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SURETY ENTITLED TO OFFSET LOSSES ON ONE CONTRACT WITH PAYMENT ON ANOTHER

Wednesday, January 02, 2013 04:25 am

 

Surety -- Performance Bond

Hartford Fire Insurance Co. v. U.S., 2012 Ct. Fed. Cl. No.11-499C (Oct. 22, 2012)

A surety that performed in a defaulted contractor's place claimed it was entitled to the $700,000 the government owed the contractor under a separate contract. That argument survived a motion to dismiss by relying on the Transamerica precedent's "two-contract" recovery theory.

Hartford Fire Insurance Company (Hartford) was a Miller Act surety for contractor Overstreet Electric Co. (Overstreet) on two U.S. Army Corps of Engineers (Corps) projects--one to replace a weir in the Savannah Harbor area in Georgia and the other to rehabilitate pumping stations along the Little Calumet River in Indiana. For both projects, Hartford provided payment and performance bonds in the amount of approximately $4 million. Hartford claimed that, after terminating Overstreet for default on both projects, the Corps wrongfully paid the contractor $700,000 in violation of the Corps' duty to the surety. Hartford filed a complaint in the Court of Federal Claims, seeking to exercise its right of equitable subrogation (i.e., the right of a performing surety to step into the shoes of the defaulted contractor). The Corps moved to dismiss for a failure to state a claim upon which relief can be granted.

The $700,000 was a settlement fee from the Savannah project. Overstreet had disputed the default termination of that project and sought a conversion to a convenience termination based on alleged defective specs and differing site conditions. The Corps agreed to the termination conversion and the settlement fee. Then, when Overs [...]

 
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