Hoiness-LaBar Ins. v. Julien Const. Co.

• Decision Date: 08 October 1987
• Docket Number: HOINESS-L,Nos. 86-268,s. 86-268
• Citation: Hoiness-LaBar Ins. v. Julien Const. Co., 743 P.2d 1262 (Wyo. 1987)
• Parties: aBAR INSURANCE, a Montana corporation, Appellant (Third-Party Defendant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant), NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, (Defendant, Cross-Complainant, and Third-Party Complainant). Allied Fidelity Insurance Co., an Indiana corporation, Appellant (Defendant and Cross-Defendant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant), and Nielsen Plumbing and Heating, Inc., a Wyoming corporation, Appellee (Defendant, Cross-Complainant, and Third-Party Complainant). JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellant (Plaintiff), v. NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, Appellee (Defendant, Cross-Complainant, and Third-Party Complainant), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant), and Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant). NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, Appellant (Defendant, Cross-Complainant, and Third-Party Complainant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant), and Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant). to 86-271.
• Court: Wyoming Supreme Court

Page 1262

743 P.2d 1262

HOINESS-LaBAR INSURANCE, a Montana corporation, Appellant (Third-Party Defendant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant),

NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, (Defendant, Cross-Complainant, and Third-Party Complainant).

Allied Fidelity Insurance Co., an Indiana corporation, Appellant (Defendant and Cross-Defendant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant),

and

Nielsen Plumbing and Heating, Inc., a Wyoming corporation, Appellee (Defendant, Cross-Complainant, and Third-Party Complainant).

JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellant (Plaintiff), v. NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, Appellee (Defendant, Cross-Complainant, and Third-Party Complainant), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant),

and

Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant).

NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, Appellant (Defendant, Cross-Complainant, and Third-Party Complainant), v. JULIEN CONSTRUCTION COMPANY, a Wyoming corporation, Appellee (Plaintiff), and Allied Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and Cross-Defendant),

and

Hoiness-LaBar Insurance, a Montana corporation, Appellee (Third-Party Defendant).

Nos. 86-268 to 86-271.

Supreme Court of Wyoming.

Oct. 8, 1987.

Dan B. Riggs, and Robert W. Brown of Lonabaugh & Riggs, Sheridan, for Hoiness-LaBar Ins.

Charles G. Kepler of Simpson & Kepler, Cody, for Julien Const. Co.

Michael K. Shoumaker of Shoumaker and Murphy, Sheridan, for Allied Fidelity Ins. Co.

John O. Housel of Housel and Housel, Cody, for Nielsen Plumbing and Heating, Inc.

Before THOMAS, CARDINE, URBIGKIT, and MACY, JJ, and GUTHRIE, J., Retired.

URBIGKIT, Justice.

This opinion discusses bond-liability issues stemming from the subcontractor's default in the course of the restoration of the Park County Courthouse. The subcontractor was issued a performance bond, but not the requested payment bond. We will affirm in part, reverse in part, and remand.

FACTS

In 1984, Park County contracted with Julien Construction Company (Julien) to reconstruct and restore the old County Courthouse. Julien entered into a subcontract with Nielsen Plumbing and Heating, Inc. (Nielsen), the mechanical subcontractor. The form written subcontract provided that Nielsen would obtain both payment and performance bonds. ¹ Thereafter, Nielsen ordered the required bond coverages from Hoiness-LaBar Insurance (Hoiness), an independent insurance broker writing with Allied Fidelity Insurance Co. (Allied). Representatives from Hoiness contacted Allied to inquire if the coverages could be issued, and approval was given. At that time, Nielsen, Hoiness and Allied all understood that two bond coverages were desired to insure both contract performance and bill payment. The memorandum order written by Nielsen to Hoiness stated:

"Please send a bond and certificate of liability insurance for this job. Enclosed is a copy of the sub-contract agreement." (Emphasis added).

An employee of Hoiness, intending to issue a bond with both coverages, used the wrong form, signed pursuant to a power of attorney, and issued only a performance bond. These bonds are written either in one document as a combined payment and performance bond, or separately in two documents with different coverages and separate provisions. Allied, the record reflects, had forms for a performance bond, a payment bond, and a combination performance and payment bond. ²

Nielsen paid the billed premium ³ and received only the performance bond. None of the parties discovered the coverage omission until after subcontractor default problems developed approximately a year later in the spring and summer of 1985. This information emerged when Julien became aware that Nielsen's suppliers were having collection difficulties. After the resulting claim communications, Hoiness sought to obtain Allied's permission to issue the payment bond in conjunction with the already outstanding performance bond, but Allied refused.

In midsummer 1985, Nielsen's suppliers and subcontractors submitted payment claims to Allied which were rejected because no payment bond had been issued. Actually, the record reflects that the mechanical subcontract was essentially completed except for punch-list and warranty items. When Nielsen defaulted, Julien, the general contractor, completed these remaining back-charge or punch-list items, and paid suppliers who would otherwise have the right to make claims against the payment and performance bond provided by Julien to Park County, as required by statute. Payment of the bills and work completed was also necessary for Julien to secure escrow-fund release from the owner then withheld because of the outstanding materialmen's claims. After payment, Julien instituted this litigation against Nielsen and Allied and, at a later stage, added Hoiness as a third-party defendant to secure reimbursements of claims paid and final work-completion costs incurred. In March 1986, Allied went into receivership in Indiana, its state of domicile.

The Parties' Claims:

All four litigants, Nielsen, Allied, Hoiness and Julien, became actively involved in the trial litigation, and separately present appeals.

Julien asserted several claims in initial and supplementary pleadings. First, Julien sued Nielsen for breaching the subcontract by failing to complete its work, and by failure to pay the suppliers and sub-subcontractors. Second, Julien sued Allied for Allied's failure to pay Nielsen's materialmen under the performance bond. Third, Julien, in amended claims, sued Hoiness claiming that Julien was a third-party beneficiary of the contract between Nielsen and Hoiness and that Hoiness breached its contract with Nielsen by failing to procure the payment bond. Further, Julien separately claimed that Hoiness was negligent in failing to obtain the payment-bond coverage. Julien claimed attorney's fees and costs from all three defendants.

Nielsen also made multi-defendant claims, first claiming that Allied was liable to Nielsen for any judgment against Nielsen by virtue of the performance bond and payment bond which, though unissued, was requested and for which the premium was paid. The complaint also alleged damages for injury to reputation and bad-faith denial of payment under the bond as a premise for punitive damages. Nielsen asserted liability of Hoiness for any judgment obtained by Julien against Nielsen due to Hoiness' breach of its contract with Nielsen to obtain the proper coverage under the bonds. Again, Nielsen included claims against Hoiness for damage to its reputation, bad faith, and punitive damages. Nielsen also asked for costs and attorney's fees from both Allied and Hoiness. Consequently, we have the contractor suing the subcontractor, the insurance broker and surety; and the subcontractor also suing the broker and surety.

Allied asserted a claim against Nielsen for indemnity in accord with the provisions of the issued performance bond documents. Allied then claimed indemnity from Hoiness, alleging that Hoiness negligently failed to properly prepare the bonds. Allied also sought to recoup its attorney's fees and costs from both Nielsen and Hoiness. Finally, Hoiness asserted an indemnity claim, including legal fees and costs, against Allied for Allied's refusal to honor the agency relationship and issue the payment bond. In summary, Allied sued the broker and bond principal, and the broker sued the surety.

The Trial Court's Disposition:

Not surprisingly, the trial court found that Nielsen's failure to pay its suppliers and materialmen constituted a material breach of its subcontract with Julien, and imposed liability for all consequent damages. Furthermore, under the contractual decision, Nielsen was also liable to Julien for costs and attorney's fees.

Next, the trial court found that Hoiness breached its agreement with Nielsen by failing to provide the payment-bond coverage as ordered, and found "that Julien was an intended beneficiary of the contract between Hoiness-LaBar and Nielsen * * * and the benefit of the bonds was solely for the protection of Julien." Thus, Julien had standing to maintain an action for the breach of the contract between Nielsen and Hoiness.

In defense to Julien's claim, Hoiness asserted that Julien and Nielsen had waived any rights they may have had to demand a payment bond by their failure to object to the absence of payment-bond coverage at the time the performance bond was issued. Responding to this defense, the trial court determined that there was no intentional waiver of a known right, and relied upon the course of dealing between Nielsen and Hoiness whereby Nielsen would request a "bond," and by that order Hoiness would provide both coverages. This course of dealing excused Nielsen's failure first to discover and then to object to the omitted coverage, and the course-of-dealing rationale also inured to the third-party beneficiary, Julien.

Thus, the trial court found that by the third-party beneficiary obligation breach, Hoiness was liable to Julien for resulting contractual damages. On that basis, the court granted judgment to Julien against Hoiness under the contract theory, and denied any award of attorney's fees in the absence of any contractual or statutory provision which would allow recovery. No apparent ruling on the negligence theory was made.

With regard to Julien's claim against Allied, the trial court found (1) that all the parties intended that both a performance and a payment bond issue; (2) Nielsen paid for both bonds; and (3) Allied granted Hoiness the...