Farmer's Union Central Exchange v. Reliance Ins.

• Decision Date: 23 September 1985
• Docket Number: Civ. No. A1-83-79,A1-83-96.
• Citation: 626 F. Supp. 583
• Parties: FARMER'S UNION CENTRAL EXCHANGE, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY, Defendant. and CONOCO, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY, Defendant.
• Court: U.S. District Court — District of South Dakota

626 F. Supp. 583

FARMER'S UNION CENTRAL EXCHANGE, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY, Defendant. and CONOCO, INC., Plaintiff, v. RELIANCE INSURANCE COMPANY, Defendant.

Civ. Nos. A1-83-79, A1-83-96.

United States District Court, D. North Dakota, Southwestern Division.

September 23, 1985.

Sean O. Smith, Daniel L. Hovland, Bismarck, N.D., for Farmer's Union Central Exchange, Inc.

Jane Fleck Romanov, Bismarck, N.D., for Conoco, Inc Zuger & Bucklin, James S. Hill, Bismarck, N.D., Patrick J. O'Connor, Jr., Hart & Bruner, Minneapolis, Minn., for Reliance Ins. Co.

MEMORANDUM AND ORDER

VAN SICKLE, Senior District Judge.

This Memorandum and Order is addressed to the motions for summary judgment currently pending in the above captioned cases. In both cases, Plaintiffs seek to recover under payment and performance bonds which Defendant executed as surety, as well as on claims for bad faith failure to pay on the bonds. Defendant moves for summary judgment, alleging that the bond claims are barred by a statute of limitations and that Plaintiffs have not alleged sufficient facts to state either a tort claim or a claim under the North Dakota insurance practices statute. Plaintiffs oppose those motions. In addition, Plaintiff Conoco, Inc. moves for partial summary judgment in Civil No. A1-83-96, seeking a ruling that, in order to recover on its bond claim, it need not establish with specificity that the materials it supplied were incorporated into a particular bonded project. Defendant opposes that motion.

FACTS — A1-83-79

Farmer's Union Central Exchange, Inc. (Cenex) contracted with Scherbenske Excavating, Inc. (Scherbenske) to supply asphalt oil for several road construction projects with which Scherbenske was involved during the summer of 1981. Three of the projects were state or city contracts for which Scherbenske provided payment and performance bonds for the protection of those parties who supplied labor or materials to Scherbenske. Reliance Insurance Company (Reliance) executed each of the three bonds as surety.

The contract between Cenex and Scherbenske provided that Cenex would sell Scherbenske a given amount of asphalt oil during the 1981 construction season at a fixed price per ton. (Buska Deposition at 7). The asphalt oil was transported periodically from Cenex's Bismarck, North Dakota terminal to Scherbenske's Beulah, North Dakota "hot plant." (Buska Deposition at 13-14). Scherbenske had several construction contracts in the Beulah area during the 1981 construction season, and used asphalt oil purchased from Cenex on projects other than the three projects for which Reliance acted as bond surety. It also used asphalt oil purchased from suppliers other than Cenex on the three bonded projects. Under terms of their contract, Scherbenske was to pay Cenex within thirty days of the date of each invoice. (Buska Deposition at 32).

Cenex shipped oil to Scherbenske's "hot plant" on various dates during 1981. The last shipment Cenex supplied to Scherbenske was delivered on October 9, 1981. Scherbenske defaulted on payments for asphalt oil shipped after September 8, 1981. (Buska Deposition at 32). After Scherbenske defaulted, Cenex attempted to secure payment by collecting on the surety bonds. By letters dated February 23, 1982, Cenex gave notice to each of the three governmental entities involved on the bonded projects (State of North Dakota, City of Dodge, and City of Beulah) that it was filing claims on the surety bonds. (Exhibits to Complaint). Cenex gave the same notice to Reliance, through its general agent Fargo Insurance Agency, on the same date. (Complaint ¶ VIII).

On June 8, 1982, Cenex, through its attorney Morris A. Tschider (Tschider), contacted Reliance's Midwest bond claims manager H.S. Hudson (Hudson) concerning Cenex's claims on the three bonded projects. Hudson told Tschider that Reliance would take no action until Scherbenske declared default, that Reliance expected to be involved once default was declared, that Reliance would make payment on the bonded projects, but that he expected there would be problems in allocation of amounts supplied by Cenex for use on the bonded projects. (Tschider Deposition at 12). On July 2, 1982, Tschider again contacted Hudson and was informed that Scherbenske had declared default on June 28, 1982, and that Hudson would mail the necessary claim forms to Cenex for completion. (Tschider Deposition at 17). During the July 2, 1982 conversation, Hudson told Tschider that Reliance was working "super hyperactive" on the Cenex claims. Scherbenske filed a petition in bankruptcy on July 14, 1982. (Complaint ¶ XIII).

By letters dated July 28, 1982 and July 29, 1982, Reliance requested information verifying the quantities of asphalt oil supplied by Cenex and used on the three bonded projects. Reliance supplied the claim forms at that same time, approximately one month after Hudson had promised to mail the forms. The letters stated that Reliance was unconditionally reserving all of its rights under the bonds and under applicable law. (Tschider Deposition Ex. 8 & 9). Because asphalt oil supplied by Cenex had apparently been commingled with that purchased from other suppliers, and because asphalt oil supplied by Cenex had apparently been used on Scherbenske's unbonded projects as well as on its bonded projects, Reliance asserted that verification of Cenex's bond claims was a complicated task. (Tschider Deposition at 22-23). On September 30, 1982, Cenex submitted the claim and affidavit forms required by Reliance. Cenex claimed it was owed $46,419.21 on the State of North Dakota project, $85,417.49 on the City of Dodge project, and $42,188.80 on the City of Beulah project. Tschider was apparently confident that Reliance would make a settlement offer after these forms were submitted. (Tschider Deposition at 35-36). Tschider and Hudson discussed the Cenex claims again on November 23, 1982; Tschider asserts that Hudson stated during this conversation that he either had hired or would hire an asphaltic engineer to "reconstitute the jobs" and that Reliance would be making an offer on the Cenex claims within the first two weeks of December, 1982. (Tschider Deposition at 36-37). Tschider made further inquiry on the Cenex claims in January, 1983. On March 10, 1983, Hudson advised Tschider that Reliance would make no settlement offer. Reliance took the position that Cenex's claims were barred by N.D.Cent.Code § 48-02-17 (1978)¹ since Cenex did not file suit within one year of October 9, 1981, the date on which it last supplied materials to Scherbenske. Tschider was apparently not aware of this statute until Reliance asserted its application. (Tschider Deposition at 54). Cenex then initiated suit in state court by summons and complaint dated March 31, 1983. Reliance filed a petition for removal of the action to this court.

FACTS — A1-83-96

Conoco, Inc. (Conoco) supplied labor and materials to Scherbenske from August, 1980 through October, 1981. During this period, Conoco supplied asphaltic oil to Scherbenske's "hot plants" in Jamestown, North Dakota and Zap, North Dakota. Scherbenske had contracted on three highway construction projects in that area and Reliance, acting as surety for Scherbenske, had executed payment and performance bonds for each of those three projects (Mercer County, North Dakota; Stutsman County, North Dakota; and Valley City, North Dakota). The dates on which Conoco last supplied materials to Scherbenske on each of the projects were: September 17, 1981 on the Mercer County project, October 16, 1981 on the Stutsman County project, and October 10, 1981 on the Valley City project. Scherbenske defaulted on its obligations to Conoco. On April 8, 1982, Conoco secured a promissory note from Scherbenske for the amount of the outstanding debt. Collection on that note is the subject of an action currently pending in another division of this district. Civil No. A3-82-127.

On or about July 14, 1982, David Nigh, Conoco's in-house counsel, contacted Hudson, of Reliance, regarding collecting on the bonds for each of the three projects. On July 28, 1982, Hudson sent bond claim forms to Nigh, along with a letter similar in content to the July, 1982 letters from Reliance to Cenex; Reliance stated in that letter that it was unconditionally reserving all of its rights under the bonds and under applicable law. Reliance received the completed claim forms from Conoco on September 14, 1982. Conoco submitted claims in the amounts of $175,651.50 for the Mercer County project, $36,724.33 for the Stutsman County project, and $103,378.26 for the Valley City project.

In October, 1982, Conoco again contacted Reliance regarding the bond claims. This contact was made by Wesley Spears, who had replaced Nigh as in-house counsel, and William Ronne, an assistant treasury manager for Conoco. Hudson told Spears and Ronne that he was investigating Conoco's claims and would contact Conoco when he had finished that investigation. (Spears Deposition at 16-17; Ronne Deposition at 64-66). Conoco asserts that Hudson in fact did little or no investigation of the claims. (Hudson Deposition at 136-40, 148). Spears contacted Hudson again in December, 1982. Hudson again told Spears that the claims were being investigated and that he would contact Spears after the investigation was concluded and Reliance had determined what portion of the amounts claimed would be paid. (Spears Deposition at 17; Ronne Deposition at 66-67). Spears again contacted Hudson in January, 1983 and during this conversation Hudson raised Reliance's statute of limitations defense. Conoco initiated suit to collect on the bonds on April 28, 1983 in a state court. Reliance filed a petition for removal to this court on May 27, 1983.

RELIANCE'S MOTIONS

In support of its motion for summary judgment, Reliance argues that the Cenex and Conoco bond claims are barred by a one year statute of limitations, that the tort claims...