Hartford Fire Insurance v. United States
108 Fed. Cl. 525
Fed. Cl.2012Background
- Hartford sues the United States (through the Army Corps of Engineers) seeking equitable subrogation and damages around $700,000 for funds the Corps paid to Overstreet on two Miller Act contracts.
- Two Overstreet contracts: Little Calumet Project (DACP W27-01-C-0001) and Savannah Project (DACW21-01-C-001); Hartford issued performance and payment bonds as Miller Act surety.
- Settlement: on July 26, 2005, Savannah Project settlement paid Overstreet $700,000; Hartford later completed Little Calumet at a loss (completed 2008–2009; costs >$1.6 million) after Overstreet default.
- Hartford argues the settlement funds should be offset against its equitable subrogation rights; the government allegedly failed to offset and to timely terminate the Little Calumet Project, violating its stakeholder duty.
- Government moved to dismiss under RCFC 12(b)(1) and 12(b)(6); Hartford amended to clarify accrual, damages, and settlement positions; the court denied the motion to dismiss and allowed the case to proceed to merits.
- Court notes extensive case law on equitable subrogation and government stakeholding rights, emphasizing Transamerica-based recovery where appropriate and distinguishing Dependable line cases.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Hartford can state a claim under equitable subrogation for settlement proceeds | Hartford relies on Transamerica allowing subrogation to recover settlement funds on a second contract | Defendant contends Transamerica is inapplicable; governing rule is Dependable line limiting to single contract | Claim survives; court finds Transamerica-like relief applicable. |
| Whether Hartford adequately alerted the government to trigger the stakeholder duty | Hartford's notice via email to Little Calumet CO Blair suffices to trigger duties | Notice to the Savannah officer or DOJ required; insufficient as to trigger | Notice at this stage deemed adequate for surviving motion; merits will decide sufficiency. |
| Whether the government acted with reasonable discretion in distributing funds | Government failed to set off or terminate timely to protect Hartford's subrogation rights | Reasonableness is a fact question; discretion varies by context, not reviewable on motion | A factual question; not resolved on motion to dismiss. |
| Whether the source of settlement funds (Judgment Fund) defeats Hartford's set-off rights | Settlement funds should be subject to Hartford's equitable subrogation via set-off | Funding source differences could preclude set-off; settlement was linked to government liability | No definitive ruling on funding-source impact at this stage; merits required. |
Key Cases Cited
- Transamerica Ins. Co. v. United States, 989 F.2d 1188 (Fed.Cir.1993) (subrogation to set off in equitable adjustment context; recovery favored to avoid contractor's windfall)
- Applied Cos. v. United States, 144 F.3d 1470 (Fed.Cir.1998) (government set-off against settlement proceeds permitted when no express bar in agreement)
- Ins. Co. of the West v. United States, 243 F.3d 1367 (Fed.Cir.2001) (surety rights on performance bonds; set-off rights and equity considerations)
- Capitol Indem. Corp. v. United States, 71 F. Cl. 98 (Fed.Cl.2006) (stakeholder duty requires explicit notice to trigger consideration of surety interests)
- Balboa Ins. Co. v. United States, 775 F.2d 1158 (Fed.Cir.1985) (eight-factor test for reasonableness of government discretion in disbursing funds)