding back on the April requisition and as a consequence would not have breached the contract or suffered the damages required by the arbitration decision.

Security admits that the cause of action is unique. It relies primarily upon Contee Sand and Gravel Company v. Reliance Insurance Company, 209 Va. 672, 166 S.E.2d 290 (1969). In that case, Contee filed an action upon a labor and material payment bond against Reliance. Reliance defended on the ground that the bond contained a condition that no suit or action should be commenced by a claimant after the expiration of one year following the date on which the principal ceased work. Admittedly, more than one year had elapsed between the date [614]*614on which the principal had ceased work on the contract and the date the action was brought by Contee against Reliance. Contee’s delay in bringing the action, however, was explained by the fact that Contee had inquired of the principal, of the issuing local agent of Reliance, and of Reliance at its home office, as to whether a bond had been issued which would cover Contee's claim. From these timely and diligent inquiries Contee learned that no such bond had been issued.

Sometime later, Contee, in seeking other means of compensation, learned that his sources of information might have been mistaken. Contee again inquired of the local agent and at this time the local agent discovered he had been mistaken in answering the previous inquirty as had been the home office of Reliance. The agent acknowledged that a bond covering Contee’s claim had indeed been issued. Reliance nevertheless refused to pay on the ground stated and litigation was instituted by Contee against Reliance.

The trial court sustained Reliance in its one-year defense but was reversed by the Supreme Court of Virginia on the grounds of equitable estoppel.

Security contends that the facts in Contee are “closely analogous” to the facts in its case and that therefore the results should be the same. The facts are not analogous and the result cannot be the same.

Although Maietta had concealed the issuance of a surety bond, the defendant Pennsylvania did not.

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Related

Contee Sand & Gravel Co. v. Reliance Insurance
166 S.E.2d 290 (Supreme Court of Virginia, 1969)

Cite This Page — Counsel Stack

Bluebook (online)
399 F. Supp. 611, 1975 U.S. Dist. LEXIS 11395, Counsel Stack Legal Research, https://law.counselstack.com/opinion/security-construction-co-v-pennsylvania-national-mutual-casualty-vaed-1975.