Atlantic Contracting & Material Co. v. Ulico Casualty Co.

harm that his belief imminent was reasonable and does not some evidence that his need to respondent’s present eliminate at danger belief imminent reasonable time of the killing. But made an offer respondent proof support necessary foundation. Other around country courts have recognized simply triggering because “the behavior and episode the abusive are divided time does necessarily negate the reasonableness of the defendant’s perception of imminent harm. Even an otherwise innocuous comment days which occurred before the highly homicide could be relevant when the evidence shows that such a comment inevi- State v. tably signaled beginning of an episode.” abusive Janes, (1993). 121 Wash.2d Marr also 850 P.2d this supports view. noted,

As Special Appeals correctly the Court of the burden producing “some” evidence is not an onerous one. reality, very it is a modest proof. level of The trial court abused its in excluding testimony discretion expert in refusing witness and to instruct on the defense of self- defense. met Petitioner the standard and should have been permitted jury. his defense to the Judge Chief BELL and Judge ELDRIDGE authorize me to they join state that dissenting this opinion.

844A.2d 460 COMPANY, ATLANTIC CONTRACTING & MATERIAL INC. ULICO CASUALTY COMPANY. 51, Sept. Term,

No. 2003. Appeals Maryland. Court of March 2004. April Reconsideration Denied 2004. Harper, Marlboro,

George Upper for Petitioner. Associates, DC, Eric R. of Stanco Stanco & Washington, for Respondent. BELL, C.J.,

Argued RAKER, WILNER, before CATHELL, HARRELL, BATTAGLIA, and JOHN C. ELDRIDGE, (retired, specially assigned), JJ.

HARRELL, Judge.

On 19 September (“Ulico”), Ulico Casualty Company here, Respondent complaint filed the Circuit Court for Petitioner, Prince George’s County against Atlantic Contract- ing (“Atlantic”). and Material Company, Incorporated The complaint to response Atlantic’s failure to reimburse Ulico for payments by Ulico made to claimant under a agreement. Ulico, bond and indemnity surety, had bond”) (“the performance bond

issued Atlantic, guarantee principal, behalf as Atlantic’s on repair obligations its contractual on a road performance it paid monies to Clearwater sought Ulico recover project. (“Clearwater”) on a claim and Driveshaft Services Hydraulics bond, attorneys’ pursuing and the fees incurred on from Atlantic. indemnification At non-jury

A held on 14 December 2001. trial was trial, under judge the trial took the matter conclusion rulings, written subsequent advisement. a series (a) only part Court the Clearwater Circuit concluded: and, therefore, was covered Ulico was claim claim; (b) part only entitled reimbursement agreement, indemnity Ulico was language under fees, costs, and, attorneys’ expenses; entitled recover (c) fees, $5,750 costs, in attorneys’ expenses an award of and Ulico, $16,716.67, out a claim for was fair and reasonable. to of timely appeal, that it had acted arguing

Ulico noted a therefore, and, claim faith in Clearwater’s paying total sum erred when did not award Ulico the Circuit Court addition, argued on the Ulico Circuit paid bond. the full awarding its discretion Ulico Court abused fees, costs, Atlantic filed attorneys’ expenses. of and amount any was to cross-appeal, asserting that Ulico not entitled on because the bond did not paid of the amount the bond part claim. also that the Atlantic contended cover Clearwater defective, filed was by Proof of Claim form Clearwater a mere volun that Ulico made the to Clearwater as opinion, Special Appeals, reported teer. Court of Co., Contracting v. Atlantic and Material Casualty Ulico Co. (2003), Md.App. 822 A.2d 1257 reversed the Circuit its that Ulico was entitled to entire claim. The Court held court, to claim for regard with appellate intermediate Ulico’s costs, fees, remanded for reconsider attorneys’ expenses, light affecting its as to error holding ation of Ulico entitled for amount reimbursement to which petition claim. Petitioner’s granted Clearwater’s We paying Ulico, Md. certiorari, Contracting Atlantic for writ (2003), four questions: to Petitioner’s 831 A.2d 3 consider on a constitute project Do used repairs equipment 1. so as to fall project, to that supplied “labor and materials” bond? coverage within the of a construction bond, a Ulico, Atlantic as indemnitor on a 2. who sued Was when that third paid party volunteer when Ulico a third equipment claim were for used party’s repairs bill and defendant, which did not consti- repairs the subcontractor work prosecution “labor and materials in the tute subcontract,” for in said as were covered provided in question? volunteer, third party’s 3. Was Ulico also a when the third allege “Proof of Claim” on the bond did not particular had labor and materials to the party provided subcontract covered the bond? law,

4. circuit court err or abuse Maryland Under did the fees, costs, attorneys’ its discretion in and ex- awarding penses Ulico? shall judgment Special

We affirm the Court Appeals.

I. A. (“Gilbert”), Corporation On 27 June Gilbert Southern contractor, entered into a contract with the North general as Department Transportation repair segment Carolina (“the of project”). the northbound lanes Interstate 85 Soon thereafter, for Gilbert and Atlantic entered into subcontract project. Atlantic to the concrete work on the perform paving on performance payment Ulico issued a and Atlantic, Gilbert, obligee. in as principal, behalf as favor of its duties guaranteed performance The bond Atlantic’s all payment persons under the subcontract and its “to prompt with labor and materials in the supplying prosecu- [Atlantic] in provided tion of the work for subcontract between [the all prompt payment ... and [the of] Gilbert and Atlantic] with by incurred connection obligations [Atlantic] other bond, of the such In connection with the issuance work....” owners, Madden and Thomas Atlantic and its individual John Madden, Indemnity Agreement executed General in favor of Security (“indemnity agreement”), Ulico. on 24 1998 that Clearwater Clearwater informed Ulico June $21,843.48 for to Atlantic repairs equipment had Atlantic billed told using project. connection with the Clearwater had not the bill and that Clearwater paid Ulico that Atlantic Ulico, payment. as Atlantic’s for looking surety, was now form with a sent Clearwater a Proof of Claim reply, Ulico form with sup- that Clearwater return the requesting letter of its claim. documentation as verification porting of the Proof of Claim form indicat- completion Clearwater’s $21,843.48 for “repair ed that Atlantic owed Clearwater North, County job at 1-85 Granville paving used on equipment unpaid due to Atlantic. The bills and no credits were project,” Atlantic, attached to the Proof of Claim sent Clearwater (1) form, in number: 5 December 1997 were three (2) $8,299.18; May 1998 in the amount of amount of (3) $4,834.14 $7,565.36; amount of May $20,698.68). (totaling sup- transmitted the Proof of Claim form and

Clearwater then, August By on 27 1998. documents Ulico porting $4,834.14 bill, by to Clearwater check paid had Atlantic which was on 6 July negotiated dated 31 Clearwater 1998; part however no one informed Ulico of the August to Ulico until partial payment nor documented sometime later. Rondinelli, the Bonds Claims August

On 31 Cherie Ulico, Madden, wrote to John President Manager Atlantic, him alleged to inform that Clearwater was owed $20,698.68 $21,843.48 Atlantic a total of (comprised bills attached to Proof represented by the three Clearwater’s form, through August at 18 plus percent Claim interest 1998) him asking on the to inform Ulico project On 3 paying Clearwater. delay for Atlantic’s reasons with a terse responded Madden Thomas September regular first-class letter, via facsimile transmission sent for a check mail, that Atlantic had sent Clearwater stating and that the $4,834.14 bills partial payment Clearwater’s and must be resolved remaining “being disputed balance awith completion payment.” responded Rondinelli prior letter, following questions: posing dated October being the balance due is Atlantic continues to state of the prior completion and will be resolved disputed dispute? provide is the nature of the Please project. What and amount. dispute with of the surety documentation no, if of the percentage what project complete, Is the to be you expect project is When do project complete? complete? $4,834.14 addition, of the check that requested copy Ulico

Atlantic remitted to Clearwater. purportedly no from having response 3 December received

On for Atlantic, asking Rondinelli wrote to Thomas Madden again Atlantic’s of Clear- any supporting dispute documentation in part: water’s claim. Rondinelli’s letter stated investigate “In to properly thoroughly [Clear- order claim, this imperative surety it is receive water’s] is cooperation information. Atlantic’s lack of with Ulico difficult having surety position possibly placing on this due to the lack of incur a loss documentation and valid defenses. REQUEST this as

“Please consider Ulico’s SECOND documentation. provide following Atlantic to is being “1. Atlantic continues to state that the balance due and will be resolved to the of the disputed prior completion is the project. dispute? What nature provide “2. Please with documentation of the and amount. dispute no, if percentage

“3. what project complete, Is project complete? is do to be you expect project complete?

“4. When accounting with a complete “5. Please provide on this project____” Atlantic received payments letter, Rondinelli response no to her 3 December Receiving on 29 1998. She again wrote to Thomas Madden December claim of stated that Ulico had “validated Clearwater’s $20,698.62” and documentation response and “Atlantic’s lack incurring in a a loss placed position [of [had] [Ulico] $20,698.62].” that Atlantic pay Rondinelli’s letter demanded of the letter or working days receipt that sum within 5 Ulico via its rights forced to seek other restitution Ulico “would be letter was sent to indemnity agreement.” under the This Ulico, January on 4 delivered by Atlantic certified mail. $20,698.62, for and received return its check to Clearwater claim Atlantic and a assignment against of its Clearwater’s liability release of Ulico from all under the bond. was transmitted to

By January a letter of 5 which at 4:50 that and sent also p.m. day Ulico facsimile mail, that responded stating certified John Madden to Ulico bill on the fact “predicated over Clearwater’s was dispute for” and performed that unauthorized work was billed the invoices Atlantic received from Clearwater totaled $15,864.54, $20,698.62. copies Attached to the letter were Atlantic’s check to disputed of the invoices and canceled Clearwater, $4,834.14. he had left complained for Madden on mail on 11 December telephone messages Rondinelli’s voice that had not been returned and January 1998 and 5 any payment directed Ulico not to make Clearwater. Sub- Atlantic refused to reimburse Ulico. sequently,

B. above, complaint As noted filed a the Circuit Court Ulico Atlantic, sought From George’s County. for Prince Ulico $20,698.62 it had indemnity agreement recover under the interest, fees, costs, Clearwater, plus attorneys’ paid expenses. case tried to the bench on December 2001.

The Madden testified on behalf of Atlantic. Madden stated John for the labor or materials supplied had not that Clearwater Rather, repair performed Clearwater for Atlantic. project belt motors for a “CMI concrete hydraulic on some work on the Mad- using project. that Atlantic was machine placer” Atlantic, belonged machine placer that the belt den testified to the of 10 or 15 was not dedicated years, had a useful life other Madden projects. and had been used on several project, $4,834.14 total only paid that Atlantic further testified balance was unpaid amount billed Clearwater because materials, by Atlan- mostly that were not received pumps, by one of fraudulently had been obtained tic and which with one a collaborative scheme employees Atlantic’s former employees. Clearwater’s Maryland’s penultimately ap- Court noted Circuit in a yet specifically reported courts had not addressed pellate owned of whether to opinion repairs previously the issue materials” under a constituted “labor and equipment Thus, trial judge the payment performance. in addressing court decisions the issue the relied on federal He projects. context of contracts on federal construction that, holding “repair parts, the federal cases as summarized add to the value materially and accessories which appliances, for other work equipment of the and render available [than coverage not within the project by covered the are bond] See, e.g., of the bond.” Continental Cas. Co. v. payment Cir.1944) Co., (10th L. 140 F.2d Boyd, Clarence (citations omitted). The trial that to judge repairs concluded materially used a subcontractor that enhance equipment by jobs it available for equipment by making the value of the not by other than the covered bond are project contrast, By repairs within the of the bond. payments scope on the equipment carrying to a subcontractor’s incidental to bond, by covered but which do not add particular project of the are covered. equipment, the value by found that the made Clear- repairs Circuit Court to Atlantic’s added to the value of that equipment water In found equipment. particular, the court in for incidental items consumed charge did not Clearwater oil, filters, etc. gasoline, of the such as completion project that added to the and accessories supplied parts Clearwater and inex- they were not incidental machinery, value of the by in and therefore are not covered pensive character charges, Clearwater’s bills attached bond. As to the labor form outline provided [Ulico] to the Proof Claim $3,234.00 in labor costs. Such costs aided unpaid by 1-85 covered the Bond completion project of the along with interest therefore are recoverable [Ulico] from accruing payment at the rate of 6% the date legal Clearwater, 1998, in amount of December $614.46. “payment Court held Ulico’s Finally, Circuit faith, Clearwater, although good made claim made in ‘labor and materials’ as covered entirely included costs, cannot be held liable for all those bond. Defendant conclud- Ultimately, of labor.” the Circuit Court only the cost that, indemnity Ulico was entitled to agreement, ed under fees, costs, the amount attorneys’ expenses only recover $5,750.

C. earlier, as noted Ulico Special Appeals, In the Court in not awarding that the Circuit Court erred Ulico argued because made the paid total sum Ulico Clearwater Ulico absence, faith. in the of fraud and addition, in not asserted that the Circuit Court erred Ulico fees, costs, and awarding attorneys’ it the full amount of in Atlantic. In a pursuing recovery incurred from expenses in argued Atlantic the Circuit Court erred cross-appeal, payment of the made Clearwater awarding any part Ulico bond, by work was not covered because Clearwater’s Proof of form filed Clearwater was because the Claim and, event, as a defective, payment Ulico made the any volunteer. good held that under the faith Special Appeals

The Court of indemnity agreement: clause

299 for a from Atlantic to reimbursement Ulico was entitled fraud, faith, regardless good without paid claim Ulico for the claim—either actually liable whether Ulico virtue of of Atlantic to the claim or virtue of a defense According- of the Bond. being scope the claim’s outside acted in faith court found that Ulico ly, once the trial claim, it should paying and fraud Clearwater’s without on for its full payment awarded Ulico reimbursement have the claim. Co., 150 Contracting Atlantic and Material Cas. Co. v.

Ulico (2003). 1257, Accordingly, 822 A.2d 1270 Md.App. court reversed the Circuit Court’s appellate the intermediate “1) for the court to award and remanded the case judgment to Clearwater on the damages paid as the full amount Ulico 2) claim; court to reconsider Ulico’s Clearwater for the costs, fees, attorneys’ expenses.” claim for contractual II. A. First, understanding we shall reiterate our bond and indemnifi governing surety fundamental principles agree A a relationships. surety three-party cation bond is obligee, surety. ment an and a principal obligor, between Daniels, 254, 259, Motors v. 303 Md. Acceptance Corp. Gen. (1985). context, 492 A.2d In a performance if fails to surety obligee principal assures the duties, discharge its contractual will perform itself, obligee them or by performing paying duties either Id.; Fid. the excess costs of United States & performance. Feibus, (M.D.Pa.1998), F.Supp.2d Co. Guar. (3d Cir.1999) (affirmed without aff'd, reported 185 F.3d 864 bond, surety guarantees opinion). (the duty obligee pay principal’s) to the its principal’s Feibus, laborers, subcontractors, suppliers. F.Supp.2d at 581 n. 2. with that of liability is coextensive MacArthur, Builders Co. v. principal. Supply Gen.

300 (1962) (citations omitted). 868, 320, 326, Md. 179 A.2d 871-72 and, surety primarily jointly principal The is liable with therefore, if the fails to immediately responsible principal is 259, 303 Md. at 492 perform. Acceptance Corp., Gen. Motors however, with the liability, princi- A.2d at 1309. Ultimate is surety. Upon principal, not Id. default pal, surety money against principal may pay proceed (1883). 246, for v. 59 Md. 248 The indemnity. Spencer, Dixon In the con- surety’s obligation. bond is the measure of the surety companies it is standard for industry, practice struction for to execute require they contractors whom write bonds individual indemnity principals which and their agreements may loss agree indemnify against any they backers sureties writing principals. incur as a result of bonds on behalf See The & Prac- generally Surety’s Indemnity Agreement —Law 2002). al., eds., et Am. Bar Assoc. (Marilyn Klinger, tice legal The issue in the case is seeming threshold any to reimbursement whether Ulico was entitled repair assertedly Clearwater’s bills that were covered the bond. we reach the same result as the Court of Although sweep analytical we conclude that of its Special Appeals, construct, claim, acting good that a faith surety, paying fraud, and without is under the indemni- indemnity entitled of whether the claim on the bond is ty agreement regardless bond, some factors actually by neglects important covered necessary paradigm. that to us seem to the start, To of a bond and indemni analysis bond’s ty agreement ordinarily coverage should examine the conjunction liability indemnity with faith under “A a contract and is to be con agreement. surety bond is McShain, Co., Eagle strued as such.” John Inc. v. Indem. (1942) (citations omitted). 202, 205, Md. 23 A.2d bond, indemnity being written con agreement tracts, must be construed accordance with our traditional objective rules of contract “The interpretation. interpretation is of law for the ordinarily question of written contract and, therefore, subject court is to de novo review an Bank, Chase Md. Chevy court.” Wells appellate (citations omitted). (2001) In deter A.2d 629-30 courts language, Maryland of meaning the contractual mining contracts. objective interpretation of of principle the the apply II, v. Retail Sy-Lene Washington, Inc. Starwood Urban of LLC, 157, 540, (2003), cases 166, A.2d 546 and 376 Md. 829 the objective interpretation Applying principles, there cited. agreement give of an unambiguous language -will clear and or was parties thought agreement the the meant way to what Ashton, 444; 340, Md. at 731 A.2d at to mean. 354 intended Inc., Estate, 266, 254, v. H.T. Brown Real 344 Md. 686 Adloo (1996). consideration, inter 298, when primary 304 A.2d Our and terms, ordinary, “customary, a contract’s is the preting Mitchell, Lloyd E. of meaning” language the used. accepted Co., 469, 44, 56-57, Maryland v. Cas. Md. 595 A.2d Inc. 324 (1991) (citations omitted). must The terms of the contract 475 usual context, in their and given ordinary be and interpreted 490, 506, A.2d Langston Langston, v. Md. 784 366 meaning. (2001). 1086, 1095 the discerning “involves interpretation

Contract Co., v. Ins. itself.” Fister Allstate of the contract terms Life omitted). (2001) (citations 210, 201, 194, 366 783 A.2d 199 Md. under a presents coverage In an action which an issue of “it and an is liability indemnity agreement, bond under of the and decide interpret policy the function court the there If issue coverage. coverage whether or not is such a which we upon language policy ambiguous,” of the is depends Paul the insured. St. of will resolve that in favor ambiguity Ins. 187, 194, Pryseski, Fire & Marine Co. v. 292 438 Md. (1981). 282, light 286 of the aforegoing precepts, A.2d in mind in instant case bearing payment that the bond guaranteeing performance was executed for the of purpose contract, of from upon incumbent us to ascertain private it is indemnity agreement bond the intention Co., 265, 273, Levy v. Glens Falls Indent. 210 Md. parties. (1956) (“The 348, interpreta 123 A.2d cardinal rule contracts, bonds, tion of as all written interpretation is effect to parties give to ascertain intention

that intention if it can be done with consistently legal princi Educ., ples.”); see also v. Lange Bd. 183 Md. (1944);

A.2d Hosp. Women Maryland United Co., 615, 618, States Fid. & Guar. 177 Md. 11 A.2d (1940). coverage case extended to

“payment to all persons supplying the Principal with labor and materials in the prosecution the work provided for” subcontract between Atlantic and Gilbert. Clearwater’s claim was for “repair to on equipment paving job used at 1-85 North, Granville County project.” In the indemnity agree- ment, Atlantic promised “indemnify from and [Ulico] and, against any end, and all Loss” to that to “promptly reimburse for all Loss.” The indemnity [Ulico] agreement defines ‘Loss’ to mean: costs,

Any damages, and all charges, and of expenses any kind, sustained or by incurred in connection [Ulico] with or (1) (2) Bonds; as a result of: the furnishing any of and the Agreement. enforcement of this Loss shall also include any by [Ulico], funds disbursed arranged or for or guaranteed by for the use [Ulico] benefit of any indemnitor. and/or Atlantic further agreed indemnity the agreement that

(1) originals or of claim photocopies drafts or payment kept records the ordinary course business ... shall be prima Loss; facie evidence of the fact and amount of such (2) and shall be to [Ulico] entitled reimbursement for any faith, disbursements made it in under the belief liable, that it was or that such disbursement necessary or prudent. addition,

In promised Atlantic to deposit with Ulico on demand any reserve against loss that Ulico required or deemed pru- establish, dent to “whether on account liability of actual or one is, which or may be asserted against whether or not [Ulico] therefore[,]” has made any payment and to grant Ulico a security interest certain pieces its equipment. argues

Atlantic that despite the indemnity agreement, the work performed by Clearwater was not covered the bond for Atlantic’s ‘parts and service’ provided because Clearwater and service’ ‘parts Atlantic contends that these equipment. for were not ‘labor material’ made repairs Clearwater bought was not equipment question the project because expectan- life project for use on the because exclusive project. equipment beyond extended cy of prece- federal persuasive of our cases and Based on review conclude, in the dents, dispositive were this the issue we would to case, materially to that add equipment repairs equipment’s and extend the useful equipment the life of the not constitute ‘labor and project the life of the do beyond life to so as fall within supplied project, materials’ of the bond. coverage repairs issue whether directly have addressed the

We an are materials’ for ‘labor and permanent equipment before, resolving but we came close project individual in the case Williams Construction Co. analogous issue Inc., Construction 253 Md. 251 A.2d Equipment, (1969). Williams, Construction principal, Williams (“Williams”), arranged for a bond with Company payment (“Fireman’s Fund Insurance surety, Company Fireman’s Fund”) Williams, 61-62, 253 Md. bridge project. at bridge project provid- A.2d at 865. The bond for the ed: condition that if obligation of this is such

“[T]he [Princi- shall make to all pal] promptly payments persons supplying Principal any labor material to the Subcon- and/or any Princi- Principal tractor Subcontractor in prosecution in the of the work for said pal provided ” * * * obligation then this shall be void.... Contract for was from a equipment bridge project Id. The leased to- leasing charges The incurred leasing company. company $32,578.02 were not sued taling paid Williams for rental Fireman’s Fund. All of this amount was equipment for a haulage repair equipment, except or for leased wire, which charge for carbide bits and covered $46.95 Williams, job. to have materials on the appear been used n. at 62 n. 251 A.2d at 865 Md. 3. Court,

When the case reached this we concluded that the circuit court should have directed a verdict for Williams and $32,481.07 Fireman’s Fund “with respect of the total amount in controversy, this being aggregate amount of charges for equipment rental and haulage and repair.” Williams, at addition, Md. 251 A.2d at 869. circuit court “should permitted have the case go to the jury $46.95, as to the remaining amount of this being the for charge site, materials job delivered to the because it appeared be conceded that this amount was recoverable under bond.” Williams, 69-70, 253 Md. at 251 A.2d at 869. reached Williams relied on our reasoning

The conclusion in in State of Gwyns use Falls Quarry Co. v. National Surety for Co., 221, 224-25, (1925), 148 Md. 128 A. where we resolved that renting steam shovel was not furnishing labor or materials for particular project under contractor’s bond:

The steam shovel leased appellant this case was an merely implement utilized the lessees in the work for which they employed. were It formed a part of their equipment the business in which they were regularly engaged. monthly The rent accruing the appellant was payable regardless of the extent to which the steam shovel actually was used or of place where it operated. was claim appellant’s obviously is not for performed labor on the since highway, the work which the leased machine on lessee, used the road was done exclusively by the and we think it also clear that the use depreciation shovel, the steam and its transportation to the appellant, should not be regarded as materials furnished in the con- struction of the roadway, within the terms of the contrac- bond____ tor’s held, Williams, on this

Relying reasoning, we that charges for equipment rentals are not recoverable under a payment Williams, bond as ‘labor and materials.’ 69-70, at Md. 251 A.2d at 869. Just as the leased equipment and its repair Williams, was not covered payment bond in it would seem that repairs to Atlantic’s equipment case would not shovel, be covered. Like the steam Atlantic’s by utilized implement an merely was placer concrete belt Atlantic’s it was employed. work for which Atlantic in the for the of its equipment a part formed placer concrete belt repair The bill engaged. regularly in which it was business Atlantic’s con- of whether regardless payable by was Atlantic project. on the actually was used crete belt placer that have federal courts projects, In construction federal appliances, “repair parts, held that the same issue addressed of the materially the value which add and accessories for other work are it available equipment and render Cas. coverage of the bond.” Continental within the Cir.1944) (10th Co., 115, 116, Boyd v. L. F.2d Co. Clarence Co., 20 River F.2d Cas. Co. Ohio Gravel (citing Maryland (4th Cir.1927); Hugue use & States to Galliher United (D.C.Cir.1934)). Co., In 73 F.2d 652 Inc. v. James Baird ly, a a Casualty, by claim made under bond Maryland a labor, oil, an and for gas, engine, tires garage provided working on a state road construction trucks of a contractor were furnished for trucks were All items project. project. on contractors on the road Ohio used the work River, of Appeals F.2d at Circuit 518. Fourth Court as recognized is rule that a bond such noted that there a “well used machinery equipment not cover and this does work, such repairs on the or machin carrying contractor rule, Id. this ery Despite general equipment.” on on to that some items Fourth Circuit went note used may scope still come within the permanent equipment the Fourth passage, well particularly bond. reasoned permanent materials for analyzed repairs Circuit how may may owned the contractor not be equipment specific project: covered bond for materially “It which add undoubtedly repairs is true that and render it available for equipment to the value protection are more within the other work no instance, itself; one, sup- who equipment than the or a motor for a truck is no more entitled plies a tire the truck under than one who furnishes recover the bond hand, of an repairs there are incidental itself. On other character, and inexpensive such most of as those embraced been, in the account to have seem which do not in any true sense add of to the value but equipment, are incidental to the of carrying represent on the work and merely ordi- nary or wear and tear its in equivalent. labor done making such is in done in repairs reality labor the carrying on work, of the and we think should be treated as such. Thus a who blacksmith or sharpens plows and drills repairs the used in making carts an excavation would un- doubtedly laborers, in protected way be as same other and we see no difference his case a between and that of mechanic in who keeps repair running condition a fleet of job. trucks used on the of The labor such a one to adds and becomes a of the part just finished structure as truly as does the of one who or And, labor wields a shovel. of pick course, granting the no principle, can make difference whether the mechanic does the at work the scene of the or own operation garage. in his think that We those items of the represent account which mere incidental repairs upon on job trucks necessary used in keep them running work, for the of performance condition should have being been allowed as within protection of the bond. think, too,

‘We that claimant is entitled recover for the gasoline and oil furnished for operating use in the trucks.” (citations omitted). Id.

If the reasoning employed by the Fourth Circuit were applied case, in the facts it would seem the correct, went, Circuit Court was as far as it because the repairs made by Clearwater to equipment Atlantic’s added to and, thus, the value that equipment were not ‘labor Nonetheless, materials’ the bond. covered Atlantic is not litigation. entitled be declared victor in this Ulico did not know the facts this supporting coverage defense at the time of its settlement the claim with Clearwater because Atlantic had not informed Ulico or timely adequately facts, underlying though requested to such provide informa- tion. stan- a constrained jurisdictions apply a number

While determining analysis of fraud good dard of faith/absence agree- indemnity to enforce an permitted is whether indemnitor, include jurisdictions several against ment settling paying surety’s actions their assessment Lumber- criterion reasonableness. claim faith a good Inc., U.S.A., Darel Group Ins. Co. v. mens Cas. Mut (“New (S.D.N.Y.2003) York courts have 578, 585 F.Supp.2d made payments provisions, [indemnity agreement] upheld good only are scrutinized provisions under such by sureties (citations omit- paid.”) as to amount faith and reasonableness Tanner, 22 910 P.2d ted); Kan.App.2d The Hartford (“we (1996) that the those hold agree with cases seeking requires faith implied covenant reasonable”); its to show that conduct indemnification 12, 675 67 Haw. P.2d Higashi, Ins. Co. v. Hawaiian & Guar. (1984) (“Even legal right if has a to 767, an indemnitee 769 and made in claim, must be reasonable a the settlement settle v. faith.”); Ins. Engineering Corp. J.F. General good White (10th Cir.1965) (“while Co., surety] was 231, [the 351 F.2d 233 contract, the complete the contractor to permit not required diligence if it that in the exercise reasonable believed employed ... should have been principal] precaution [the recovery or deny the should reduce complete project, jury the by have been saved so the which it believed could in amount Co., 57 Peoples Milling F.Supp. doing”); Corp. Nat’l Sur. v. (“If the has 281, the or indemnitee (W.D.Ky.1944) surety 283 claim, or the either reason right adjust settle legal part of his or of actions on the the terms of contract because indemnitor, an or only necessary adjustment that such it is faith.”); in good a one and made be reasonable settlement 321, Co., 276 123 Mining Ky. Co. v. Louisville & N.R. Luton (1938) settling in 1055, (surety justified is claim 1062 S.W.2d prudence”); in faith and with reasonable good when “it acted O’Connor, 3 Construction Law generally see Bruner & Standards). (2003) (Reasonableness v. § Good-Faith 10:107 case, Special Appeals In the the Court & Iron Co. Bristol Steel by Fidelity Deposit & v. persuaded 308

Works, Inc., (4th Cir.1983), 722 F.2d 1160 in concluding good when a faith is applicable standard the surety’s performance, only is issue whether fraud was present. analysis, Under this coverage issue raised would, therefore, principal irrelevant to analysis. be The this, effect of jurisdictions those recognize only standard, narrowly applied good faith is that the test is not whether negligent “was too spending much contract,” money completing the construction English v. Co., Century Indemnity 366, 342 S.W.2d 369 (Tex.Civ.App. 1961),nor if principal lack of alleged diligence, Continental v. Casualty Security Co. American 443 Corp., F.2d 649 (D.C.Cir.1970); Co., Engbrock v. Federal Insurance 370 F.2d (5th 784, Cir.1967), 787 negligent ignorance, Ford v. Aetna Co., Insurance 394 S.W.2d 693 (Tex.Civ.App.1965), even mistake of surety making law made the disburse ment, Hinton, Surety Central & Insurance v. Corp. (1939); instead, Mo.App. S.W.2d the test is whether making committed fraud in payment. We conclude that a faith protects standard that the surety for every mistake no how egregious, matter that falls short of fraud, Tanner, is unwise. 22 Kan.App.2d Hartford (1996) (“Allowing surety’s P.2d indemnifica enforced, fraud, tion to be absent leaves the principal and indemnitor mercy surety’s at the unreasonable con duct.”) (citation omitted). conclude that a We rather standard of reasonableness also should be in the implied good faith analysis a surety’s actions in whether determining may against recover the principal.

In a three-way relationship a an surety, between obligee, principal, and a the reasonable of expectations all the parties must and the surety be effectuated must act in a in or handling paying reasonable manner claims. We find the reasoning City Associates, in D. George Portland v. & Ward of Inc., 171, (1988), 89 750 to Or.App. P.2d 175 be persua sive: indemnity subjects

Parties to an agreement which the right a compromise claim the against principal the sole

309 com- that reasonably expect must surety of the discretion a after reasonable only be made and will promise payment claims, and as- the counterclaims defenses investigation of lack of prove in action. order underlying serted the claim, needed [the indemnitors] the good settling faith for or surety] purposes acted dishonest that only prove [the improper motives. case, do not reasonable- we substitute present

Id. In the standard; simply we have for the faith good ness standard standards, City does the as the court equated two the faith allows good hold that standard Portland. We reasonableness, by limited the bounds surety a discretion by rather than the bounds fraud. nar Appeals’ with the Court of disagree Special

We indemnity agree in the reading good row of the faith clause of the bond effectively renders the terms ment here that surety, under circumstances permit and could nugatory case, from those be indemnified present different of the bond. scope be outside the may claims case, the consid that, in the factors to be We think reasonable, surety good made a determining ered in whether indemni faith under terms of the bond settlement (1) obligations of the following: are the ty agreement bond, by coverage provided as the terms Melikyan, 430 So.2d Insurance Co. Commercial Union (2) principal whether the has (La.Ct.App.1983); the surety deny generalized made more than demands Carabine, claim, N.Y.S.2d Falls Co. v. Indemnity Glens (3) Ct.1942); lack (N.Y.City cooperation, (4) Id.; thereof, surety, with the principal, dealing investigation surety, thoroughness performed Co., v. R L Construction Maryland Casualty Co. & See, e.g., Hinchey, Sure (Tex.Civ.App.1963). S.W.2d Over Protest Considerations ty’s Principal: Performance (1986) Risks, a host (enumerating 22 Tort & Ins. L.J. 133 determining courts in whether the of factors considered faith). has or settled in performed 310 case,

In the the Special Court of held that Appeals irrelevant, coverage the of the bond was and that the terms coverage bond did not control indemnity agreement. The Court of Special Appeals reasoned that (as said)

The pertinent language say does not it have could that, reimbursement, for the surety be entitled or cost it expense incurred must covered within be or Rather, scope says Bond. it that the must have incurred or cost “in or expense connection with as a of ... result of’ furnishing the Bond. In the context in the phrases which “in connection with” and “as a result of’ used, are they connote “with relation to” or of.” part “as An or cost expense paid can be incurred “in with ... connection of’ or “as a of ... furnishing result bond, of’ furnishing notwithstanding that there will never be determination claim whether the in fact was with scope of the bond. Ulico, 693-94, 150 at at Md.App. 822 A.2d 1267.

We, however, perceive a difference between cover age liability. words of the bond are mere surplusage, they must be read in conjunction with the indem nity agreement. We have said bond that “a is to be construed performance connection with the contract whose it secures.” Admin, State Highway Co., v. Transamerica Ins. 278 Md. 690, 509, (1976) v. 700, 367 A.2d Bd. 516 Lange (citing Educ., 260, 317, (1944)). 183 Md. 37 A.2d We think too that an indemnity agreement conjunc is to be construed tion with the which upon it is based. Contractual terms cannot agreement be read out of the altogether, and the of a is meaning provision not discerned reading isolation, but by its recognizing relation the other terms of the complete Goldberg See relationship. contractual 204, 213, Goldberg, (1981). Md. 428 A.2d Hubbard, Jones v. 534-35, 356 Md. 740 A.2d (1999), we discussed the need for accounting for all relevant contract provisions: interpretation test that the [objective] this is

Implied in agree of the language is of the entire the to be language This ment, implication thereof. merely portion not a in Shanty of Special Appeals Court by demonstrated the Environment], Dept. v. Partnership [Ltd. Town Assocs. of [(1992)]. In 103, involving 66 that case 607 A.2d Md.App. 92 implied court the judgment, the of a consent interpretation aof consent language the complete that one needs read Thus, to understand to determine its judgment purpose. order, of the meaning language a consent the the true of 114, 607 Id. at a A.2d must be “read as whole.” judgment considered— judgment provisions at “The 71. entire —all of the light in the all circum read as a whole should be Hanson parties.” of the as of the conduct stances as well (Ala.1988). Hearn, 953, interpreting 955 “When 521 So.2d decree, must any agreement, or other words be consent whole, read each read in context. The decree must be as its interpreted together of with other being its provisions Elect., Div. Air Brake v. United provisions.” Westinghouse 407, Mach. America] & Workers Pa.Super. [Radio (1982). 529, 533 “An interpretation 440 A.2d is gives meaning according entirety to its judgment surplus- of mere part one that makes some favored over Hanson, at age.” 521 So.2d 955. indemnity agree and

Reading payment the obligee’s if a for an surety unreasonably pays ment together, bond, under a then payment that is not covered work from the surety should not be entitled to indemnification ado, good provision faith without further under principal, case, however, In the indemnity in the agreement. reasonably surety paid facts indicate that undisputed surety faith. Atlantic did not inform the good Clearwater facts, contention, or supporting in a fashion of its timely not the work Clearwater. performed bond did cover face, indicated that completed its Proof Claim On covered part project Clearwater’s work was repeatedly Atlantic the claim and informed bond. Ulico receipts in the information asked for clarification form to why as claim be paid. Clearwater’s should not Atlantic did provide information adequate that would to a indicate reasonable that there was an with issue the coverage bond as Clearwater’s work. Madden’s claims about initiating telephone two calls to Rondinelli that went unreturned, believed, if even were not sufficient under circumstances to render Ulico’s conduct unreasonable lack- ing good faith. only

Not does the have to act with reason faith, good ableness and principal is bound reciprocal dealing. Kransco v. Ameri obligation of faith and fair Co., can Lines Empire Surplus Ins. 23 Cal.4th Cal. (2000) (insurer Rptr.2d P.3d are insured bound a reciprocal obligation of faith and fair good deal ing). in this obligation duty Embedded is a to in cooperate timely fashion the surety processing considering with and any may claim. not ignore Atlantic Ulico’s re reasonable months, over a quests, period for information why as to not Clearwater’s claim should be to paid then expect assert an coverage effective bond defense after the claim is omniscient, The paid. surety is and cannot to expected be refuse claims on grounds about which it has not been informed adequately If principal. the Atlantic believed payment the bond did not the work performed by Clearwater, cover it as apparently then it thought, should have informed Ulico when requested to The do so. likeliest source from the which surety may obtain reliable information about the the nature of performed work its relation to the bond is from the Its to if principal. efforts learn such information existed frustrated, having reasonable, been Ulico made a good faith payment the claim based on the information that was to it supplied by Clearwater. Carobine,

Glens Indemnity Falls Co. v. 36 N.Y.S.2d 253 Ct.1942) (N.Y.City is the most analogous case to the present Carobine, one we were to locate. the principal able failed to co-operate payed with a that a tax to company claim the obligee, government’s revenue, collector internal on made various principal, corporation, The some bonded wine. claims it tax. The why was not liable as generalized only have York found that the could City Court New supplied by of information on the basis contested case that princi The court further found corporate principal. hardly can surety “only generalities to the pal spoke in the [surety] circumstances payment by be said Carobine, one.” voluntary at time was disclosed that there was Ultimately, at the court held N.Y.S.2d 255. surety’s] pay govern refusal justification “no for [the it no principal gave face ... ment’s claim valid on its when (citation which to resist Id. upon payment.” basis substantial omitted).

Likewise, case, say we are unable to the present disclosed at time Ulico under the circumstances payment but anything Clearwater’s claim was reasonable paid resulted claim Clearwater payment. faith Ulico’s investiga- cooperate timely Atlantic’s failure to Ulico’s from noted, having not received tion. As Circuit Court “[Ulico] [Atlantic], discharged from the debt any additional information re- made several Although [Ulico] owed Clearwater.... [Atlantic], for information from no written documenta- quests January sent 2000 after had re- tion was until [Atlantic] had paid notice that Clearwater’s claim.” [Ulico] ceived from to Atlantic correspondence requesting Ulico repeated diligent the surety’s information documentation evidences See, Banque of matter. Nationale de investigation e.g., America, 165 Paris S.A. Ins. North 896 F.Supp. Co. of (S.D.N.Y.1995) judgment surety in (summary granted favor evaluat- surety “investigated where was that and undisputed principal’s] alleged settling”); ed defenses before United [the Inc., F.Supp. D D Enterprises, States v. Bar (D.Nev.1991) after may expect surety only settle (parties defenses); counterclaims, claims, and investigation possible Corp., v. American Sec. 443 F.2d Continental Cas. Co. (D.C.Cir.1970) surety for (upholding summary judgment affidavits that all claims had been where uncontradicted stated by surety investigation”). “in faith after paid good

The reasonable behavior required of a surety acting in faith is not meant to foster reluctance on surety’s part satisfy bond claims. agree We with the court in General Accident Insurance Co. American. Merritt-Merid ian Construction Corp., 975 F.Supp. (S.D.N.Y.1997), which explained: enjoy

Sureties such discretion to settle claims because of the important function they serve in the industry, construction because economic incentives motivating them are a sufficient safeguard against payment invalid claims. The many parties to a typical owners, construction contract — general contractors, subcontractors and sub-subcontrac- tors —look to sureties to provide that by assurance defaults any myriad parties other involved will not result loss to them. Courts have recognized that “as a practical matter the suppliers and small contractors on large con- struction projects need reasonably prompt payment their work and materials in order for them to remain solvent stay business.”

(citations omitted). case acted diligently and reasonably based on the information available it. The requirement reasonableness is meant only to filter the careless, most egregious, conduct, or inattentive short of fraud, of a surety; such as making on a bond that the surety clearly knows or should know is not covered bond. Had the the present case been told in a timely fashion by the principal details of why Clearwater’s claim was not covered the bond and the documentation provided that defense, illustrated such a a reasonable diligent surety might not have payment. made

Atlantic renews its argument from the Court of Special Appeals the Proof of Claim form submitted Clearwater and, therefore, was defective could not support a claim by Ulico for reimbursement of the paid claim under the indemni- ty agreement, Atlantic repeats its assertion that because specified Clearwater in the Proof of Claim its work was in performance done Atlantic, its contract with and not in Gilbert, and Atlantic between subcontract performance surety. Atlantic’s by Ulico as obligation no payment there was the Proof Appeals of Special the Court with agree We appel- As the intermediate defective. was not form Claim stated that Proof of Claim observed, completed court late equipment to repair “for was by Clearwater the work done North, County project,” Granville 1-85 job at paving used on Ulico for It was reasonable in question. project is the which 1-85 job at on paving used “equipment to assume that project the construction was North, County project” Granville Claim, the Proof receiving Atlantic. After for it had bonded Ulico, for wrote Kondinelli, Manager Bonds Claims Cherie was him that Clearwater to inform at Atlantic to John Madden him asking $21,842.48 project on the owed alleging it was delaying payment inform reasons for of Atlantic’s Ulico respond- Thomas Madden September On 3 Clearwater. Clearwater Atlantic had sent stating that ed a letter with bill $4,834.14 Clearwater’s partial payment for check and must be disputed ($15,864.54) “being that the balance letter, In Atlantic’s of payment.” prior completion resolved project” to “the above referenced refers Thomas Madden from south rest 1-85 NBL “Project No. 8. 1370303 which is No. Letter Line ACM Job County of Vance area north addition, subject of the letter is No. In 174.” if not letter, implicitly, Atlantic’s at least in question. claim is covered that Clearwater’s assumes explicitly, to conclude that Clear- bond, for Ulico and it was reasonable covered. water’s claim was

B. regarding attor question turn to the Finally, we following Maryland, fees, costs, expenses. neys’ is not entitled Rule,” ordinarily party a prevailing “American damages. compensatory as part fees attorneys’ to recover Educ., A.2d 341 Md. v. Bd. Hess Constr. Co. omitted). (1996) (citations Litigation expenses, 1352, provides contract parties’ however, awarded where may be Mental Health & Dep’t Bank and costs. fees Allfirst Hygiene, 334, 373, (2001) 140 Md.App. 440, 780 A.2d 463 (citation omitted). A contractual obligation pay attorneys’ fees is in Maryland. Qualified generally valid and enforceable Builders, Co., Inc. v. Equitable Trust 579, 584, 273 Md. 331 293, (1975); Noyes Contractors, Air Conditioning A.2d 296 Inc. v. Wilson Towers P’ship, Ltd. 283, 294, 122 Md.App. 712 (1998). 126, A.2d fraud, 131 Absent misconduct or over- reaching, or misrepresentation, grounds other for voiding the contract, a contractual for provision awarding attorneys’ fees Noyes, may 294, be enforced. 122 Md.App. at 712 A.2d at 131. an Where award of attorneys’ fees is called for by the contract in question, the trial court will examine fee reasonableness, for request even the absence of a contractu al term the fees be reasonable. Rauch v. specifying McCall, 624, 638, (2000). 76, 134 Md.App. 761 A.2d 84 of attorneys’ reasonableness fees is generally a factual deter mination within the “sound discretion of judge the trial will not be erroneous.” Reisters clearly overturned unless Ctr., Inc., town Plaza Assocs. v. Gen. Nutrition 89 Md.App. 232, 248, (1991) (citations 1049, omitted); 597 A.2d 1057 Dan ziger v. Danziger, 469, 474, (1955) 653, 208 Md. 118 A.2d 656 (an award of attorneys’ fees will not be disturbed unless the trial court acted arbitrarily judgment its clearly was wrong).

“The burden is on the party seeking recovery to provide the necessary evidence for the fact finder to evaluate the reasonableness of the fees.” Maxima Corp. Arlington Dev. Ltd. P’ship, 441, 454, 100 Md.App. 641 A.2d (1994). Frankel, 977, See also Friolo v. 501, 373 Md. (2003) 819 A.2d forth (setting standards for the award fees). of attorneys’ case,

In the present the trial court properly concluded that, under the terms of indemnity agreement, Atlantic obligated by contract to pay Ulico the sums it incurred to enforce agreement, which fees, included its attorneys’ costs, and expenses. Indemnity agreements of this kind are interpreted generally fees, entitle the súrety to recover costs, them. See Fid. & enforcing incurred expenses Co., 722 F.2d at 1166. Deposit it: Appeals aptly put

As the Court of Special fees, attorney’s a contract entitles a to recover party When the fee to determine request the trial court must examine reasonable, of provision the absence whether is even Rauch v. request that the fee be reasonable. requiring (2000). McCall, In this Md.App. 761 A.2d 76 case, on the trial court’s decision the issue of reasonableness decision, error, necessarily was affected its Ulico for of the monies it only part was entitled reimbursement paid Accordingly, to Clearwater. the reasonableness fees, costs, attorneys’ and ex- sought by sums Ulico in of our that penses light must be reconsidered decision payment Ulico is to full reimbursement of its to entitled Clearwater.

Ulico, 700-01, at 822 A.2d at Md.App. 1271. court, it

Equally apt, appellate the intermediate because had case, encouraged decided to reverse and remand the the trial attorneys’ on to Ulico’s judge prayer remand reconsider fees, costs, that the expenses and on the inferred basis earlier on a may predicated proportionality award have been relation- ship recovery indemnity to the limited afforded under the Appeals, shall affirm the Court of and agreement. Special We 1) to award as remand the case to Circuit Court Ulico 2) Clearwater;1 it to to damages paid the full amount and (similar Though disposition appellate 1. our to that of the intermediate court) of case would seem the effect of Clearwater recover- this to have $4,834.14 bill, May ing paid twice for the on of its 15 account by August again by January once Ulico in Atlantic in and judgment may our or Ulico should not be read to mean that Atlantic not able, things being equal, proceed against be all other Clearwater to Clearwater, release, signing repre- correct in Ulico windfall. $20,698.62 justly owing by sented that "the sum of is due and contract discharged and that has not or [Clearwater] [Clearwater] released hereof, any part the same or that there are no or set-offs counterclaims claim, apparent, to said account....” As is now Clearwater’s at that time, $4,834.14 by payment had been reduced Atlantic's on account May of the 15 1998 bill. fees, costs, attorneys’ contractual claim for reconsider Ulico’s indemnifica- expenses light its entitlement the full tion claim. THE APPEALS

JUDGMENT OF COURT OF SPECIAL AFFIRMED; BE PAID BY COSTS TO PETITIONER.

BATTAGLIA, J., opinion joined by dissents and files BELL, C.J., ELDRIDGE, J. BELL,

BATTAGLIA, joined Judge, dissenting, by C.J. ELDRIDGE, J. I majority this case—almost. cannot gets right majority’s conclusion that “the made

quarrel repairs with Atlantic’s to the value of equipment Clearwater to added and, thus, not ‘labor and materials’ equipment were at I Majority op. dispute covered the bond.” 306. Nor do holding surety’s duty that a faith majority’s claims. Id. reasonably settling it to act or requires paying majority at I with the that the record does agree 307. even law, as a matter establish, that the Ulico payment (the (the surety) obligee) objection over the Clearwater (the was made in bad faith or was unrea- principal) Atlantic falters, however, majority deciding sonable. is Where reasonable, per se. that the of a is “someone who The traditional definition contracts to answer for the debt default another.” (2d. 2000) Suretyship 1 Edward G. ed. Gallagher, Law of (hereinafter Corp. SNML v. Bank North “Gallagher”); of Carolina, (1979). 28, 41 254 274 Defined N.C.App. S.E.2d more “a is a who binds himself for the narrowly, surety person of or for of payment money, performance of a sum the else, already for another who is bound for such something Corp., SNML 254 at 279. performance.” or S.E.2d (1) A surety relationship parties: principal, involves three the made, “the one for whose account the contract is whose debt (2) transaction”; or the subject obligee, default is the of the (3) runs”; one and the obligation “the to whom the debt surety, agrees obligation “the one who the debt or

319 [obligee] performed from the to the shall be running principal part on his own paid], perform [or and who undertakes [or op if not.” Arthur A. Stearns, principal does pay] Law Suretyship (5th 1951); in Gallagher Typically, § 1.4 ed. at 1. a loss if the arrangement, surety only such an suffers obligation obligee does not its to the principal perform payments then is unable to reimburse the that the surety at 1. A also surety obligee. Gallager surety made loss, however, faith in good suffers when it fails to exercise that falls outside the terms of the paying obligee’s an claim Tanner, 22 Kan.App.2d See The agreement. Hartford (1996); City George 910 P.2d Portland v. D. of (1988). Assoc., Inc., P.2d Or.App. Ward & agree

Most courts that sureties should not be reimbursed in good for claim unless the were made payments payments First, faith. for two the indemnity This is so reasons. agreements accompany usually provide that often bonds if only surety paid obligee’s reimbursement is available Second, in good Gallagher claim faith. at 488. in the absence such held that “good provision, faith” courts have surety’s duty good to exercise faith arises from an implied in all good dealing, covenant faith and fair which is inherent (“The Tanner, 534; at contracts. Id. 910 P.2d at 878 obli- gation good faith and fair on the dealing part surety in implied superimposed is a sense on the entire surety Portland, contract.”); that, 750 P.2d at City (stating although indemnity agreement “good contained no faith” clause, the surety implied good “was bound its covenant claim”). in faith to exercise its discretion compromising Although generally agree courts that sureties are entitled to faith, paid good they be reimbursed for claims are sharply A good divided as to what it means to exercise faith. number of courts have concluded that a has its duty breached only faith improper when the acted with an motive. See at 491 Gallagher (describing majority view it). is, citing cases which courts That adopted have order for the to show principal surety paid that the a claim to faith, obligee bad must principal present evidence

320 or with ill surety fraudulently that the acted

demonstrating See, Inc. v. Frank Mercede & Consulting, PSE e.g., will. 135, (2004); Sons, Inc., 279, Fidelity 267 838 A.2d 152 Conn. Works, Iron v. Bristol Steel & Maryland Co. Deposit (4th Cir.1983); Inc., v. Federal Engbrock F.2d 1165 722 (5th Cir.1967). Co., court F.2d 787 As one Ins. 370 judgment or bad is insufficient “[g]ross negligence explained, Feibus, Co. v. Fidelity to amount to bad faith.” U.S. & Guar. (3rd (M.D.Pa.1998), 185 F.3d 864 F.Supp.2d aff'd Cir.1999). assigned meaning “good courts have a different

Other to a faith.,” surety’s payment according that evaluates a one concluded of reasonableness. These courts have standard ill-will, that, if no of fraud or even there is evidence or duty by unreasonably good-faith has fallen short of its claim on the bond. Arntz obligee’s an negligently paying Co., Ins. v. St. Paul Fire & Marine Contracting Co. (1996) (“[T]he faith can good covenant Cal.App.4th conduct, regardless unreasonable objectively be breached motive.”); Tanner, 880; City 910 P.2d at of the actor’s Therefore, Portland, 174; see at 493. Gallagher 750 P.2d at reflected, faith to show bad City as the court Portland standard, only prove the principal “[need] [the under this investigation a reasonable of the validi surety] failed to make reasonably or to consider ty against of the claims them defenses, not that counterclaims and viability [the of their motives.” improper for dishonest or surety] purposes acted at 175. 750 P.2d indemnity case entered into an parties to reimburse Ulico “for promised which Atlantic

agreement faith, in good made under the any and all disbursements liable, was neces- that it was or that such disbursement belief source of This serves as the sary prudent.” provision in paying faith Clearwater’s duty good Ulieo’s exercise in this meaning “good faith” determining claim. two context, correctly embraced the latter of the majority above, duty faith “allows stating views described of reasonable- a discretion limited bounds ness, rather than the bounds of fraud.” 309 Majority op. at added). (emphasis case, however,

The trial in this judge apply did not this standard of good faith. The order stated: judge’s “Because [Ulico], failed to fraud on of prove part [Atlantic] the it is clear has its case and to proven upon [Ulico] is entitled stand letter [indemnity agreement].” the of the As the majority however, explains, Atlantic did not have to prove fraud to Ulico; rather, show bad faith and avoid having reimburse question the of bad faith turned on payment whether Ulico’s Majority Clearwater was reasonable. at op. Up 308-09. this I point analysis, the share the majority’s views. however,

The majority’s analysis goes awry, when it fails to delegate the determination of the reasonableness of Ulico’s payment to the fact-finder. Instead of remanding this case for such a fact-finding, majority the assumes the of role fact- finder and finds that surety’s here payment was reason- able aas matter law. This approach is flawed for three reasons: the question fact-finder; of reasonableness is for the the circumstances in this case do not establish that Ulico’s payment reasonable; and, majority’s holding will allow courts to enforce indemnity agreements where the sure- ty has paid claim unreasonably.

First, appellate courts should not make determinations of because, reasonableness observed, as this Court has such questions generally fall within the province the fact-finder. Murphy v. Street 480, 494, Cadillac Corp., 353 Md. 727 24th 915, (1999). A.2d 922 Appellate courts ordinarily do not determine reasonableness because the trier of fact is best position to for the “account[ ] circumstances of the indi vidual case and credibility of the witnesses and evidence presented Id.; at trial.” Cross, v. Physician Blee Informed 308, 332, (1998) (“[W]hat 350 Md. 711 A.2d 1342 will constitute reasonable efforts under a contract expressly impliedly for them calling is largely question of fact in each ....”) particular case (quoting Howard, Allview Acres v. 229 238, 244, 182 Md. (1962)); Morris, A.2d 796 Wilson (1989) 284, 295, the issue (stating 563 A.2d

Md. jury”); for the see question was “a fact reasonableness Inc., Products, 1, 13, 327 A.2d Inc. v. Ordnance 273 Md. Lynx, (1974) that what a “reasonable (stating constitutes all upon is of fact based ordinarily “question[] time” circumstances”). context this surrounding specific a surety faith of is determined case—where of a of its bond claim—courts have reasonableness of fact. inquiry the trier See assigned reasonableness Tanner, that, appellate P.2d (explaining previous at 880 case, the court had remanded case proceedings made payments [the “the reasonableness because litigated”); City is a fact that must surety] question be Portland, sufficient 750 P.2d at 175 a whether (reviewing of faith supported jury’s good the determination evidence standard). Because this Court and under reasonableness declaring the courts practice appellate other courts disfavor reasonable, this case should back to the trial what is be sent faith under good court for a fact-finder’s assessment Ulico’s the reasonableness standard. of this case majority wrong

The also is because the facts do reasonably satisfying to establish that acted little Ulico majority points out that several claim. The Clearwater’s “in determin- guided Maryland factors have courts outside reasonable, faith settlement whether made ing surety indemnity agreement.” terms bond and the under the of the majority’s at The of relevant factors Majority op. 309. list “(1) the of the as the obligations surety provided includes: (2) bond, coverage principal whether the has terms surety deny more than demands that the generalized made (3) claim, thereof, lack principal, the the cooperation, the (4) surety, thoroughness with the the dealing [and] (citations performed by surety.” Id. omit- investigation ted). relevant, majority’s all of factors are

Although these one of emphasis just much too much on these analysis places factors, cooperation surety. lack with principal’s infor- majority adequate “Atlantic did provide The states: mation that would indicate to a reasonable surety there was an coverage issue with the of the payment bond as to Clearwater’s work.” at Majority op. majority 312. The fol- reasoning lowed the of the state trial court decision in Glens Carobine, Falls Indent. Co. v. 36 N.Y.S.2d 253 (N.Y.City Ct.1942). surety that case moved for summary judg- against ment its suit who principal refused reimburse a bond claim that had satisfied. Id. at 254. Although the claim was not covered the terms of the bond agreement and should not have been paid, the trial court granted the motion surety’s solely on ground objected principal to the with nothing more “generalities,” than “gave which surety] no substantial [the basis upon which to resist payment.” Id. at 255. In the case, Atlantic’s communication to Ulico was not so general. Atlantic $4,834.14 informed Ulico by letter that had been paid already and that the from remaining bills Clear- water “being were disputed and must be prior resolved completion of payment.” however,

The reasonableness inquiry, should involve more than an assessment of the principal’s cooperation with the surety. The also has a responsibility to understand the terms and coverage agreement the bond and carefully investigate nature of the claim from sources, all available including obligee. Should the surety then learn for certain that a particular claim is not covered by yet the bond pays it nonetheless, view, payment, the in my pass could not the case, reasonableness test. In the instant Atlantic not the only source from which Ulico could have obtained information about the coverage of Clearwater, Clearwater’s claim. itself, had knowledge of the specifics of its contract with Atlantic and the work it completed on Atlantic’s machinery. The informa- tion provided by Clearwater in the Proof of Claim form and statements, billing by means, no establishes that its to charges Atlantic were covered surety fact, the bond. In because the nature of the work described Clearwater’s bills to (i.e., Atlantic substantial repairs to machinery), durable the documents should have alerted Ulico that Clearwater was not to for “labor and agreement

entitled under the bond payment materials,” an upon that relied at trial. As a document Ulico con- engaged insuring in the business of construction entity tracts, that substantial Ulico should have considered such machinery to add to value of that might durable the repairs thus, and, fall the of the bond. equipment coverage outside investigated A well have Clear- surety might reasonable before the claim. greater scrutiny paying water’s claim with Tanner, surety’s of a the court held that the reasonableness which thoroughness on the with depends part P.2d at The court investigated each bond claim. 910 880-81. surety’s prac- recognized investigation that “the is ‘standard factual Affirming in the Id. the trial court’s industry.” tice’ unreasonable, surety’s the were the finding payments “did not persuaded by surety court was the fact a rather thorough investigation” “simply paid conduct but indemnification.” Id. sought claims Evidence in case raises similar about present questions surety’s investigation. request After the initial claim form, to learn Proof of Claim Ulico did not consult Clearwater provided about nature of service to Atlantic. more did to contact allegedly attempt Atlantic’s President When to mes- neglected return the telephone, Ulico circumstances, these of fact could sages. Considering trier investigate conclude that Ulico’s efforts to the Clearwater thorough. claim were less than rea- Finally, only majority is the conclusion regarding incorrect, that con- precedent sonableness established unjust clusion lead enforcement of unreasonable could If were under surety payments. Ulico’s reasonable payments circumstances, could be of a the same said is, even for some pays though principal who the claim reason, with the sure- promptly other unable communicate where the is con- ty. might principal Such situation arise has not ducting principal business overseas or where claim. surety’s obligee received the notification majority’s holding gives broad license sureties settle they claims on the basis that have not only received detailed principal. longer instructions from the No must sureties seek clarification from other principal sources than the or concern themselves with the terms of A specific agreements. finder of might very fact well determine that should sureties be held to a much higher standard of conduct than what the dictates is majority reasonable.

I would reverse judgement Special the Court of Appeals and remand this case for an application appro- fact-finder, priate standard and so that a not appellate judges, can determine whether Ulico’s the Clearwater claim was reasonable.

Chief BELL Judge Judge ELDRIDGE authorize me to state that they join this dissent.

Case Details

Case Name: Atlantic Contracting & Material Co. v. Ulico Casualty Co.

Court Name: Court of Appeals of Maryland

Date Published: Mar 12, 2004

Citation: 844 A.2d 460

Docket Number: 51, Sept. Term, 2003

Court Abbreviation: Md.