Elec. Contractors, Inc. v. Ins. Co. of Pa.

• Decision Date: 16 December 2014
• Docket Number: No. 19105.,19105.
• Citation: 314 Conn. 749,104 A.3d 713
• Court: Connecticut Supreme Court
• Parties: ELECTRICAL CONTRACTORS, INC., v. INSURANCE COMPANY OF the STATE of Pennsylvania.

314 Conn. 749

104 A.3d 713

ELECTRICAL CONTRACTORS, INC.

v.INSURANCE COMPANY OF the STATE of Pennsylvania.

No. 19105.

Supreme Court of Connecticut.

Argued Jan. 9, 2014.

Decided Dec. 16, 2014.

Steven B. Kaplan, with whom was Paul R. Fitzgerald, for the appellant (plaintiff).

Todd R. Regan, Hartford, for the appellee (defendant).

Matthew M. Horowitz, Hartford, and Susan Evan Jones filed a brief, for the Surety and Fidelity Association of America as amicus curiae.

PALMER, ZARELLA, EVELEIGH, McDONALD, ESPINOSA and ROBINSON, Js.

Opinion

PALMER, J.

Under General Statutes §§ 49–41 through 49–43, popularly known as the “Little Miller Act” (act),¹ a general contractor on a public works construction project must provide a payment bond with surety to the state or governmental subdivision guaranteeing payment to those who supply labor and materials to the project, and any person who has performed work or supplied materials for the project, but has not been paid for such materials or work, may enforce his right to payment under the payment bond. The dispositive issue in this case, which comes to us upon our acceptance of certified questions from the United States District Court for the District of Connecticut pursuant to General Statutes § 51–199b (d),² is whether a surety on a public construction project, which fails either to pay or to deny a notice of claim within ninety days, as required by General Statutes § 49–42(a),³ thereby waives any substantive defenses and becomes automatically liable for the full amount of the claim. We answer that question in the negative.

The record certified by the District Court contains the following undisputed facts and procedural history. The Morganti Group, Inc., was the general contractor on the Newtown High School renovations and expansion project. Morganti entered into a subcontract with the plaintiff, Electrical Contractors, Inc., for the latter to provide labor, equipment, and materials relating to the electrical work for the project. In July, 2009, pursuant to § 49–41(a),⁴ Morganti, as principal, obtained from the defendant, Insurance Company of the State of Pennsylvania, a $33.7 million labor and materials payment surety bond on the project.

In April, 2011, the plaintiff submitted to Morganti a request for equitable adjustment to the subcontract price in the amount of $751,190.63 to recoup additional costs allegedly incurred as a result of Morganti's deficient performance. In May, 2011, the plaintiff updated and adjusted its claim to $746,300.25. Morganti did not respond substantively to these claims.

On June 3, 2011, the plaintiff sent the defendant notice of its claim via certified mail, pursuant to § 49–42(a). The defendant received the notice of claim on June 10, 2011. On June 13, 2011, the defendant wrote to the plaintiff acknowledging receipt of the claim and requesting additional information to substantiate the claim. By letter dated July 1, 2011, the plaintiff responded to this request and provided the requested documentation, notwithstanding its stated belief that it had already fully complied with the statutory notice requirements of § 49–42. The defendant responded by letter dated July 6, 2011, acknowledging receipt of the plaintiff's further documentation. In that letter, the defendant indicated that it was immediately taking the matter up with Morganti to ascertain the latter's position on the claim, and that it would be in contact with the plaintiff in due course.

On September 16, 2011, the plaintiff commenced an action in the United States District Court for the District of Connecticut, claiming, inter alia, that: (1) the defendant was obligated to pay the full sum of $746,300.25 allegedly due under the payment bond; and (2) the defendant, acting in bad faith and without legal basis, had failed to (a) make any payment under the surety bond, (b) assert a good faith dispute, or (c) serve notice on the plaintiff denying liability for the unpaid portions of the claim. The parties subsequently filed cross motions for summary judgment. In its motion, the plaintiff alleged that because the defendant had failed to make payment, dispute the claim in good faith, or deny liability on the claim within the ninety day notice period provided by § 49–42(a), the defendant had waived any substantive defenses and the plaintiff was therefore entitled to judgment in the full amount of the claim. The defendant disagreed with this interpretation of the statute, contending instead that a surety's failure to satisfy the ninety day deadline imposed by § 49–42(a) should merely be deemed an exhaustion of remedies entitling a claimant to bring an action on its claim.⁵

The District Court determined that the proper resolution of the parties' claims turns on the correct interpretation of § 49–42(a). The District Court further observed that the question of law presented by the parties' motions involves a matter of public interest for which there is no controlling appellate decision, constitutional provision, or state statute. Accordingly, the District Court certified the following two questions of law to this court, which we accepted: “(1)(a) Is a surety's failure to meet the [ninety] day deadline under [§] 4942 deemed to be an exhaustion of remedies entitling claimants to bring suit for an adjudication of their claim or (b) [d]oes the failure to meet the [ninety] day deadline operate as a waiver of a surety's defenses directing the [c]ourt to enter judgment for the claimant in the full amount of the claim?” and “(2) Does a surety's request for further information to substantiate a claim constitute: (a) a ‘denial’ of the claim under [§] 49–42, or (b) a ‘good faith dispute’ of the claim under [§] 49–42?” The parties suggest, and we agree, that our analysis should begin with part (1)(b) of the certified question, because the crux of their dispute is whether a surety's failure to satisfy its notice requirements under § 49–42(a) constitutes a waiver of its substantive defenses and a forfeiture of its right to contest a surety bond claim.⁶ We conclude that a surety's failure to make payment on or serve notice denying liability on a claim under § 4942(a), within that provision's ninety day deadline, is tantamount to a denial of the claim and does not constitute a waiver of the surety's right to defend the claim on the merits. We therefore answer part (b) of the first question in the negative and, accordingly, need not address the remaining questions certified by the District Court, except insofar as those matters bear on our resolution of question (1)(b).

Resolution of this question involves an issue of statutory interpretation over which we exercise plenary review. Parrot v. Guardian Life Ins. Co. of America, 273 Conn. 12, 18, 866 A.2d 1273 (2005). We therefore begin our analysis with the language of § 49–42(a) ; see id., at 19, 866 A.2d 1273 ; General Statutes § 1–2z ;⁷ which provides in relevant part: “Any person who performed work or supplied materials for which a requisition was submitted to ... the awarding authority and who does not receive full payment for such work or materials within sixty days of the applicable payment date provided for in subsection (a) of section 49–41a ... may enforce such person's right to payment under the bond by serving a notice of claim on the surety that issued the bond and a copy of such notice to the contractor named as principal in the bond not later than one hundred eighty days after the last date any such materials were supplied or any such work was performed by the claimant.... Not later than ninety days after service of the notice of claim, the surety shall make payment under the bond and satisfy the claim, or any portion of the claim which is not subject to a good faith dispute, and shall serve a notice on the claimant denying liability for any unpaid portion of the claim. ... If the surety denies liability on the claim, or any portion thereof, the claimant may bring action upon the payment bond in the Superior Court for such sums and prosecute the action to final execution and judgment....” (Emphasis added.) General Statutes § 49–42(a).

On its face, the statute contains no default provision and nowhere provides that a surety waives its right to raise substantive defenses or is subject to automatic forfeiture if it fails to satisfy the ninety day response requirement. Indeed, § 49–42(a) does not expressly impose any penalty in the event of a surety's noncompliance.

Nevertheless, the plaintiff maintains that the legislature's repeated use of the term “shall” indicates that the duty of the surety to timely pay or deny a claim is mandatory in nature, and hence that failure to do so necessarily renders a subsequent denial null and void. The defendant, by contrast, asserts that the relevant statutory language is merely directory,⁸ and therefore that failure to deny a claim within ninety days does not automatically result in waiver or forfeiture. The defendant further contends that it would be inappropriate for the courts to read into the act a penalty provision that the legislature declined to impose expressly. See Ghent v. Planning Commission, 219 Conn. 511, 515, 594 A.2d 5 (1991) (court may not “read into clearly expressed legislation provisions which do not find expression in its words” [internal quotation marks omitted] ). We agree with the defendant's construction of the statute.

Although “we generally will not look for interpretative guidance beyond the language of the statute when the words of that statute are plain and unambiguous ... our past decisions have indicated that the use of the word shall, though significant, does not invariably create a mandatory duty.”⁹ (Internal quotation marks omitted.) State v. Trahan, 45 Conn.App. 722, 730, 697 A.2d 1153, cert. denied, 243 Conn. 924, 701 A.2d 660 (1997). Indeed, we frequently have found statutory duties to be directory, notwithstanding the legislature's use of facially obligatory language such as “shall” or “must.” See,...