Ulico Casualty Co. v. Atlantic Contracting & Material Co.

• Citation: 150 Md. App. 676,822 A.2d 1257
• Decision Date: 05 May 2003
• Docket Number: No. 796,796
• Parties: ULICO CASUALTY COMPANY, v. ATLANTIC CONTRACTING & MATERIAL COMPANY, INC.
• Court: Court of Special Appeals of Maryland

822 A.2d 1257

150 Md. App. 676

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

No. 796, Sept. Term 2002.

Court of Special Appeals of Maryland.

May 5, 2003.

Eric R. Stanco (Stanco & Associates on the brief), Washington, DC, for appellant.

George Harper, of Upper Marlboro, for appellee.

Argued before HOLLANDER, DEBORAH S. EYLER and SHARER, JJ DEBORAH S. EYLER, Judge.

In the Circuit Court for Prince George's County, Ulico Casualty Company ("Ulico") sued Atlantic Contracting & Material Company, Inc. ("Atlantic"), on an indemnity agreement that Atlantic gave Ulico in connection with Ulico's issuance of a performance and payment surety bond. Ulico sought to recover monies it had paid on a claim made on the surety bond and the attorneys' fees, costs, and expenses it had incurred in pursuing recovery from Atlantic. The case was tried to the court, which awarded Ulico some but not all of the monies it sought.

Neither party is satisfied with the court's ruling. Ulico, the appellant and cross-appellee, contends the court should have reimbursed it fully for the monies it paid on the claim and the full amount of its attorneys' fees, costs, and expenses. Atlantic, the appellee and cross-appellant, contends the court should not have found it liable at all.

For the following reasons, we shall reverse the judgment of the circuit court and remand the case for further proceedings not inconsistent with this opinion.

FACTS AND PROCEEDINGS

On June 27, 1997, Gilbert Southern Corporation ("Gilbert") entered into a general contract with the State of 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.

On September 2, 1997, Ulico issued a "Performance and Payment Bond" ("Bond") on behalf of Atlantic, as principal, in favor of Gilbert, as obligee, under the general contract for the Project. 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 partial consideration for 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.

On June 24, 1998, a representative of Clearwater Hydraulics & Driveshaft Service ("Clearwater") informed Ulico by telephone that Clearwater had billed Atlantic for $21,843.48 in repairs to equipment Atlantic was using in connection with the Project but Atlantic had not paid Clearwater's bill. Clearwater was looking to Ulico, as Atlantic's surety, for payment. A representative of Ulico sent Clearwater a Proof of Claim form and a letter requesting that it submit the form and supporting documentation for its claim.

On July 28, 1998, Malcolm F. Bailey of Clearwater executed the Proof of Claim, under oath, stating that Atlantic owed Clearwater $21,843.48 for "repair to equipment used on paving job at I-85 North, Granville County project." Bailey further attested in the Proof of Claim that no credits were due to Atlantic. The bills sent by Clearwater to Atlantic, and supporting back-up documents, were attached to the Proof of Claim. The dates and amounts of the bills are: $8,299.18 (12/5/97); $7,565.36 (5/15/98); and $4,834.14 (5/15/98).

Clearwater did not transmit the Proof of Claim and supporting documents to Ulico until August 27, 1998. By then, Atlantic had paid the $4,834.14 bill, by check dated July 31, 1998, which was negotiated by Clearwater on August 6, 1998. There is no evidence that Clearwater informed Ulico about the payment, and the evidence showed that it did not amend or update its Proof of Claim to reflect the payment.

On August 31, 1998, Cherie Rondinelli, Bond Claims Manager for Ulico, wrote to John Madden referencing the Bond and Project and giving notice that Ulico had received a claim by Clearwater "alleg[ing] that [it is] owed $21,843.48 for damages provided to the above stated bond and project." Rondinelli asked Madden to advise her in writing, within 5 days of receipt of the letter, of Atlantic's reasons for delaying payment to Clearwater.

On September 3, 1998, Thomas Madden responded in writing to Rondinelli's letter, stating that Atlantic had sent Clearwater a check for $4,834.14 in partial payment of Clearwater's bill and that the balance ($15,864.54) was "being disputed and must be resolved prior to completion of payment."

On October 26, 1998, Rondinelli wrote to Thomas Madden acknowledging receipt of his September 3, 1998 letter and saying:

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 completed?

In addition, Rondinelli asked for a copy of the canceled $4,834.14 check remitted to Clearwater and certain other documents pertaining to the Project.

On December 3, 1998, not having received a response to her October 26 letter, Rondinelli again wrote to Thomas Madden, referencing the Bond. She repeated that Ulico still had not received documentation to support Atlantic's "defenses against [Clearwater's] claim against the aforementioned bond[,]" and then emphasized:

In order to proper [sic] and thoroughly investigate the above 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.

Rondinelli again asked for the information requested in her October 26 letter and warned that if Atlantic did not respond within 5 working days, "[Ulico] may be forced to seek other avenues and seek restitution via its rights under the indemnity agreement."

Atlantic did not respond to the December 3 letter. On December 29, 1998, having heard nothing from Atlantic since her last correspondence, Rondinelli again wrote to Thomas Madden. She stated that Ulico had not received the requested documentation from Atlantic and that it had "validated Clearwater's claim of $20,698.62." Rondinelli advised that "Atlantic's lack of response and documentation [had] placed [Ulico] in a position of incurring a loss in [the amount of $20,698.62]" and demanded that Atlantic pay Ulico that sum, by check, within 5 working days of receipt of the letter. She admonished that if Atlantic did not make payment as demanded, Ulico "w[ould] be forced to seek other restitution via its rights under the indemnity agreement." Rondinelli's letter was sent to Atlantic by certified mail.

On December 31, 1998, Ulico issued a check for $20,698.62 to Clearwater. The check was delivered to Clearwater five days later, on January 4, 1999, when Clearwater executed an assignment of its claim against Atlantic to Ulico and a release of Ulico from all liability under the Bond. The release states, "the sum of $20,698.62 is justly due and owing by contract to [Clearwater] and that [Clearwater] has not released or discharged the same or any part hereof, that there are no counterclaims or set-offs to said account...." By letter of January 5, 1999, which was transmitted to Ulico by facsimile at 4:50 p.m. that day, John Madden responded to Rondinelli's December 29 letter, stating he had received it that day (January 5); that he had called Rondinelli on December 11, but had been put in her voice mail, which had a message that she was out of the office for a few days, and he had not received a return call; and that he had again called her office that day (January 5) and was put in her voice mail, which by message stated she would be out of the office until January 7.

Madden's letter went on to state that the dispute over Clearwater's bill was "predicated on the fact that unauthorized work was performed and billed for" and that the invoices Atlantic had from Clearwater totaled $15,864.54, not $20,698.62. The letter attached a copy of the disputed invoices and of Atlantic's July 31, 1998 cancelled check to Clearwater, for $4,834.14. Madden further stated that Atlantic had finished most of its work on the Project on September 13, 1998, with the exception of minor punch list items, and that the entire Project was completed on November 25, 1998. He concluded by directing Ulico not to make any payment to Clearwater. The next day, Madden sent another letter to Rondinelli, again complaining that he had made numerous telephone calls to Ulico that had not been returned.

Atlantic refused to make payment to Ulico. On September 19, 2000, in the Circuit Court for Prince George's County, Ulico filed suit against Atlantic, seeking to recover under the Indemnity Agreement the $20,698.62 it had paid Clearwater, plus interest, attorney's fees, costs, and expenses. Atlantic answered, and discovery ensued.

The case was tried to the court on December 14, 2001. By agreement of counsel, the deposition of Kathleen Palmer, a Claims Coordinator for Ulico, who worked under Rondinelli's direction, was moved into evidence, as were the documents identified by Palmer that constituted Ulico's claims file.¹ The documents include those we have discussed above.

John Madden appeared and testified on behalf of Atlantic. He stated that Clearwater had not supplied labor or materials for the Project for Atlantic. Rather, it had performed repair work on some hydraulic motors for a "CMI concrete belt placer" machine that...