Atlantic v. Ulico Casualty Co.

• Decision Date: 12 March 2004
• Docket Number: No. 51,51
• Citation: 380 Md. 285,844 A.2d 460
• Parties: ATLANTIC CONTRACTING & MATERIAL COMPANY, INC. v. ULICO CASUALTY COMPANY.
• Court: Maryland Court of Appeals

844 A.2d 460

380 Md. 285

ATLANTIC CONTRACTING & MATERIAL COMPANY, INC. v. ULICO CASUALTY COMPANY.

No. 51, Sept. Term, 2003.

Court of Appeals of Maryland.

March 12, 2004.

Reconsideration Denied April 8, 2004.

George Harper, Upper Marlboro, for Petitioner.

Eric R. Stanco of Stanco & Associates, Washington, DC, for Respondent.

Argued before BELL, C.J., RAKER, WILNER, CATHELL, HARRELL, BATTAGLIA, and JOHN C. ELDRIDGE, (retired, specially assigned), JJ. HARRELL, Judge.

On 19 September 2000, Ulico Casualty Company ("Ulico"), Respondent here, filed a complaint in the Circuit Court for Prince George's County against Petitioner, Atlantic Contracting and Material Company, Incorporated ("Atlantic"). The complaint was in response to Atlantic's failure to reimburse Ulico for payments made by Ulico to a claimant under a surety bond and indemnity agreement. The surety, Ulico, had issued the performance and payment surety bond ("the bond") on behalf of Atlantic, as principal, to guarantee Atlantic's performance of its contractual obligations on a road repair project. Ulico sought to recover monies it paid to Clearwater Hydraulics and Driveshaft Services ("Clearwater") on a claim on the bond, and the attorneys' fees it incurred in pursuing indemnification from Atlantic.

A non-jury trial was held on 14 December 2001. At the conclusion of the trial, the trial judge took the matter under advisement. In a series of subsequent written rulings, the Circuit Court concluded: (a) that only part of the Clearwater claim was covered by the bond and, therefore, Ulico was entitled to reimbursement only for that part of the claim; (b) under the language of the indemnity agreement, Ulico was entitled to recover attorneys' fees, costs, and expenses; and, (c) an award of $5,750 in attorneys' fees, costs, and expenses to Ulico, out of a claim for $16,716.67, was fair and reasonable.

Ulico noted a timely appeal, arguing that it had acted in good faith in paying Clearwater's claim and, therefore, the Circuit Court erred when it did not award Ulico the total sum paid on the bond. In addition, Ulico argued that the Circuit Court abused its discretion in not awarding Ulico the full amount of attorneys' fees, costs, and expenses. Atlantic filed a cross-appeal, asserting that Ulico was not entitled to any part of the amount paid on the bond because the bond did not cover the Clearwater claim. Atlantic also contended that the Proof of Claim form filed by Clearwater was defective, and that Ulico made the payment to Clearwater as a mere volunteer. The Court of Special Appeals, in a reported opinion, Ulico Casualty Co. v. Atlantic Contracting and Material Co., 150 Md.App. 676, 822 A.2d 1257 (2003), reversed the Circuit Court and held that Ulico was entitled to its entire claim. The intermediate appellate court, with regard to Ulico's claim for attorneys' fees, costs, and expenses, remanded for reconsideration in light of its holding as to the error affecting the amount of reimbursement to which Ulico was entitled for paying Clearwater's claim. We granted Petitioner's petition for writ of certiorari, Atlantic Contracting v. Ulico, 376 Md. 543, 831 A.2d 3 (2003), to consider Petitioner's four questions:

1. Do repairs to equipment used on a project constitute "labor and materials" supplied to that project, so as to fall within the coverage of a construction bond?

2. Was Ulico, who sued Atlantic as indemnitor on a bond, a volunteer when Ulico paid a third party when that third party's bill and claim were for repairs to equipment used by the subcontractor defendant, which repairs did not constitute "labor and materials in the prosecution of the work provided for in said subcontract," as were covered by the bond in question?

3. Was Ulico also a volunteer, when the third party's "Proof of Claim" on the bond did not allege that the third party had provided labor and materials to the particular subcontract covered by the bond?

4. Under Maryland law, did the circuit court err or abuse its discretion in awarding attorneys' fees, costs, and expenses to Ulico?

We shall affirm the judgment of the Court of Special Appeals.

I.

A.

On 27 June 1997, Gilbert Southern Corporation ("Gilbert"), as general contractor, entered into a contract with the North Carolina Department of Transportation to repair a segment of the northbound lanes of Interstate 85 ("the project"). Soon thereafter, Gilbert and Atlantic entered into a subcontract for Atlantic to perform the concrete paving work on the project.

Ulico issued a performance and payment surety bond on behalf of Atlantic, as principal, in favor of Gilbert, as obligee. The bond guaranteed Atlantic's performance of its duties under the subcontract and its prompt payment "to all persons supplying [Atlantic] with labor and materials in the prosecution of the work provided for in [the subcontract between Gilbert and Atlantic] ... and [the prompt payment of] all other obligations incurred by [Atlantic] in connection with such work...." In connection with the issuance of the bond, Atlantic and its individual owners, John Madden and Thomas Madden, executed a General Agreement of Indemnity and Security ("indemnity agreement"), in favor of Ulico.

Clearwater informed Ulico on 24 June 1998 that Clearwater had billed Atlantic $21,843.48 for repairs to equipment Atlantic was using in connection with the project. Clearwater told Ulico that Atlantic had not paid the bill and that Clearwater was now looking to Ulico, as Atlantic's surety, for payment. In reply, Ulico sent Clearwater a Proof of Claim form with a letter requesting that Clearwater return the form with supporting documentation as verification of its claim.

Clearwater's completion of the Proof of Claim form indicated that Atlantic owed Clearwater $21,843.48 for "repair to equipment used on paving job at I-85 North, Granville County project," and no credits were due to Atlantic. The unpaid bills sent by Clearwater to Atlantic, attached to the Proof of Claim form, were three in number: (1) 5 December 1997 in the amount of $8,299.18; (2) 15 May 1998 in the amount of $7,565.36; and (3) 15 May 1998 in the amount of $4,834.14 (totaling $20,698.68).

Clearwater transmitted the Proof of Claim form and supporting documents to Ulico on 27 August 1998. By then, Atlantic had paid to Clearwater the $4,834.14 bill, by check dated 31 July 1998, which was negotiated by Clearwater on 6 August 1998; however no one informed Ulico of the part payment nor documented the partial payment to Ulico until sometime later.

On 31 August 1998, Cherie Rondinelli, the Bonds Claims Manager for Ulico, wrote to John Madden, President of Atlantic, to inform him that Clearwater alleged it was owed by Atlantic a total of $21,843.48 (comprised of the $20,698.68 represented by the three bills attached to Clearwater's Proof of Claim form, plus interest at 18 percent through 1 August 1998) on the project and asking him to inform Ulico of the reasons for Atlantic's delay in paying Clearwater. On 3 September 1998, Thomas Madden responded with a terse letter, sent via facsimile transmission and regular first-class mail, stating that Atlantic had sent Clearwater a check for $4,834.14 in partial payment of Clearwater's bills and that the balance remaining was "being disputed and must be resolved prior to completion of payment." Rondinelli responded with a letter, dated 26 October 1998, posing the following questions:

Atlantic continues to state that the balance due is being disputed and will be resolved prior to completion of the project. What is the nature of the dispute? Please provide the surety with documentation of the dispute and amount. Is the project complete, if no, what percentage of the project is complete? When do you expect the project to be complete?

In addition, Ulico requested a copy of the $4,834.14 check that Atlantic purportedly remitted to Clearwater.

On 3 December 1998, having received no response from Atlantic, Rondinelli again wrote to Thomas Madden asking for any documentation supporting Atlantic's dispute of Clearwater's claim. Rondinelli's letter stated in part:

"In order to properly and thoroughly investigate [Clearwater's] claim, it is imperative that the surety receive this information. Atlantic's lack of cooperation with Ulico is placing the surety in a difficult position of possibly having to incur a payment loss on this bond due to the lack of documentation and valid defenses.

"Please consider this as Ulico's SECOND REQUEST for Atlantic to provide the following documentation.

"1. Atlantic continues to state that the balance due is being disputed and will be resolved prior to the completion of the project. What is the nature of the dispute?

"2. Please provide the surety with documentation of the dispute and amount.

"3. Is the project complete, if no, what percentage of the project is complete?

"4. When do you expect the project to be complete?

"5. Please provide the surety with a complete accounting of payments Atlantic received on this project...."

Receiving no response to her 3 December letter, Rondinelli wrote to Thomas Madden again on 29 December 1998. She stated that Ulico had "validated Clearwater's claim of $20,698.62" and "Atlantic's lack of response and documentation [had] placed [Ulico] in a position of incurring a loss [of $20,698.62]." Rondinelli's letter demanded that Atlantic pay Ulico that sum within 5 working days of receipt of the letter or Ulico "would be forced to seek other restitution via its rights under the indemnity agreement." This letter was sent to Atlantic by certified mail. Ulico, on 4 January 1999, delivered its check to Clearwater for $20,698.62, and received in return Clearwater's assignment of its claim against Atlantic and a release of Ulico from all liability under the bond.

By a letter of 5 January 1999, which was transmitted to Ulico by facsimile at 4:50 p.m. that day and sent also by certified mail, John Madden responded to Ulico stating...