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Stewart v. Continental Casualty Company

United States District Court, S.D. Alabama, Southern Division

June 25, 2014

KAREN WELDIN STEWART, CIR-MI, INSURANCE COMMISSIONER OF THE STATE OF DELAWARE, Plaintiff,
v.
CONTINENTAL CASUALTY COMPANY, Defendant and Counterclaim Plaintiff,
v.
COLTIN ELECTRIC, INC., Counterclaim Defendant.

ORDER

KRISTI K. DUBOSE, District Judge.

This action is before the Court on the motion for partial summary judgment filed by defendant Continental Casualty Company (Continental) and documents in support (doc. 135), the response in opposition filed by plaintiff Karen Weldin Stewart, CIR-MI, Insurance Commissioner of the State of Delaware (the Commissioner) (docs. 137, 138) and Continental's reply (doc. 146).[1] Upon consideration and for the reasons set forth herein the motion is GRANTED in part.

I. Background

Elkins Constructors, Inc. had a contract with the University of South Alabama on a public works construction project to build a dormitory. Continental issued the payment bond for Elkins on the project. In July 2010, Elkins entered into a subcontract with Coltin Electric, Inc. (Coltin) for electrical work. Elkins failed to pay Coltin for certain materials, equipment, and labor on the project. On May 25, 2012, Coltin submitted a Claim for Additional Compensation against Elkins' Payment Bond. (Doc. 135-2, Affidavit of David Birklebach, Elkins Project Manager; Doc. 135-3, Claim) The parties were unable to resolve the dispute and this action was filed on August 22, 2012 (Doc. 1).

In the complaint, Coltin brought one claim against Elkins' payment bond with Continental. Coltin seeks damages for labor productivity losses in its field work on the project. Coltin attributes those losses to Elkins' mismanagement of the scheduling of sub-contractors and suppliers and its changes to schedules, including instituting a 24-hour schedule, in order to complete the project on time. Coltin alleges that it had to hire additional employees and perform additional work in order to accelerate and complete its work.

Coltin states that it began to accrue the labor productivity losses upon receipt of the amended project schedule on November 16, 2010. (Doc. 1; Doc. 135-1, p. 7) Coltin alleges that it also performed additional work that was beyond the scope of the base contract. Coltin seeks payment of "at least" $804, 827.63 against Elkins' bond with Continental.

Continental answered the complaint and counterclaimed against Coltin. (Doc. 132) Continental alleges that Mathes Electric Supply Company, Inc. and Mayer Electric Supply Company, Inc. provided materials to Coltin for the project, Coltin did not pay the suppliers, and they filed a claim and a lawsuit against Continental and other parties for payment for the materials. Continental seeks indemnification for these claims and all costs, damages, expenses and attorney's fees arising from the defense and resolution of these claims, based upon the indemnification and hold harmless provision of the subcontract between Coltin and Elkins.

Ullico Casualty Company provided the project bond for Coltin. Coltin agreed to indemnify Ullico against any claims, and as security assigned its claims against third parties relating to a bonded contract. After Coltin filed this lawsuit Ullico went into receivership in the state of Delaware and the Commissioner was appointed as the Receiver. The Commissioner exercised Ullico's right to Coltin's claims against Elkins' bond and moved for substitution. The motion was granted and the Commissioner was substituted for Coltin. (Doc. 66)

II. Findings of Fact[2]

During the course of the project, beginning in August 2010, Coltin submitted monthly "Subcontractor's Applications and Certificates of Payment", (payment applications) to Elkins. Along with each application, Elkins required that Coltin and its subcontractors or suppliers execute a release of lien. A form captioned "Release of Lien-Alabama" accompanied or followed the payment applications.

The first payment application was submitted for the period ending August 31, 2010. Melissa Hirmer, an employee of Coltin identified by title as "Accounts Receivable" signed the application in September 2010. Elkins later requested a "lien release to release [the] August payment." Hirmer signed a release of lien for the period ending August 31, 2011, and emailed it to Elkins on October 5, 2010 asking for overnight delivery of the check. (Doc. 146-1, p. 2-3). Coltin received payment in early October 2010. (Doc. 146-1, p. 2, email to Hirmer on October 6, 2010, "Going out today will have tomorrow") In relevant part, the release provides that upon receipt of the amount due for the period ending August 31, 2010, Coltin released and waived any and all liens and claims or rights of lien upon or against the project bonds. (Doc. 146-3)

The second payment application was submitted for the period ending September 30, 2010. Hirmer signed the application on September 24, 2010. (Doc. 146-1, p. 20-23) On November 23, 2010, Elkins' Project Accountant Linda Anderberg, emailed Hirmer stating that "[i]n order to release this check... I still am in need of your waiver" and attached a release for Coltin to execute. (Doc. 146-1, p 20-21). That same day, Alan K. Rodgers, identified as the CEO of Coltin, signed the release of lien for the period ending September 30, 2010 (Doc. 146-1, p. 24). The release was emailed to Elkins. (Doc. 146-1, p. 20, email with attachment) In the release, in relevant part, Coltin acknowledged payment received through August 31, 2010 and released and waived any and all liens and claims or rights of lien upon or against the project bonds through that date. Also, the release provided that upon receipt of payment for the period ending September 30, 2010, Coltin released and waived any and all liens and claims or rights of lien upon or against the project bonds for the period ending September 30, 2010. (Doc. 146-4, Doc. 146-1, p. 24)

The third application for payment was submitted for the period ending October 31, 2010. Hirmer signed the application on November 3, 2010. (Doc. 146-5) It appears that no release was submitted. (Doc. 146-2, Birkelbach Affidavit ¶ 10)

The fourth application for payment was submitted for the period ending November 30, 2010. Hirmer signed the application on November 24, 2010. Hirmer signed the release on January 20, 2011. In the release, in relevant part, Coltin acknowledged payment received through October 31, 2010 and released and waived any and all liens and claims or rights of lien upon or against the project bonds through that date. Also, the release provided that upon receipt of payment for the period ending November 30, 2010, Coltin released and waived any and all liens and claims or rights of lien upon or against the project bonds for the period ending November 30, 2010. (Doc. 146-6)

The fifth application for payment was submitted for the period ending December 31, 2010. Hirmer signed the application on December 22, 2010. Hirmer signed the release on February 7, 2011. (Doc. 146-1, p. 9) In the release, in relevant part, Coltin acknowledged payment received through November 30, 2010 and released and waived any and all liens and claims or rights of lien upon or against the project bonds through that date. Also, the release provided that upon receipt of payment for the period ending December 31, 2010, Coltin released and waived any and all liens and claims or rights of lien upon or against the project bonds for the period ending December 31, 2010. (Doc. 146-7)

In sum, Hirmer executed releases for payment applications 1, 4, and 5, there was no release submitted for payment application 3, and Rodgers executed the release for payment application 2. In reliance on the releases signed by either Hirmer or Rodgers, Elkins made payments to Coltin for these payment applications. (Doc. 146-2, Birkelbach Affidavit, ¶¶ 10-11)

The sixth application for payment was submitted for the period ending January 31, 2011. Hirmer signed the application on January 20, 2011. (Doc. 146-8, Doc. 146-1, p. 26-33 (email)) Coltin sought payment of $82, 045.96. It appears that no release was submitted at that time. (Doc. 146-1, p. 26)

The seventh application for payment was submitted for the period ending February 28, 2011. Hirmer signed the application on February 25, 2011. (Doc. 146-9, Doc. 146-1, p. 11, email from Hirmer to Anderberg) Coltin sought payment of $64, 766.25. (Doc. 146-9) That same day, Hirmer signed a release for the period ending February 28, 2011, which was submitted with the payment application. The release included the amount due from the sixth payment application - $82, 045.96 - for a total of $146, 812.20 and sets forth, in relevant part, as follows:

1. The undersigned acknowledges receipt of aggregate payments of $236, 690.07 (amounts received to date), representing all payments due the undersigned through 12.31.1[0] ( sic ) (effective date of last paid application for payment), for all labor, materials, equipment or services theretofore furnished for the referenced Project. The undersigned does hereby release Owner and its Lender and Elkins Constructors, Inc., and does hereby fully release and waive any and all liens and claims or rights of lien upon or against the Project Funds and Project Bonds, the land whereon is situated the construction Project and all buildings or structures thereon, for all labor, materials, equipment or services furnished through the aforesaid effective date of the last paid application for payment.
2. Subject to receipt of the current amount due of $146, 812.20, for the period ending 02.28.11 (effective date of current application for payment), the undersigned does release Owners and its Lender and Elkins Constructors, Inc., and does hereby fully waive and release any and all liens and claims or rights of lien upon or against the Project Funds and Project Bonds, the land whereon is situated the construction Project and all buildings or structures thereon, for all labor, materials, equipment or services furnished through the aforesaid effective date of the current application for payment.

(Doc. 135-5, p. 10; Doc. 146-1, p. 16)

On the morning of April 20, 2011, Anderberg emailed Hirmer that funds had been released for February and that she had "two checks for you" since Anderberg still did not have the "$10.00 release from Rexel [a sub-sub-contractor] to release your [January] check." (Doc. 146-1, p. 34) At this point, Anderberg was holding a check dated March 30, 2011, in the amount of $82, 045.96 for the January payment and a check dated April 19, 2011, in the amount of $64, 766.25 for the February payment. (Doc. 135-6; 135-7) With her email, Anderberg provided two release forms for January and February. (Doc. 146-1, p. 36-37) These two forms contained a release and waiver of any and all liens and claims or rights of lien against the project bonds.

Later that day, Anderberg emailed Hirmer stating "I didn't get your [January] waiver yet??" to which Hirmer replies: "Attached is our waiver thru 01.31.11". (Doc. 146-1, p. 39) The release (waiver) attached was signed by Rodgers on April 21, 2011. (Doc. 146-1, p. 40) This release was not the form sent by Anderberg and did not release or waive any liens and claims or rights of lien against the Project Funds or the Project Bonds. Coltin changed the form of the release submitted for payment. (Doc. 138-1, Rodgers Affidavit) The release submitted on April 21, 2011 for the period ending January 31, 2011, sets forth in relevant part as follows:

1. The undersigned acknowledges receipt of aggregate payments of $235, 690.10 (amounts received to date), representing all payments due the undersigned through 12/31/2010 (effective date of last paid application for payment), for all labor, materials, equipment or services theretofore furnished for the referenced Project. The undersigned does hereby release and waive any and all liens and rights of lien upon or against the land wherein the Project is situated and all buildings or structures thereon, for all labor, materials, equipment or services furnished through the aforesaid effective date of the last paid application for payment.
2. Subject to receipt of the current amount due of $82, 045.96, for the period ending 01/31/2011 (effective date of current application for payment), the undersigned does release any and all liens or rights of lien upon or against the land whereon the Project is situated and all building or structures thereon, for all labor, materials, equipment or services furnished through the aforesaid effective date of the current application for payment.

(Doc. 135-4, p. 7; Doc. 146-1, p. 40)

The check for January was sent to Coltin and cleared the bank on April 25, 2011. (Doc. 135-6) According to David Birkelbach, Elkins' Project Manager, Elkins did not notice the change in the form and issued payment to Coltin. (Doc. 146-2, p. 4, Birkelbach Affidavit)

On May 5, 2011, Anderburg emailed Hirmer stating "My records show that I need the following waivers to be able to release your Feb. check: Your waiver (attached)", waivers from suppliers and vendors, and "Once I have these I can release your [February] check." (Doc. 138-1, p. 11-12) On May 5, 2011, Rodgers[3] executed a release for the period ending February 28, 2011, which was sent to Anderberg. (Doc. 138-1, p. 7; Doc. 146-1, p. 45) As with the January payment application, this release did not contain a release and waiver of liens and claims or rights of liens against the payment bond. According to Birkelbach, Elkins did not know that it "had already received the executed Release from Coltin which conditionally released Coltin's claims and liens through February 28, 2011[.]" (Doc. 146-2, p. 4)

The check for February was sent to Coltin on May 6, 2011 by overnight delivery (doc. 138-1, p. 15-16) and the check cleared on May 10, 2011. (Doc. 135-7)

The eighth application for payment had been signed by Hirmer and submitted on March 18, 2011, for the period ending March 31, 2011. (Doc. 146-10) On May 6, 2011, [4] Anderberg emailed Hirmer that Elkins had been paid for March and that she needed Coltin's waiver and release and the waivers for the suppliers, to release the March payment to Coltin. (Doc. 138-1, p. 14) Rodgers signed the release for March on June 3, 2011 and sent it to Elkins. (Doc. 146-10, p. 8) The release did not release and waive Coltin's rights and claims against the Payment Bond.

On June 6, 2011, Anderberg emailed Crystal Standland at Coltin: "Call me please to discuss - there is language that is missing from the [March] waiver that you sent me, that is why I had to send you another one." (Doc. 138-5, p 3) Rodgers responded to Anderberg: "We are a bit confused that the language on the waiver is not acceptable. We have submitted the waiver for January and February with no problem on payment. Why is this a problem now?" (Doc. 138-5, p. 3) Anderberg responds: "The Jan and Feb waivers should not have been accepted and I just ...


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