United States v. Reliance Insurance Company

• Decision Date: 18 January 1971
• Docket Number: No. 24-70.,24-70.
• Parties: UNITED STATES for the Use of Howard L. NELSON and Milton A. Nelson, d/b/a Nelson Brothers, a copartnership; and Howard L. Nelson and Milton A. Nelson, d/b/a Nelson Brothers, a copartnership, Plaintiffs, Appellants, v. RELIANCE INSURANCE COMPANY, a corporation; Utilco Constructors, a division of McGrath Construction Company, a corporation; McGrath Construction Company, a corporation, and J. M. McGrath, Defendants, Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

436 F.2d 1366 (1971)

UNITED STATES for the Use of Howard L. NELSON and Milton A. Nelson, d/b/a Nelson Brothers, a copartnership; and Howard L. Nelson and Milton A. Nelson, d/b/a Nelson Brothers, a copartnership, Plaintiffs, Appellants, v. RELIANCE INSURANCE COMPANY, a corporation; Utilco Constructors, a division of McGrath Construction Company, a corporation; McGrath Construction Company, a corporation, and J. M. McGrath, Defendants, Appellees.

No. 24-70.

United States Court of Appeals, Tenth Circuit.

January 18, 1971.

Leonard O. Thomas, Kansas City, Kan. (Robert H. Bingham and David K. Fromme, Kansas City, Kan., on the brief), for appellants.

John J. Alder, Overland Park, Kan. (Richard D. Rixner, Overland Park, Kan., on the brief), for separate appellee, Reliance Ins. Co.

Before PHILLIPS, HILL and HICKEY,^* Circuit Judges.

HILL, Circuit Judge.

This is a Miller Act suit, in which Nelson Brothers, a subcontractor, seeks recovery from the prime contractor, McGrath Construction Company (Utilco),¹ and the latter's surety, Reliance Insurance Company. The complaint prayed for relief under 40 U.S.C. §§ 270a through 270d for labor and materials furnished, and for damages on a common law count that Nelson Brothers, through the promises and misrepresentations of McGrath and Reliance, was induced not to file an action until after the Miller Act statute of limitations had expired. The suit was tried to the court without a jury. The trial court held that Reliance was not estopped to plead the Miller Act statute of limitations and that it barred Nelson Brothers' claim against the surety. No decision was rendered on the common law count.

In March, 1964, McGrath entered into a contract with the United States and, pursuant to Miller Act provisions, a bond was posted naming McGrath as principal and Reliance as surety. In April, 1965, Nelson Brothers subcontracted to do a portion of the work required under the prime contract. On or about May 8, 1965, Nelson Brothers completed performance under its subcontract and on June 26, 1965, the surety was notified, through its Tulsa Agency, that Utilco owed Nelson Brothers $24,527.76. During the ensuing fifteen months a good deal of correspondence was exchanged between the parties heretofore mentioned. It was during those months that Nelson Brothers claims it was induced by Reliance and Utilco to await the completion of negotiations between the prime contractor and the Corps of Engineers. All that time, it is alleged, it was represented to appellants that there would be payment in full when the negotiations were concluded. But when the Corps and McGrath did settle, and the liquid assets were insufficient to satisfy creditor demands, Reliance sought to escape liability by pleading that the statute of limitations had expired.

In the original complaint, Nelson Brothers obviously deemed themselves to be within the Miller Act statute of limitations, for they alleged that less than one year had expired from date of final settlement between the United States and the prime contractor. Unfortunately, the period of limitations had been amended to run for one year from the day on which the last labor was performed or materials supplied.² As appellants now recognize, to be within the period of limitations suit had to be filed on or before May 8, 1966. Accordingly, by amended complaint, Nelson Brothers alleged that notwithstanding the expiration of the period of limitations, the representations and conduct of the appellee should estop their reliance on the amended statute.

The trial court failed to enter findings of fact on the issue but denoted the following as conclusions of law. "The evidence is insufficient to establish that use plaintiffs were induced to forbear suit until the Miller Act Statute of Limitations had run on their claim against Reliance." Next the trial court concluded that Reliance was not estopped from asserting the statute of limitations defense (a) because "plaintiffs' own want of reasonable care and diligence prevents them from invoking the doctrine of estoppel" and (b) because the evidence did not show that "use plaintiffs relied upon any representations of Reliance with respect to the statute of limitations."

Although the trial court denoted the foregoing as conclusions of law, we are persuaded that because there are no findings of fact to support such conclusions and because the conclusions are actually factual determinations, they should be treated and referred to as findings of fact, and subject to the clearly erroneous test. F.R.Civ.P., Rule 52, 28 U.S.C. Featherstone v. Barash, 345 F.2d 246 (10th Cir. 1965); Houck v. Hinds, 215 F.2d 673 (10th Cir. 1954).

The operative facts upon which appellants rely are these. On June 26, 1965, Nelson Brothers notified Reliance through their Tulsa Agency that Utilco owed Nelson Brothers $24,527.76. Thereafter, receiving no satisfaction from Utilco, appellants initiated further correspondence with Reliance. On July 9, 1965, Howard Nelson employed attorney Apt to telephone Wilkinson in the Tulsa Agency, to inquire into the payment of the claim by the surety. As part of that conversation, Wilkinson said: "You don't need to worry about the bonding company not making payment if he McGrath doesn't and that they Reliance would even pay the interest if he McGrath didn't pay it." Following the conversation with the Tulsa Agency, Apt posted a letter to the Philadelphia office of Reliance, pointedly advising them that Nelson Brothers was looking directly to the surety for the amount due and owing. Moreover, the letter said: "We will hold off legal action until the 23rd of July, which should enable your company ample time to look into the matter and inform us as to their intentions in termination of this matter by paying the balance in full." On that same date, Utilco responded to a copy of the June 26 letter by notifying Nelson Brothers that an overcharge of $1,581.99 had been made.

The July 13 response of Reliance was that it was communicating with the principal as to its position regarding the matter, and that in the meantime, it reserved all rights. By letter of the following day, Wilkinson informed Philadelphia of the developments. He reported that on the previous day, July 13, McGrath advised the agency that he was not financially able to meet Nelson's demands and thereby had to put the matter in the surety's hands. McGrath specifically requested funds to settle with Nelson Brothers to prevent a creditor's stampede, but was refused. Finally, Wilkinson reported that he had written Apt that day "in an effort to loosen him from his July 23rd ultimatum."

In the July 14 letter to Apt, Wilkinson stated that he felt no cause for alarm since the balance was due less than sixty days; he acknowledged the concern of Nelson Brothers and asked Nelson Brothers' indulgence "while this matter is referred to the Reliance Bond Claim Department in Philadelphia for consideration." Wilkinson further assured appellants that the Bond Claim Department would investigate and clarify the matter before committing themselves, whereupon they would surely take immediate action and keep Nelson Brothers advised of all developments. The letter concluded with the statement that while the agency could only make recommendations as to the disposition of the claim, it was doing so forthwith to put the demand in proper hands.

Until December 16, 1965, the only correspondence regarding the claim was between Philadelphia and Tulsa. Appellants' failure to continue corresponding is explained by their reliance on the representations of the surety that settlement would be forthcoming and the fact that Howard Nelson was incapacitated during the period with injuries. During the interval, Wilkinson informed Philadelphia that Nelson's work was completed prior to July 4; that Nelson would not await payment of their claim until McGrath settled with the government; that McGrath had again requested a loan to pay pressing creditors; that McGrath was in no position to negotiate settlement with his creditors; and that although Nelson Brothers had not been heard from recently, "it can be presumed they are waiting to learn of your decision." In September, 1965, Reliance made overtures to loan McGrath money to pay creditors but McGrath refused to sign the necessary security papers and thus the loan was not consummated.

On December 13, Wilkinson reported on the status of another pressing creditor. He informed Philadelphia that after reporting some favorable information regarding settlement with the Corps the creditor agreed to await making demand upon the surety. In addition, the letter recited that Nelson Brothers "have refrained from pressing any claim because of the fact Nelson was in a severe auto accident, and not able to attend to business matters. Of course, this may change at any time." On December 16³ Apt wrote a letter jointly addressed to the Philadelphia and Tulsa offices of Reliance. He noted that the surety failed to supply any information, including the figures on the Utilco claim and again stated that Nelson Brothers would file suit if Reliance did not respond in ten days. The next day Wilkinson replied: "It is our understanding that the principal is on the verge of completing negotiations with the Corps of Engineers on this job at which time direct settlement overtures will be negotiated with the creditors. Therefore, we recommend you diary your file ahead for a period of time, keeping in contact with us, as the matter is finalized with the Corps." The admitted purpose of this correspondence is related in a letter from Wilkinson to Philadelphia wherein he said the reply to Nelson was "for the...