Board of Trustees v. International Fidelity Insurance
2014 U.S. Dist. LEXIS 149342
E.D. Pa.2014Background
- Diversity-based breach of contract action between Plaintiffs (trust funds under CBAs) and IFIC arising from surety bonds securing contributions to the funds.
- Brown’s Roofing, Inc. and Brown & Guarino, Inc. (the Companies) had CBAs with Local Union No. 30 requiring fringe benefit contributions and maintenance of IFIC bonds.
- IFIC issued two bonds in 2006 (each $400,000) and riders in 2008 increasing the B&G bond to $800,000 and decreasing Brown’s bond to $250,000.
- Plaintiffs demanded payment for delinquencies in 2008; settlement negotiations produced settlement agreements in 2009 and consent judgments in 2009.
- By 2010 both Companies remained delinquent; Plaintiffs made later claims against the bonds; IFIC refused payment, leading to consolidated suit filed September 2010; summary judgment motions followed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Plaintiffs’ default determination was valid discretion under the bonds. | Discretion to declare default rests solely with Plaintiffs. | Default must be determined reasonably and in good faith by Plaintiffs. | Default properly declared by Plaintiffs in June 2010; notices timely. |
| Whether the bonded obligations were materially modified by settlements so as to discharge IFIC. | Settlement sums did not meaningfully increase IFIC’s liability; no discharge. | Settlements materially modified the bonded obligation, discharging IFIC. | No material modification; IFIC not discharged. |
| Whether Plaintiffs are entitled to damages from IFIC for breach of the bonds. | Damages include contributions, interest, liquidated damages, fees, costs, and collection expenses. | Damages need precise proof and to be within the bond’s scope. | Damages awarded as $1,029,729.98 (excluding attorneys’ fees on equitable issue). |
| Whether the B&G Bond Rider is valid despite alleged fraudulent nondisclosure. | Rider valid; reflects enforceable bond terms. | Non-disclosure fraud voids Rider. | Fraud defense waived; Rider valid; IFIC liable for full $800,000. |
| Whether Plaintiffs are entitled to an extra award of attorneys’ fees under equitable powers. | Equitable award permissible for bad faith or exceptional circumstances. | American Rule generally prevents extra fees; only in bad faith. | Genuine issue of material fact on bad faith remains; equitable fee award denied at summary judgment. |
Key Cases Cited
- Beckwith Machinery Co. v. Nat’l Union Fire Ins. Co. of Pittsburgh, 890 A.2d 403 (Pa. Super. Ct. 2005) (interpretation of bond terms; strict construction in favor of obligee; liability determined by contract language)
- Berks Prod. Corp. v. Arch Ins. Co., 72 A.3d 315 (Pa. Commw. Ct. 2013) (bond language determines liability; ambiguity resolved in bond context)
- Canal Ins. Co. v. Underwriters at Lloyd’s London, 435 F.3d 431 (3d Cir. 2006) (application of contract interpretation to surety bonds; liberality to obligee when language clear)
- Leedom v. Spano, 647 A.2d 221 (Pa. Super. Ct. 1994) (limitations period begins after default; distinguishable on contract terms here)
- First Nat’l Consumer Disc. Co. v. McCrossan, 486 A.2d 396 (Pa. Super. Ct. 1984) (enforce guaranties; waivers in guaranty documents acknowledged)
- Sloan & Co. v. Liberty Mutual Ins. Co., 653 F.3d 175 (3d Cir. 2011) (expenses/costs include attorney’s fees under collection provisions)
- Mass. Bonding & Ins. Co. v. Johnston & Harder, Inc., 22 A.2d 709 (Pa. 1941) (damages proof in contract breach; reasonable certainty standard)
- Trident Corp. v. Reliance Ins. Co., 504 A.2d 285 (Pa. Super. Ct. 1986) (suretyship boundaries; implied covenants apply between principal and surety)