Judge stays proceedings in Liberty Mutual Insurance dispute over costs of performance bonds

By Sam Knef | Sep 11, 2018

ST. LOUIS – A federal judge has stayed proceedings in an insurance company's pursuit of indemnification because of an ongoing state court case that seeks to resolve the same issues.

According to U.S. District Court for the Eastern District of Missouri Judge Catherine Perry's Aug. 28 order, Liberty Mutual Insurance Co. brought a case against Wright Construction Services and R.V. Wagner, as well as their owners and spouses, seeking indemnification under the parties' general agreement and costs of enforcing it.

"Because I conclude that these state and federal court proceedings are parallel and that exceptional circumstances warrant abstention, I will stay the federal proceeding," Perry wrote.

Background information in the ruling indicates that Wright Construction chose Liberty Mutual as its surety to issue performance bonds in construction contracts in 2012, with the parties later agreeing to indemnify the insurer if any requests to execute any of the bonds arose. Defendants Daniel J. Wagner, Nathan A. Bibb and RHP Commercial later agreed to be bound by the same agreement.

A construction project known as the Hillsborough Lofts in North Carolina declared a contractor's default against Wright Construction in 2015, and Hillsborough asserted a claim against Liberty Mutual under the performance bonds.

The order indicates that Liberty Mutual denied Hillsborough's claim in August 2016 and that later in arbitration, Wright and Liberty prevailed over Hillsborough.

It also states that in the meantime, Liberty obtained a $1 million letter of credit from the defendants as collateral to secure their obligation to Liberty.

According to the order, Liberty expended $1.3 million in executing the Hillsborough bond and in enforcing the indemnity agreement.

In its federal case, Liberty seeks to recover fees, costs and expenses in executing the bonds, among other things.

When Liberty Mutual brought its action against the defendants there was already a state court action that Wright Construction and R.V. Wagner brought against Liberty over its handling of the Hillsborough claim, the order indicates.

Wright Construction and R.V. Wagner claim that Liberty was not required to act on the Hillsborough claim because of its own breach of construction contract.

Perry wrote that she would abstain from exercising jurisdiction over the case before her in favor of the state-court proceeding. But instead of dismissing the case she stayed proceeding to assure "it can proceed without risk of a time bar if the state case, for any reason, fails to resolve the matter in controversy.”

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