Sloan & Co. v. Liberty Mutual Insurance
2011 U.S. App. LEXIS 15798
| 3rd Cir. | 2011Background
- IOC owned waterfront condominiums in Philadelphia and contracted with Shoemaker to build the project (prime contract).
- Shoemaker subcontracted Sloan to perform drywall and carpentry; Sloan’s payment was insured by a Liberty Mutual surety bond.
- IOC allegedly withheld about $6.5 million due under the prime contract; roughly $5 million was payable to subcontractors including Sloan.
- Shoemaker sued IOC; Sloan asserted a claim on the Liberty Mutual bond for Sloan’s remaining subcontract balance of $1,074,260.
- Liberty Mutual denied payment arguing Paragraph 6.f conditions Sloan’s payment on Shoemaker’s receipt of IOC’s payment (pay-if-paid); district court later granted partial and then final judgments totaling less than Sloan’s initial claim.
- The contract contains Paragraph 20 (dispute resolution/liquidating agreement) allowing pass-through claims and limiting Sloan’s recovery pro rata to what Shoemaker recovers from IOC; on appeal the Third Circuit remanded consistent with its interpretation and reversed in part.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Pay-if-paid vs pay-when-paid under Paragraph 6.f | Sloan: 6.f does not create a condition precedent; 6.f’s second paragraph provides a timing mechanism only. | Liberty Mutual: 6.f creates a pay-if-paid condition precedent; IOC’s payment to Shoemaker triggers Sloan’s payment. | Pay-if-paid as to the first subparagraph, but modified by the second subparagraph. |
| Effect of Paragraph 20 liquidating agreement on Sloan’s remaining claim | Sloan: Paragraph 20 does not limit Sloan’s recovery; it preserves full entitlement. | Liberty Mutual: Paragraph 20 creates a pass-through mechanism tying Sloan’s recovery to Shoemaker’s recovery from IOC. | Paragraphs 20 and 6.f create a pass-through limiting Sloan’s recovery to pro rata share of IOC’s settlement. |
| Scope of offsets (legal fees) | Sloan: offsets must be proven; offsets not conceded by Sloan’s initial claim. | Liberty Mutual: may offset Sloan’s share ofShoemaker’s attorneys’ fees and other costs. | Offset of expenses/costs including attorneys’ fees permitted to the extent pro rata share of recovery allows. |
| Waiver/timeliness of offsets bases under 45 days | Sloan: offsets bases should have been stated within 45 days. | Liberty Mutual: response within 45 days satisfied bond obligations. | Liberty Mutual’s response met bond obligations; no waiver of defenses. |
Key Cases Cited
- C.M. Eichenlaub Co., Inc. v. Fidelity & Deposit Co., 437 A.2d 965 (Pa. Super. 1981) (pay-if-paid interpretation supported by explicit language)
- Cumberland Bridge Co. v. Lastooka, 8 Pa.D. & C.3d 475 (Pa. C.P. Wash. 1977) (pay-if-paid interpretation supported by explicit language)
- United Plate Glass Co. Div. of Chromalloy Am. Corp. v. Metal Trims Indus., Inc., 106 Pa.Cmwlth. 22, 525 A.2d 468 (Pa. Cmwlth. 1987) (distinguishing pay-if-paid vs pay-when-paid; timing mechanism context)
- Garza v. Marine Transp. Lines, Inc., 861 F.2d 23 (2d Cir. 1988) (contract interpretation; avoid superfluous clauses)
- Thos. J. Dyer Co. v. Bishop Intl Eng'g Co., 303 F.2d 655 (6th Cir. 1962) (industry custom on risk shifting in construction)