792 F. Supp. 2d 253
D. Conn.2011Background
- Stonington hired Hodess to build a condominium project on Water Street, with a $20,095,100 contract and November 22, 2004 substantial completion date.
- National Fire executed an AIA A312 performance bond guaranteeing Hodess's performance, with Stonington as Owner and Hodess as Contractor.
- Project delays and Hodess's financial inability led to Hodess abandoning the project in August 2006; Stonington later completed the work with replacement personnel.
- Stonington declared Hodess in default on November 2, 2006 and notified National Fire, seeking performance under the bond; National Fire denied coverage for failure to comply with bond terms.
- Stonington paid the full contract balance and later sought coverage for alleged defective and incomplete work; National Fire moved for summary judgment arguing failure to satisfy bond conditions precedents.
- The court held that Stonington materially breached the bond and contract by failing to properly terminate Hodess, depleting the contract balance, and not complying with section 3.2 and 3.3, thereby discharging National Fire’s obligations.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Did Stonington comply with the bond’s section 3 conditions precedent? | Stonington substantially complied with section 3, with some imperfections. | Stonington failed to satisfy section 3.2 (and 3.3) and thus voided the bond. | Yes; strict compliance required, and material failures foreclose coverage. |
| Was Stonington’s method of terminating Hodess a material breach? | Termination was impracticable given Hodess’s abandonment; National Fire knew of Hodess’s issues. | Formal termination and notice procedures must be followed to trigger the bond. | Yes; failure to properly terminate and to provide notice materially breached the bond and contract. |
| Did depleting the contract balance violate section 3.3? | Stonington conveyed to National Fire that it would pay the balance per contract terms. | Even with a promise, depletion of the balance violated 3.3 when done after a material contract breach. | Yes; depletion of the balance breached section 3.3 and deprived National Fire of rights to mitigate damages. |
| Does National Fire prevail on the remaining counts given the above? | If bond coverage attached, claims for CUIPA/CUTPA and related relief could proceed. | Bond terms and compliance issues resolve favor of non-coverage; separate claims fail as a matter of law. | National Fire is entitled to summary judgment on counts 4–9; case dismissed against National Fire. |
Key Cases Cited
- Braspetro Oil Services Co. v. Fidelity & Deposit Co., 369 F.3d 34 (2d Cir. 2004) (balance of contract price reduction rules for bond obligations)
- Elm Haven Const., Ltd. Partnership v. Neri Const., LLC, 281 F.Supp.2d 406 (D. Conn. 2003) (notice and termination requirements; surety not liable without proper default declaration)
- Balfour Beatty Constr., Inc. v. Colonial Ornamental Iron Works, Inc., 986 F.Supp.82 (D. Conn. 1997) (notice/termination procedures must be exact for bonds to attach)
- Dragon Const., Inc. v. Parkway Bank & Trust, 678 N.E.2d 55 (Ill. App. Ct. 1997) (failure to follow bond/contract notice precludes surety liability; replacement contractor impacts bond)
- L&A Contracting v. S. Concrete Svc., Inc., 17 F.3d 106 (5th Cir. 1994) (strict compliance with bond terms; breach affects surety liability)