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Associated Construction / AP Construction, LLC v. Hanover Insurance Co.

United States District Court, D. Connecticut

August 21, 2018

ASSOCIATED CONSTRUCTION / AP CONSTRUCTION, LLC Plaintiff,
v.
THE HANOVER INSURANCE COMPANY, et al. Defendants.

          RULING ON MOTION FOR SUMMARY JUDGMENT

          Michael P. Shea, U.S.D.J.

         I. Introduction

         This lawsuit arises out of surety bonds issued for a construction project in Stamford, Connecticut. Associated Construction / A.P. Construction, LLC (“Associated Construction”), a construction contractor, alleges that the issuer of the bonds, Hanover Insurance Company (“Hanover” or the “Surety”), and its alleged agents, Scott Adams, Avalon Risk, LLC (“Avalon”), and Lighthouse Management, LLC (“Lighthouse”), failed to perform under the bonds and other related contracts and made misrepresentations in connection with the project. Associated Construction brings claims for (i) breach of contract (count one); (ii) violation of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq. (“CUTPA”) (count two); (iii) breach of the covenant of good faith and fair dealing (count three); and (iv) violation of the Connecticut Unfair Insurance Practices Act, Conn. Gen. Stat. § 38a-815 et seq. (“CUIPA”) (count four).

         Now before me is a motion for partial summary judgment brought by Hanover. (ECF No. 151). For the reasons that follow, Hanover's motion for summary judgment (ECF No. 151) is GRANTED IN PART AND DENIED IN PART. It is granted with respect to Associated Construction's CUIPA claim. It is granted with respect to the allegations in the CUTPA claim that Hanover failed to perform under the Performance Bonds prior to Intext's termination and refused to acknowledge liability under the Performance Bonds in amounts greater than those set forth in each bond. The motion is denied with respect to the remainder of the CUTPA claim. The motion is granted with respect to the allegations in the breach of contract claim concerning Hanover's failure to perform under the Performance Bonds prior to Intext's termination and its alleged authorization of disbursement of funds after Intext's default; it is denied with respect to all other parts of that claim. Finally, the motion is denied with respect to the majority of the bad faith claim, save those portions of the claim concerning Hanover's refusal to perform on the Performance Bonds prior to Intext's termination.

         II. Background

         A. Factual Background

         1. The Bonds

         The following facts, which are taken from the parties' Local Rule 56(a) Statements and the exhibits, are undisputed unless otherwise indicated.

         Associated Construction “entered into a guaranteed maximum price contract with Trinity Stamford Phase Two, LLC . . . to construct a residential apartment complex in Stamford, Connecticut (“the Project”). (ECF No. 153, Hanover's Local Rule 56(a)1 Statement (“Def.'s L.R. 56(a)1 Stmt.”) at ¶ 1); ECF No. 176-1, Associated Construction's Local Rule 56(a)2 Statement (“Pl.'s L.R. 56(a)2 Stmt.”) at ¶ 1.) “Intext Building Systems Inc. (“Intext”) offered to enter into a single subcontract with [Associated Construction] to perform the framing and drywall related work (“Sheetrock Work”) on the Project (“Original Scope”), in an amount in excess of $4, 500, 000.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 2; Pl.'s L.R. 56(a)2 Stmt. at ¶ 2 (but stating the amount as $4, 510, 000).) Associated Construction required Intext to procure payment and performance bonds to acquire the subcontract for the Sheetrock Work on the Project.[1] (Def.'s L.R. 56(a)1 Stmt. at ¶ 3; Pl.'s L.R. 56(a)2 Stmt. at ¶ 3.) To assist Intext in this endeavor, Associated Construction introduced the company to bonding agent Woodrow Baird. (Def.'s L.R. 56(a)1 Stmt. at ¶¶4-5; Pl.'s L.R. 56(a)2 Stmt. at ¶¶4-5.)

         Baird approached Avalon, a “general managing agent for the Surety.” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 6-7; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 6-7.) The parties diverge as to what happened next. Associated Construction alleges that Scott Adams, the president of Avalon, represented that “he could not issue a single bond for an amount greater than $2, 000, 000 but [that] he could issue bonds which in the aggregate [would] reach the proposed contract amount and perform as would a single bond.” (Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 8-9.) Hanover alleges that Adams represented to Intext and Associated Construction only that “Avalon's discretionary authority was limited to $2 million per bond and that Avalon lacked authority to issue a single bond in the amount of $4, 510, 000.” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 9-10.)

         Associated Construction ultimately “entered into three subcontracts which, in total, encompassed the Original Scope.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 11; Pl.'s L.R. 56(a)2 Stmt. at ¶ 11.) The first of these was a “subcontract with Intext in the amount of $1, 987, 000 to perform the interior and exterior metal stud framing (‘Framing Subcontract').” (Def.'s L.R. 56(a)1 Stmt. at ¶ 12; Pl.'s L.R. 56(a)2 Stmt. at ¶ 12.)[2] Associated Construction executed the second subcontract “with Intext in the amount of $1, 881, 000 to perform, among other tasks, the drywall installation, fire-stopping, insulation, carpentry, and the coordination of tasks among the three subcontracts” (“Drywall Subcontract”). (Def.'s L.R. 56(a)1 Stmt. at ¶ 13; Pl.'s L.R. 56(a)2 Stmt. at ¶ 13.) Associated Construction executed the third and final subcontract in connection with the Project with IBS Systems, Inc., an entity related to Intext, “in the amount of $642, 000 . . . for the purchase of drywall materials (‘Materials Subcontract').” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 14-15; Pl.'s L.R.56(a)2 Stmt. at ¶¶ 14-15.) “Three sets of payment and performance bonds (‘the Bonds') were issued on November 1, 2013 in relation to the Subcontracts, ” each of which utilized the AIA A-311 bond form. (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 16-17; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 16-17.)

         The parties dispute the terms of the bonds issued in connection with the subcontracts listed above. Hanover contends that “bonds were issued in the maximum amount of $1, 987, 000 for the Framing Subcontract, ” “$1, 881, 000 for the Drywall Subcontract, ” and “$642, 000 for the Materials Subcontract.” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 18-20.) Associated Construction denies that any of the bonds “have a limit in them.” (Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 18-20.) While Hanover alleges that “[t]he [b]onds were underwritten and issued by [Avalon]” (see Def.'s L.R. 56(a)1 Stmt. at ¶ 21), Associated Construction contends that “[t]he bonds [were] written by Hanover and the power of attorney is attached indicating as such” (Pl.'s L.R. 56(a)2 Stmt. at ¶21). Hanover also contends that “[e]xcluding the actions and knowledge of Defendant Adams, the Surety did not have actual, prior notice of and was not involved in the underwriting or issuance of the [b]onds.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 23.) Associated Construction denies this contention and avers that Adams was Hanover's “general agent and as such, what he knew and did, was known and done by Hanover.” (Pl.'s 56(a)2 Stmt. at ¶ 23.)

         2. Intext's Default and Termination

         In the spring of 2014, Intext began having difficulties performing under the Subcontracts. Hanover claims that Adams did not inform it of any such difficulties before June 12, 2014, and that “[t]he Surety first received actual notice of performance issues regarding the Bonds through a phone call Mr. Brenstrom received on [that date] from Mr. Thomas Walsh, who was a senior executive with [Associated Construction].” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 24-25.) Associated Construction denies this account, averring that “Adams's knowledge is attributable to Hanover, ” and that Hanover received “notice when [Adams] received notice on April 8, 2014, June 2, 2014, June 6, 2014, and June 12, 2014.” (Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 24-25.) Associated Construction also contends that Adams attended a May 8, 2014 meeting at its office and “made [a] direct representation to [Associated Construction] that Hanover would support Intext and help it finish the Project”; it also contends that Adams “said there was enough money available to finish the job.” (Pl.'s L.R. 56(a)2 Stmt. at ¶ 116.)

         Regardless of which of these accounts is correct, Hanover “commenced an investigation regarding performance and payment issues relating to the Bonds” after Brenstrom's phone call with Walsh. (Def.'s L.R. 56(a)1 Stmt. at ¶ 27; Pl.'s L.R. 56(a)2 Stmt. at ¶ 27.) Hanover contends that it “initially ascertained that Intext/IBS and Defendant [Lighthouse] had entered into a Disbursement Control Agreement (“DCA”) regarding the Subcontracts.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 29.) Associated Construction contends that Hanover “knew or should have [already] known” this information given that Adams was in charge of “funds control” for the Bonds. (Pl.'s L.R. 56(a)2 Stmt. at ¶ 29.)

         Although the parties dispute the exact details, Associated Construction hired subcontractors to help supplement Intext's work at some point during this period. (See Def.'s L.R. 56(a)1 Stmt. at ¶ 38; Pl.'s L.R. 56(a)2 Stmt. at ¶ 38.) Hanover alleges that it “initially became aware that [Associated Construction] was supplementing Intext's Labor on the Project with other subcontractors through its receipt of [various letters on June 13, 2014].” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 33-34.) Associated Construction denies this proposition on the basis that it had sent notice to Adams earlier and that Adams's knowledge is imputable to Hanover. (Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 33-34.) Hanover also consented to an advance of $213, 666.72 to Intext in advance of these funds being earned under the Subcontracts. (See Def.'s L.R. 56(a)1 Stmt. at ¶¶ 39-40 (noting that Hanover consented to the advance); Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 39-40 (contending that Hanover did not have any right to object to the advance).) Hanover consented to several further advances both to Intext and to Intext's subcontractors. (See Def.'s L.R. 56(a)1 Stmt. at ¶¶ 41-42, 44; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 41-42, 44 (agreeing that Hanover consented to the advances but contending it had no right to object to them in any event).) On July 14, 2018, Associated Construction ‘issued termination notices to Intext and IBS . . ., one relating to the Framing and Drywall Subcontracts and the other to the Materials Subcontract, with the terminations of the Subcontracts effective as of July 15, 2014.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 45; Pl.'s L.R. 56(a)2 Stmt. at ¶ 45.)

         3. Subsequent Events

         Following the “Intext/IBS termination, [Associated Construction] made multiple requests to the Surety for permission to pay amounts owed to the supplementing contractors from the undisbursed subcontract balances.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 48; Pl.'s L.R. 56(a)2 Stmt. at ¶ 48.) Hanover “consented to each of the[se] requests . . . and waived its defenses to such payments.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 49; Pl.'s L.R. 56(a)2 Stmt. at ¶ 49.) At some point in July 2014, the Surety “advised [Associated Construction] that its completion obligations under the Performance Bonds were triggered by the bonded subcontractors being terminated.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 51 (averring that this occurred “no later than the end of July 2014”); Pl.'s L.R. 56(a)2 Stmt. at ¶ 51 (noting that the “Surety states it had this information by July 7, 2014”).) At this point, the parties' accounts once again differ. Hanover claims that “[b]y no later than the end of July 2014, the Surety had advised [Associated Construction] that its completion options under the Performance Bonds included a right to pay [Associated Construction] for its completion costs incurred as a result of the Intext terminations in excess of the undisbursed contract balances under each subcontract.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 52.) Hanover also claims that it informed Associated Construction during this same timeframe “that the Performance Bonds were separate legal obligations, each with a separate maximum exposure amount.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 54.) Associated Construction denies both of these contentions. (Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 52, 54.)

         “Beginning in July 2014, the Surety began advising [Associated Construction] that in order to determine whether amounts were owed under each of the Performance Bonds and, if so, how much was owed under each Bond, the Surety needed to determine the undisbursed subcontract balance under each of the Subcontracts and allocate [Associated Construction's] alleged completion costs among each of the three Subcontracts and three Performance Bond Claims.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 55; Pl.'s L.R. 56(a)2 Stmt. at ¶ 55.) In early July, Hanover “advised [Associated Construction] to allocate all of its costs claimed against the Surety (and contract funds disbursed) on a per Subcontract and per Bond basis so that the Surety could determine its exposure under each Bond . . . .” (See Def.'s L.R. 56(a)1 Stmt. at ¶ 56; Pl.'s L.R. 56(a)2 Stmt. at ¶ 56 (admitting everything but the date).)

         Over the next few months, Hanover requested “documentation and information in order to allocate among the Subcontracts the construction costs claimed by [Associated Construction] and the amounts of the undisbursed Subcontract balances under each Subcontract.” (Def.'s L.R. 56(a)1 Stmt. at ¶¶ 56, 58; Pl.'s L.R. 56(a)2 Stmt. at ¶¶ 56, 58.) In early September 2014, Associated Construction “initially transmitted to the Surety an allocation by Subcontract of actual construction costs incurred post termination and claimed under the Bonds.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 60; Pl.'s L.R. 56(a)2 Stmt. at ¶ 60.) Despite these disclosures, Hanover's consultant, Leon Mularski, informed the company that “the documentation needed to evaluate the allocations of costs as well as to accurately determine the Subcontract balances had not been sufficiently disclosed.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 61; Pl.'s L.R. 56(a)2 Stmt. at ¶ 61.)[3]

         In August 2014, “the Surety offered to [Associated Construction] to take over and complete areas of the framing work that were not already being worked on by [Associated Construction's] supplementing subcontractors and pay the excess completion costs for [Associated Construction's] supplementing contractors that were performing the work under the Drywall Subcontract . . . .” (Def.'s L.R. 56(a)1 Stmt. at ¶ 62; Pl.'s L.R. 56(a)2 Stmt. at ¶ 62.) Associated Construction “rejected the Surety's takeover proposal because it did not believe that the proposed completion contractor was competent to complete the framing work included within the Surety's proposed scope.” (Def.'s L.R. 56(a)1 Stmt. at ¶ 66; Pl.'s L.R. 56(a)2 Stmt. at ¶ 66.)

         In October 2014, the parties arrived at different understandings of the amounts Hanover owed on the Bonds. After a meeting occurring on October 10, 2014 between representatives of the parties, Mularski “advised the Surety that he was initially able to allocate construction costs and finalize undisbursed contract balances with a reasonable degree of accuracy and to understand how his analysis differed from the allocations assigned by [Associated Construction].” (Def.'s L.R. 56(a)1 Stmt. at ¶ 70; Pl.'s L.R. 56(a)2 Stmt. at ¶ 70.) Hanover sent Mularski's analysis to Associated Construction on October 14, 2014. (Def.'s L.R. 56(a)1 Stmt. at ¶ 73; Pl.'s L.R. 56(a)2 Stmt. at ¶ 73.)

         At a meeting that took place between the Surety and Associated Construction on October 15, 2014, the parties came to an agreement whereby the Surety would pay Associated Construction $1, 881, 000 “representing what the Surety believes is the final payment for all claims under the Drywall Performance Bond” and “$475, 733.17 in regard to [Associated Construction's] claim under the Framing Performance Bonds.” (See Brenstrom Aff., Ex. 21 at 1-2; Def.'s L.R. 56(a)1 Stmt. at ¶ 79 (referring to this agreement as the memorialization of the parties' terms); Pl.'s L.R. 56(a)2 Stmt. at ¶ 79 (same).) Although the parties' agreement memorialized these terms, it also noted that Associated Construction “reserves all of its rights, claims and defenses as to claims for additional sums under the [Framing Bond], the [Drywall Bond] and the [Materials Bond][, ] as well as claims for additional sums relating to the Framing, Drywall and Materials Subcontracts (including but not limited to claims for extra-contractual damages and claims that in effect, the subcontract is one agreement or there are no limits on the amount the Surety is liable for under each or any bond).” (Brenstrom. Aff., Ex. 21 at 3.)

         B. Associated Construction's Complaint Against Hanover

         As a result of the events listed above, Associated Construction brought four claims against Hanover: (i) a breach of contract claim predicated upon Hanover's alleged breach of the “Performance Bonds' terms, ” along with the disbursement control agreements (“DCAs”) regulating the disbursement of funds to Intext (ECF No. 43 (“Complaint”) at ¶¶ 44-59); (ii) a CUTPA claim based upon all of the conduct listed above (id. at ¶¶ 60-69); (iii) a bad faith claim predicated upon Adams's alleged misrepresentations and Hanover's failure to perform under the Bonds (id. at ¶¶ 70-82); and (iv) a CUIPA claim that in effect mirrors the CUTPA claim (id. at ¶¶ 83-90). Associated Construction's complaint focuses on three general areas of conduct. First, it contends that Adams, acting as an agent of Hanover, made a misrepresentation at an October 9, 2013 meeting with Associated Construction that the three Performance Bonds would act the same as one bond. (See, e.g., id. at ¶ 62(g).) Second, it alleges that Adams, once again acting as an agent for Hanover, misrepresented at a May 8, 2014 meeting with Associated Construction that Hanover would support Intext and enable it to complete the Sheetrock Work on schedule, and that there were adequate funds to complete the Project. (See, e.g., id. at ¶ 62(j-k).) Finally, Associated Construction contends that Hanover failed to perform under the Performance Bonds after Intext defaulted. (See, e.g., id. at ¶ 62(a-f, k-o).)

         III. Standard of Review

         Summary judgment is appropriate only when the moving party “shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “In making that determination, a court must view the evidence in the light most favorable to the opposing party.” Tolan v. Cotton, 134 S.Ct. 1861, 1866 (2014) (internal quotation marks omitted). “A fact is material if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184, 202 (2d Cir. 2007) (internal quotation marks omitted). The moving party bears the burden “of showing that no genuine factual dispute exists . . ., and in assessing the record to determine whether there is a genuine issue as to any material fact, the court is required to resolve all ambiguities and draw all factual inferences” in favor of the non-moving party. Cronin v. Aetna Life Ins. Co., 46 F.3d 196, 203 (2d Cir. 1995).

         IV. Discussion

         A. CUIPA ...


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