Construction Law Insights

Allegheny Cas. Co. v. River City Roofing, LLC, 2018 U.S. Dist. LEXIS 63142, 2018 WL 1785478 (E.D. Va. Apr. 13, 2018)

In 2014, Allegheny Casualty Company (“Allegheny”) issued performance and payment bonds (“P&P Bonds”) on behalf of River City Roofing, LLC, (“River City Roofing”), as principal, for three construction projects that River City Roofing, Rodney G. Young, Karen R. Young, and Sterling Young (the “Defendants”) subcontracted with Branch & Associates, Inc. (“Branch”) to perform. In November of 2014, Allegheny and the Defendants entered into a general indemnity agreement (“GIA”) in which the Defendants agreed to be jointly and severally liable to Allegheny in the event of any loss on the P&P Bonds. Rodney G. Young, Karen R. Young, and Sterling Young executed the GIA as individual indemnitors and Rodney G. Young executed the GIA on behalf of River City Roofing. In February of 2017, Allegheny received a $27,312.01 payment bond claim from American Builders & Contractors Supply Co. (“ABC Supply”), which is supplier of River City Roofing. Allegheny paid $16,440.17 to ABC Supply. In May of 2017, Allegheny received a $105,333.47 performance bond claim from Branch, which Allegheny expended $13,388.94 investigating. In September of 2017, Allegheny received a $5,189.40 payment bond claim from Brock Associates, LLC (“Brock”), which is another supplier of River City Roofing. Thereafter, Allegheny demanded that the Defendants post collateral sufficient to protect Allegheny as required by the GIA. On October 3, 2017, Allegheny filed a complaint against the Defendants to enforce the GIA, and then filed a Motion for Summary Judgment. 

Under Virginia law, an express indemnification contact controls the relationship between surety and indemnitors rather than applying implied indemnity principles. The Defendants argued that they entered into two subcontracts with Branch: (i) one for roofing, which the Defendants alleged was bonded; and (ii) one for siding material, which the Defendants alleged was not bonded. Because ABC Supply provided materials under the non-bonded subcontract for siding, the Defendants asserted that ABC Supply was not covered by the P&P Bonds. The magistrate disregarded this argument because the GIA’s terms were not contingent on the P&P Bonds. Under the GIA, the Defendants agreed to reimburse Allegheny for “any payment . . . made by [Allegheny] in good faith . . . whether or not [] liability, necessity or expediency existed.” Because the Defendants did not argue any lack of good faith or fraud on Allegheny’s part in paying ABC Supply or challenge the authenticity of the GIA, the magistrate granted Allegheny summary judgment on its breach of contract claim. 

Likewise, the magistrate granted Allegheny summary judgment on its specific performance claim for the Defendants to post collateral. Under the GIA, the Defendants were required to deposit sufficient collateral with Allegheny upon Allegheny’s demand “as soon as liability exists or is asserted against [Allegheny].” There was no dispute that Branch asserted claims for payment and that Allegheny demanded collateral from the Defendants. 

Next, the magistrate determined that Allegheny was entitled to reimbursement for its investigation of the Branch claim. Under the GIA, the Defendants agreed to indemnify Allegheny from “expenses of whatsoever kind or nature,” without qualification of reasonableness or necessity, that Allegheny “may sustain and incur: (1) By reason of having executed or procured the execution of the Bonds, (2) By reason of the failure of the [Defendants] to perform or comply with the covenants and conditions of [the GIA] or (3) In enforcing any of the covenants and conditions of [the GIA].” Because ‘reasonableness’ is not a requirement, Allegheny was entitled to reimbursement for the full amount of its investigation of the Branch claim. Finally, the magistrate awarded Allegheny its attorney’s fees because the GIA provided for Allegheny’s recovery of “costs or services rendered by counsel” to pursue enforcement of the GIA.

PLDR Law Mark Burgin 1 PLDR Law Scott Kowalski 1 Wolf Tom v2 Stout Kenneth 2016

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