United States v. Liberty Mutual Insurance Co., 041219 FED8, 18-1455

Docket Nº:18-1455
Party Name:United States of America for the use of Wesco Distribution, Inc. Plaintiff v. Liberty Mutual Insurance Company Defendant-Appellee International Fidelity Insurance Company Defendant-Appellant
Judge Panel:Before LOKEN, MELLOY, and ERICKSON, Circuit Judges.
Case Date:April 12, 2019
Court:United States Courts of Appeals, Court of Appeals for the Eighth Circuit

United States of America for the use of Wesco Distribution, Inc. Plaintiff


Liberty Mutual Insurance Company Defendant-Appellee

International Fidelity Insurance Company Defendant-Appellant

No. 18-1455

United States Court of Appeals, Eighth Circuit

April 12, 2019

Submitted: December 11, 2018

Appeal from United States District Court for the Southern District of Iowa - Des Moines

Before LOKEN, MELLOY, and ERICKSON, Circuit Judges.


This appeal is part of a complex dispute over costs that resulted from contractor defaults in completing a federal government construction project. After partial summary judgment rulings and a bench trial, the district court1 entered judgment against a subcontractor's surety, International Fidelity Insurance Co. ("Fidelity"), and in favor of the general contractor's surety, Liberty Mutual Insurance Co. ("Liberty"), for the full amount of Fidelity's performance bond. Fidelity appeals. We affirm.

I. Background.

In March 2012, Greenleaf Construction Co. ("Greenleaf") entered into a Prime Contract with the United States to build an Army Reserve Center in Des Moines, Iowa. As required by the Miller Act, 40 U.S.C. § 3131(b), Greenleaf obtained a performance bond and a payment bond from Liberty naming Greenleaf as principal and the United States as obligee. "A performance bond protects the owner, or obligee, ensuring project completion if the general contractor defaults. A payment bond ensures that laborers and material suppliers will be paid if the general contractor defaults." Pa. Nat'l Mut. Cas. Ins. Co. v. City of Pine Bluff, 354 F.3d 945, 949 n.2 (8th Cir. 2004) (citations omitted). In April, Greenleaf entered into a Subcontract in which International Electric, Inc. ("Electric"), agreed to perform defined electrical and communications work on the project for $1, 020, 000. The Subcontract required Electric to furnish performance and payment bonds in the amounts of $1, 020, 000 (the bonds' "penal sum"). Electric obtained the bonds from Fidelity, naming Electric as principal and Greenleaf as obligee. The performance bond obligated Fidelity to "promptly remedy" a default by Electric on the Subcontract or "arrange for the performance of [Electric's] obligation under the subcontract."

In January 2014, Greenleaf, Liberty, and the United States entered into a Takeover Agreement in which Greenleaf and the government "agreed to an immediate consensual termination and default" of the Prime Contract. Liberty agreed to "complete the Contract in accordance with its terms" and "reaffirm[ed] the validity of [Liberty's] Bonds to secure the obligations of its completion." The Takeover Agreement provided that Liberty "becomes entitled to all rights, titles, and interests of Greenleaf in and to the [Prime] Contract." The government agreed to accept Vertex Companies, LLC ("Vertex"), as Liberty's "completion contractor." The government also agreed to work with Liberty "to agree on a schedule establishing a new construction completion date," which had been October 12, 2013.

On February 7, Liberty and Electric entered into a Subcontract Ratification Agreement in which Liberty agreed to pay Electric $244, 134 for work previously performed under the Subcontract but not paid by Greenleaf. Electric agreed to "perform the balance of the work for [the unpaid balance of the $1, 020, 000 Subcontract amount, $347, 612] in accordance with the terms and conditions of the Subcontract, as modified by this Agreement." Fidelity was not asked to -- and did not -- bond the Ratification Agreement.

A dispute soon arose between Electric and Vertex as completing general contractor, and Electric never returned to the project. Liberty terminated Electric for its default in April 2014 and notified Fidelity. Fidelity refused to complete Electric's obligations under the Subcontract. Liberty hired an electrical subcontractor, ABC Electric, to complete work under the Subcontract. ABC...

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