Dave's Excavating, Inc. and Liberty Mutual Insurance Co. v. City of New Castle, Indiana

FILED
Jan 11 2012, 9:08 am
FOR PUBLICATION
CLERK
of the supreme court,
court of appeals and
tax court
ATTORNEYS FOR APPELLANTS: ATTORNEYS FOR APPELLEE:
MICHAEL L. EINTERZ DAVID K. HERZOG
MICHAEL L. EINTERZ, JR. JON LARAMORE
Einterz & Einterz APRIL E. SELLERS
Zionsville, Indiana Baker & Daniels LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
DAVE‟S EXCAVATING, INC., and )
LIBERTY MUTUAL INSURANCE CO., )
)
Appellants-Defendants, )
)
vs. ) No. 33A04-1104-PL-199
)
CITY OF NEW CASTLE, INDIANA, )
)
Appellee-Plaintiff. )
APPEAL FROM THE HENRY CIRCUIT COURT
The Honorable Bob A. Witham, Special Judge
Cause No. 33C01-0601-PL-1
January 11, 2012
OPINION - FOR PUBLICATION
NAJAM, Judge
STATEMENT OF THE CASE
Liberty Mutual Insurance Company (“Liberty Mutual”) appeals two orders entered
by the trial court granting summary judgment in favor of the City of New Castle (“the
City”) in its suit against Dave‟s Excavating, Inc. (“Dave‟s”) on a construction contract
and against Liberty Mutual under a performance bond. Liberty Mutual presents four
issues for review, which we restate as:
1. Whether the trial court erred when it granted summary judgment in
favor of the City on the issue of Dave‟s‟ liability under the
construction contract.
2. Whether the trial court erred when it granted summary judgment in
favor of the City on the issue of Liberty Mutual‟s liability under the
performance bond.
3. Whether the trial court erred when it granted summary judgment in
favor of the City and awarded attorney‟s fees.
We affirm.
FACTS AND PROCEDURAL HISTORY
On February 9, 2004, the City accepted bids for a sanitation project in the recently
annexed McGrew Sanitation Area for a sanitary sewer and watermain extension (“the
Project”). The bidders were informed that the engineer‟s estimated cost was $1,319,279.
Dave‟s was the lowest bidder at $983,737.61.1 On March 5, 2004, the City and Dave‟s
executed a construction contract for the Project (“the contract”).2 Liberty Mutual
1
The parties agree that the engineer served as the City‟s agent for the Project. United Consulting
Engineers and Architects served as the engineer on the Project but is not a party in this case.
2
All references to the “construction contract” or “the contract” indicate the Standard General
Conditions of the Construction Contract, which the parties referred to as the General Conditions. The
2
guarantied Dave‟s performance with its performance bond (“the performance bond” or
“the bond”).
After the Project was underway, Dave‟s requested change orders. In one instance,
the City allowed Dave‟s to use excavated materials as backfill to reduce additional costs
arising from the nature of subsurface conditions. Then, on June 17, 2004, Dave‟s sent a
letter to the engineer “declaring „Differing Subsurface Conditions‟ in accordance with
Section 4.03 of the General Conditions[.]” Appellant‟s App. at 140. Dave‟s also stated
that it was “stop[ping] Work until direction has been received by [sic] the Engineer.” Id.
Section 4.03 of the General Conditions provides:
4.03 Differing Subsurface or Physical Conditions
A. Notice: If CONTRACTOR [Dave‟s] believes that any
subsurface or physical condition at or contiguous to the Site that is
uncovered or revealed either:
1. is of such a nature as to establish that any “technical
data” on which CONTRACTOR is entitled to rely as
provided in paragraph 4.02 is materially inaccurate; or
2. is of such a nature as to require a change in the
Contract Documents; or
3. differs materially from that shown or indicated in the
Contract Documents; or
4. is of an unusual nature, and differs materially from
conditions ordinarily encountered and generally recognized as
inherent in work of the character provided for in the Contract
Documents;
then CONTRACTOR shall, promptly after becoming aware thereof and
before further disturbing the subsurface or physical condition or perform
any Work in connection therewith . . . notify OWNER and ENGINEER in
writing about such condition. CONTRACTOR shall not further disturb
such condition or perform any Work in connection therewith . . . until
receipt of written order to do so.
entire contract was comprised of the General Conditions as well as other documents. Other documents
will be named specifically as referred to in this opinion.
3
B. ENGINEER‟s Review: After receipt of written notice as required
by paragraph 4.03.A, ENGINEER will promptly review the pertinent
condition, determine the necessity of OWNER‟s obtaining additional
exploration or tests with respect thereto, and advise OWNER in writing
(with a copy to CONTRACTOR) of ENGINEER‟s findings and
conclusions.
Appellant‟s App. at 490. Dave‟s followed its June 17 letter with another letter on June
22, requesting a contract price increase to $1,807,960.73, an eighty-four percent increase,
to complete work under the construction contract due to the alleged differing subsurface
conditions at part of the Project site.
The Project‟s engineer replied by letter dated July 6, informing Dave‟s that the
engineer was reviewing the claim of differing subsurface or physical conditions. The
letter also referred Dave‟s to Article 6, Paragraph 18 of the General Conditions, which
provides in relevant part that
CONTRACTOR shall carry on the Work and adhere to the progress
schedule during all disputes or disagreements with OWNER. No Work
shall be delayed or postponed pending resolution of any disputes or
disagreements, except as permitted by paragraph 15.04 or as OWNER and
CONTRACTOR may otherwise agree in writing.
Appellant‟s App. at 503. The engineer‟s letter stated further that it was “to serve as
[Dave‟s] written notice that in accordance with the Contract Documents, Dave‟s is not to
delay or postpone work on the Project during resolution of [the] claim. Please
recommence work immediately.” Id. at 347. Counsel for Dave‟s replied on July 7 that
“it is not possible for the work to be recommenced until the differing condition issue
ha[d] been resolved.” Id. at 348. Dave‟s also stated that the engineer‟s failure to
investigate and propose a change order “renders the City in default of the contract, and
4
allows Dave‟s Excavating, Inc. the opportunity to rescind the contract, cease work, and
avoid any further liability.” Id. at 348.
The engineer replied on July 9, stating in part:
Please be aware that [neither] we nor the City agree with the interpretation
of your legal council [sic] that you can refuse to re-commence work on the
project on Monday[,] July 12 as previously agreed. There will be no
additional tests or other subsurface investigation provided by the Owner as
such investigation was otherwise your responsibility if deemed necessary
prior to committing to the Contract Price and Time.
. . . The City has also advised our office to inform you that they [sic] will
consider you in breach of this Contract if you are not present and working
on the project at 8:00 a.m. local time on July 12, 2004[,] and will be
pursuing your bond as well as other available legal remedies that may be
appropriate.
Id. at 146 (emphasis added). Dave‟s completed work on the Project in all areas except
those related to the change order requests, but the City and Dave‟s could not reach an
agreement about the change orders based on the differing subsurface conditions claim.
On July 15, the engineer sent notice to Dave‟s and Liberty Mutual that the City
was considering declaring Dave‟s in default on the construction contract. That letter also
requested a meeting within fifteen days in accordance with paragraph 3.1 of the
performance bond. On July 19, the City‟s Board of Works and Safety voted to declare
the Project an emergency and to solicit bids from other contractors to complete the
Project.3 The City accepted bids in late July and, on July 29, the City held a pre-
quotation meeting with four potential bidders (“the completion bidders”). The materials
provided to the completion bidders stated that the “existence of sand and gravel is
3
The City‟s Board of Works and Safety declared an emergency in part because Indiana Code
Section 36-4-3-13(d)(5) requires utility installation within three years of annexation. The McGrew
Sanitation Area was annexed on March 12, 2002, pursuant to the supreme court‟s decision in Bradley v.
City of New Castle, 764 N.E.2d 212 (Ind. 2002).
5
anticipated in the project[,]” Appellant‟s App. at 788, information that had not been
provided in the previous bidding process. The material provided to the completion
bidders also included revised estimates that considered the allegedly unexpected
conditions Dave‟s had encountered on the Project, id. at 853-58.
On July 22, Liberty Mutual replied to the engineer‟s July 15 letter, requesting a
meeting between August 3 and August 6, outside of the fifteen-day time limit. The
following day the engineer replied, setting the meeting for August 4. At that meeting, the
City informed Dave‟s and Liberty Mutual of its intention to declare Dave‟s to be in
default. On August 9, following a vote by the Board of Works and Safety, the City gave
Dave‟s written notice that it had “declared a Contractor Default and formally terminated
[Dave‟s] right to complete the contract.” Id. at 569.
Also on August 9, the City sent a copy of the termination notice to Liberty Mutual.
That correspondence informed Liberty Mutual that the City had declared the Project an
emergency, that the City was scheduled to receive bids from completion bidders on
August 11, and that the City “demand[ed] that [Liberty Mutual] perform its obligations as
required by Paragraph 4 of the [performance b]ond.” Id. at 108. In a letter dated August
10, Liberty Mutual informed the City that it was investigating the City‟s claim on the
performance bond “under a strict reservation of all rights and defenses under the bond
and common law[.]” Id. at 210. Liberty Mutual also “call[ed] on [the City] to mitigate
[its] damages[.]” Id. The City replied on August 11 stating, among other things, that it
“has and will further demand [Liberty Mutual] to [sic] perform its Bond obligations[.]”
Id. at 580. Then, on August 31, the City wrote to remind Liberty Mutual that the surety
6
was obligated to act with reasonable promptness and “demand[ed] that the Surety
perform its obligations under this Bond[.]” to it. Id. at 588. The City noted that it had
received no official correspondence from Liberty Mutual since August 10.
Meanwhile, on August 16, the City‟s Board of Works and Safety awarded the
completion contract to Eagle Valley, Inc. at a contract price of $1,215,000. Eagle Valley
immediately began work on the Project and completed the same on December 16, 2004,
more than five months ahead of schedule and weeks in advance of the statutory deadline.
Eagle Valley completed the work at a rate nearly 100 feet per day faster than Dave‟s had
performed.
On March 25, 2005, the City gave written demand to Liberty Mutual for payment
under the performance bond because the City‟s costs in completing the Project had
exceeded the contract price with Dave‟s. Specifically, the City sought $427,524.54, the
amount paid in excess of the unpaid balance on the contract with Dave‟s. On January 6,
2006, the City filed its complaint against Dave‟s, seeking payment on the construction
contract, and against Liberty Mutual, seeking payment under the performance bond.
Dave‟s and Liberty Mutual answered and counterclaimed, alleging in relevant part that
the City had breached the construction contract. All parties moved for summary
judgment as to liability. The trial court heard argument on the motions on December 7.
Following a change of judge, a new summary judgment hearing was held April 30,
2010. On June 2, the trial court issued an order denying Dave‟s and Liberty Mutual‟s
motion for partial summary judgment and granting the City‟s cross-motion for partial
summary judgment. The City subsequently moved for summary judgment on the issue of
7
damages, including attorney‟s fees, and Dave‟s and Liberty Mutual filed a cross-motion
for summary judgment as to damages. The trial court granted the City‟s motion,
awarding damages and attorney‟s fees totaling $908,541,77, and denied Dave‟s and
Liberty Mutual‟s motion. Liberty Mutual now appeals.
DISCUSSION AND DECISION
Standard of Review
We review a summary judgment order de novo. Bules v. Marshall County, 920
N.E.2d 247, 250 (Ind. 2010). The purpose of summary judgment is to end litigation
about which there can be no factual dispute and which may be determined as a matter of
law. Shelter Ins. Co. v. Woolems, 759 N.E.2d 1151, 1153 (Ind. Ct. App. 2001), trans.
denied. We must determine whether the evidence that the parties designated to the trial
court presents a genuine issue of material fact and whether the moving party is entitled to
a judgment as a matter of law. Ind. Trial Rule 56(C); Bules, 920 N.E.2d at 250. We
construe all factual inferences in the nonmoving party‟s favor and resolve all doubts as to
the existence of a material issue against the moving party. Bules, 920 N.E.2d at 250.
Summary judgment is a lethal weapon and courts must be mindful of its aims and targets
and beware of overkill in its use. Heeb v. Smith, 613 N.E.2d 416, 420 (Ind. Ct. App.
1993), trans. denied.
Issue One: Construction Contract Liability
Liberty Mutual first contends that the trial court erred when it granted summary
judgment in favor of the City on the issue of liability under the construction contract. In
particular, Liberty Mutual contends that issues of fact preclude the entry of summary
8
judgment. Liberty Mutual also maintains that the City‟s breach of the contract bars
recovery and that the City failed to comply with the terms of the contract.4 We address
each contention in turn.
We first consider Liberty Mutual‟s contention that genuine issues of material fact
bar the entry of summary judgment for the City. On this point Liberty Mutual initially
states that a “detailed discussion of the disputed material facts is included in the
Appendix at pages 763-67, and, in the interest of brevity, Dave‟s [sic] incorporates those
pages herein for the Court‟s reference. In a general sense, however, the scope of work
for the project remains the core dispute in this matter.” Appellant‟s Brief at 25. But
Indiana Appellate Rule 46(A)(8)(a) provides that argument contained in an appellant‟s
brief “shall contain the appellant‟s contentions why the trial court . . . committed
reversible error[.]” Liberty Mutual may not evade this requirement by referring us to
arguments found in a brief filed at some earlier point. See Oxley v. Lenn, 819 N.E.2d
851, 856 n.2 (Ind. Ct. App. 2004) (holding same with regard to appellee‟s brief under
Appellate Rule 46(B)(2)). Liberty Mutual may not incorporate argument from another
source by reference. See id. Thus, we will consider only the argument set out in Liberty
Mutual‟s Appellant‟s Brief.
In its appellant‟s brief, Liberty Mutual contends that there is an issue of material
fact regarding the scope of work for the Project as a result of differing subsurface
conditions under section 4.03. In support, Liberty Mutual points to differences between
the bid documents provided when Dave‟s bid on the Project and those provided to
4
Liberty Mutual‟s liability under the performance bond is derivative of Dave‟s‟ liability under
the construction contract. We consider Liberty Mutual‟s liability under the performance bond in Issue
Two.
9
completion bidders. The City identified the subsurface sand and gravel conditions for the
first time during the emergency re-bidding process. The subsurface sand and gravel
conditions are the basis for Dave‟s request for change orders and its dispute with the City.
Dave‟s apparently reasons that since the completion bidders were informed that
the existence of sand and gravel was anticipated, while the previous bid documents did
not include that information, it follows that there is a genuine issue of material fact on
whether the subsurface sand and gravel conditions were outside the scope of work for the
Project that Dave‟s had undertaken. But Dave‟s‟ reliance on this argument is misplaced.
It is immaterial whether the bid documents provided to the completion bidders differed
from those provided to Dave‟s in the previous bidding process.5 The question presented,
and the dispositive issue, is whether Dave‟s breached the terms of its construction
contract with the City. Thus, Liberty Mutual has not shown the existence of a genuine
issue of material fact regarding the scope of the work which would bar the entry of
summary judgment.
Liberty Mutual next contends that summary judgment is barred because the City
breached the construction contract. Liberty Mutual‟s argument is founded on its
interpretation of certain contract provisions. The interpretation of a contract presents a
pure question of law and is reviewed de novo. Bailey v. Mann, 895 N.E.2d 1215, 1217
(Ind. 2008).
5
Liberty‟s argument that the information provided to the completion bidders differed from what
Dave‟s had received in the previous bidding process suggests a lack of meeting of the minds. But, as
discussed below, Dave‟s agreed when it executed the construction contract that it was fully informed of
the conditions that could affect work on the Project. Thus, we agree with the engineer that “such
investigation was otherwise [Dave‟s‟] responsibility if deemed necessary prior to committing to the
Contract Price and Time.” Appellant‟s App. at 146.
10
When construing the meaning of a contract, our primary task is to
determine and effectuate the intent of the parties. First, we must determine
whether the language of the contract is ambiguous. The unambiguous
language of a contract is conclusive upon the parties to the contract and
upon the courts. If the language of the instrument is unambiguous, the
parties‟ intent will be determined from the four corners of the contract. If,
on the other hand, a contract is ambiguous, its meaning must be determined
by examining extrinsic evidence and its construction is a matter for the fact
finder. When interpreting a written contract, we attempt to determine the
intent of the parties at the time the contract was made. We do this by
examining the language used in the instrument to express their rights and
duties. We read the contract as a whole and will attempt to construe the
contractual language so as not to render any words, phrases, or terms
ineffective or meaningless. We must accept an interpretation of the
contract that harmonizes its provisions, rather than one that places the
provisions in conflict.
Whitaker v. Brunner, 814 N.E.2d 288, 293-94 (Ind. Ct. App. 2004) (citations omitted),
trans. denied.
Here, Liberty Mutual asserts that the City failed to comply with section 4.03, the
differing subsurface provision of the construction contract. Section 4.03 has three parts:
a notice provision, a review provision, and a price and time adjustment provision. The
notice provision, quoted above, directs the contractor (Dave‟s), in the event it finds
differing subsurface or physical conditions, to notify the engineer of the situation and
then to perform no further work “until receipt of written order to do so.” Appellant‟s
App. at 490. The review and price and time adjustment provisions state:
B. ENGINEER‟s Review: After receipt of written notice as required
by paragraph 4.03.A, ENGINEER will promptly review the pertinent
condition, determine the necessity of OWNER‟s obtaining additional
exploration or tests with respect thereto, and advise OWNER in writing
(with a copy to CONTRACTOR) of ENGINEER‟s findings and
conclusions.
C. Possible Price and Time Adjustments
11
1. The Contract Price or the Contract Times, or both, will be equitably
adjusted to the extent that the existence of such differing subsurface or
physical condition causes an increase or decrease in CONTRACTOR‟s cost
of, or time required for, performance of the Work; subject, however, to the
following:
a. such condition must meet any one or more of the
categories described in paragraph 4.03.A; and
b. with respect to Work that is paid for on a Unit Price
Basis, any adjustment in Contract Price will be subject to the
provisions of paragraphs 9.08 and 11.03.
2. CONTRACTOR shall not be entitled to any adjustment in the
Contract Price or Contract Times if:
a. CONTRACTOR knew of the existence of such
conditions at the time CONTRACTOR made a final
commitment to OWNER in respect of Contract Price and
Contract Times by the submission of a Bid or becoming
bound under a negotiated contract; or
b. the existence of such condition could reasonably have
been discovered or revealed as a result of any examination,
investigation, exploration, test, or study of the Site and
contiguous areas required by the Bidding Requirements or
Contract Documents to be conducted by or for
CONTRACTOR prior to CONTRACTOR‟s making such
final commitment; or
c. CONTRACTOR failed to give the written notice
within the time and as required by paragraph 4.03.A.
3. If OWNER and CONTRACTOR are unable to agree on entitlement
to or on the amount or extent, if any, of any adjustment in the Contract
Price or Contract Times, or both, a Claim may be made therefor as
provided in paragraph 10.05. However, OWNER, ENGINEER, and
ENGINEER‟s Consultants shall not be liable to CONTRACTOR for any
claims, costs, losses, or damages (including but not limited to all fees and
charges of engineers, architects, attorneys, and other professionals and all
court or arbitration or other dispute resolution costs) sustained by
CONTRACTOR on or in connection with any other project or anticipated
project.
12
Appellant‟s App. at 490-91 (emphases added).
Liberty Mutual contends that the City breached the construction contract when it
“[i]gnored [the r]equirement to [i]nvestigate and [a]djust” the contract price or time.
Appellant‟s Brief at 18. But Liberty Mutual ignores that Dave‟s had first breached the
contract under section 4.03.A by refusing to resume work when directed to do so. See
Rogier v. Am. Testing & Eng‟g Corp., 734 N.E.2d 606, 620 (Ind. Ct. App. 2000) (“a
party who has breached a contract cannot take advantage of his breach to relieve him of
his contractual obligations”). In any event, as explained below, the City complied with
its obligations under section 4.03.
In its July 6, 2004, letter to Dave‟s, the engineer acknowledged receipt of notice of
a differing subsurface condition claim under section 4.03 of the contract. The engineer
then continued:
Your letter further states that Dave‟s is awaiting direction concerning your
claim of “differing subsurface” conditions in connection with the McGrew
Area Sanitation Sewer & Watermain Extension Project. Our office and
City representatives are currently reviewing your claim and information
recently supplied by your office. As indicated in your referenced General
Conditions Section 4.03, “Contractor shall not further disturb such
condition or perform any Work in connection therewith (except as
aforesaid) until receipt of written order to do so.” Also, we point out that
Article 6 (Contractor‟s Responsibilities), Paragraph 18 (Continuing to
Work), of the Standard General Conditions of the Construction Contract
states the following:
[]CONTRACTOR shall carry on the Work and adhere to the
progress schedule during all disputes or disagreements with
OWNER. No Work shall be delayed or postponed pending
resolution of any disputes or disagreements, except as
permitted by paragraph 15.04 or as OWNER and
CONTRACTOR may otherwise agree in writing.[]
13
As directed by the City of New Castle, this letter is to serve as your written
notice that in accordance with the Contract Documents, Dave‟s is not to
delay or postpone work on the Project during resolution of your claim.
Please recommence work on the Project immediately.
Appellant‟s App. at 347 (emphasis added).
Dave‟s, and now Liberty Mutual, have misconstrued section 4.03 of the
construction contract. That section instructed Dave‟s, upon giving notice of a differing
subsurface condition, to stop work “until receipt of written order to” recommence.
Appellant‟s App. at 490. That section does not make resumption of work contingent on
an investigation or on any adjustment of the contract price or time. It is undisputed that,
in the July 6 letter from the engineer, the City directed Dave‟s to resume work on the
Project immediately. Dave‟s‟ sole remedy for resolving its claim for an adjustment to the
contract price or time was governed by article 6 paragraph 18. Again, that provision
directed Dave‟s to
carry on the Work and adhere to the progress schedule during all disputes
or disagreements with OWNER. No Work shall be delayed or postponed
pending resolution of any disputes or disagreements, except as permitted by
paragraph 15.04 [not implicated here] or as OWNER and CONTRACTOR
may otherwise agree in writing.
Appellant‟s App. at 503. Dave‟s‟ refusal to resume work constituted a breach of the
construction contract.
Liberty Mutual‟s contention that the City failed to investigate the differing
subsurface condition claim is likewise without merit. The contract does not require the
City to “investigate” the physical site. Instead, section 4.03.B requires the City to
“review the pertinent condition[,]” here, the existence of sand and gravel at part of the
14
excavation site. Id. In the July 6 letter, the engineer stated that it was doing just that,
namely, “reviewing [Dave‟s‟] claim[.]” Id. at 350.
Still, in response to the engineer‟s July 6 letter, Dave‟s‟ counsel sent a letter
reiterating the position that the engineer was “required to investigate the site, perform the
necessary testing and investigatory work so as to determine the extent and nature of the
differing site condition” and that under section 4.03 it “is not possible for the work to be
recommenced until the differing site condition issue ha[d] been resolved.” Id. at 348. As
we have previously noted, the engineer replied to Dave‟s on July 9:
Please be aware that [neither] we nor the City agree with the interpretation
of your legal council [sic] that you can refuse to re-commence work on the
project on Monday, July 12, 2004[,] as previously agreed. There will be no
additional tests or other subsurface investigation provided by the Owner
[the City] as such investigation was otherwise your responsibility if deemed
necessary prior to committing to the Contract Price and Time.
Id. at 350 (emphasis added). On that same date, the engineer sent its report to the City,
with a copy to Dave‟s, stating that
the existence of sand and gravel subsurface conditions as well as
groundwater conditions does not differ materially from conditions
ordinarily encountered and generally recognized as inherent in the work in
the Contract Documents. In short, we believe that difficult soil conditions
are often-times [sic] encountered in sanitary sewer and watermain
installation projects and that these conditions are possible and inherent in
this type of construction.
In addition, Section 4.03.C of the Contract General Conditions states that
“Contractor shall not be entitled to any adjustments in the Contract Price or
Contract Time if:
The existence of such conditions could reasonably have been
discovered or revealed as a result of any examination,
investigation, exploration, test or study of the Site and
contiguous areas required by the Bidding Requirements or
15
Contract Documents to be conducted by or for the Contractor
prior to the Contractor‟s making such final commitment.
Id. at 879 (emphases added). The engineer then concluded that the contract “does not
allow for additional payment or time” for the affected portion of the Project, although the
engineer “believe[d] that the City‟s consideration of assisting with overages related to
[unexpected additional asphalt] restoration” was reasonable.6 Id. at 880-81.
In sum, Dave‟s‟ refusal to return to work when directed to do so constituted a
breach of section 4.03.A of the construction contract. And the City did not breach the
construction contract under section 4.03.B. That section required the City to “review the
pertinent condition[,]” which it did when the engineer reviewed the claim and determined
that Dave‟s was not entitled to a price or time adjustment. Nor did the City breach
section 4.03.C of the contract. Dave‟s represented in the Agreement Between Owner and
Contractor that, when it executed the construction contract, it had “familiarized [itself]
with the nature and extent of the . . . work, site, and . . . all local conditions . . . that in any
manner may affect cost, progress or furnishing of the work[.]” Id. at 247. Yet Dave‟s
then complained of a condition that the engineer determined “did not differ materially
from conditions ordinarily encountered and generally recognized as inherent in the work
in the Contract Documents.” Id. at 879. Section 4.03.C.2.b provides that Dave‟s was not
6
Liberty Mutual contends that “the Engineer declared that neither „Dave‟s Excavating nor the
other bidders for the project reasonably anticipated‟ the sandy conditions.” Appellant‟s Brief at 19-20
(emphasis added). Liberty mischaracterizes the engineer‟s July 9, 2004, report to the City. The engineer
unequivocally concluded that Dave‟s was not entitled to additional cost or time with regard to claims
based on differing subsurface conditions or to the claim for additional asphalt restoration cost. But the
engineer also suggested that the request for additional asphalt restoration cost was “reasonable” given that
neither “Dave‟s Excavating nor the other bidders for the project reasonably anticipated replacement of
most if not all of the roadway surface in certain areas.” Appellant‟s App. at 880 (emphasis added).
Liberty Mutual‟s substitution of the underlined portion of that statement with the words “the sandy
conditions” was inaccurate.
16
entitled to a price or time adjustment where, as here, the circumstances underlying the
adjustment claim were foreseeable and Dave‟s had affirmed that it had informed itself of
the conditions of the worksite before executing the contract. The evidence shows that
Dave‟s breached section 4.03 of the contract and that the City did not. Therefore, the
trial court did not err when it granted summary judgment that Dave‟s is liable to the City
for breach of the construction contract.
Issue Two: Performance Bond Liability
Liberty Mutual next contends that the trial court erred when it concluded that it
was liable to the City as surety under the performance bond. In particular, Liberty
Mutual asserts that the City did not “afford Liberty Mutual its contractual right to elect
how it would mitigate damages.” Appellant‟s Brief at 31. But a review of the undisputed
facts shows that Liberty Mutual failed to exercise any of its options to mitigate under the
performance bond.
The relevant paragraphs of the performance bond provide:
3 If there is no Owner Default, the Surety‟s obligation under this Bond
shall arise after:
3.1 The Owner has notified the Contractor and the Surety
. . . that the Owner is considering declaring a Contractor
default and has requested and attempted to arrange a
conference with the Contractor and the Surety to be held not
later than fifteen days after receipt of such notice to discuss
methods of performing the Construction Contract. If the
Owner, the Contractor and the Surety agree, the Contractor
shall be allowed a reasonable time to perform the
Construction Contract, but such an agreement shall not waive
the Owner‟s right, if any, subsequently to declare a
Contractor Default; and
17
3.2 The Owner has declared a Contractor default and
formally terminated the Contractor‟s right to complete the
contract. Such Contractor Default shall not be declared
earlier than twenty days after the Contractor and the Surety
have received notice as provided in Subparagraph 3.1; and
3.3 The Owner has agreed to pay the Balance of the
Contract Price to the Surety in accordance with the terms of
the Construction Contract or to a contractor selected to
perform the Construction Contract in accordance with the
terms of the contract with the Owner.
4 When the Owner has satisfied the conditions of Paragraph 3, the
Surety shall promptly and at the Surety‟s expense take one of the following
actions:
4.1 Arrange for the Contractor, with consent of the Owner,
to perform and complete the Construction Contract; or
4.2 Undertake to perform and complete the Construction
Contract itself, through its agents or through independent
contractors; or
4.3 Obtain bids or negotiated proposals from qualified
contractors acceptable to the Owner for a contract for
performance and completion of the Construction Contract,
arrange for a contract to be prepared for execution by the
Owner and the contractor selected with the Owner‟s
concurrence . . . and pay to the Owner the amount of damages
as described in Paragraph 6 in excess of the Balance of the
Contract Price incurred by the Owner resulting from the
Contractor‟s Default; or
4.4 Waive its right to perform and complete, arrange for
completion, or obtain a new contractor and with reasonable
promptness under the circumstances:
.1 After investigation, determine the
amount for which it may be liable to the Owner
and, as soon as practicable after the amount is
determined, tender payment therefor to the
Owner; or
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.2 Deny liability in whole or in part and
notify the Owner citing reasons therefor.
Appellant‟s App. at 514 (emphasis added).
Liberty Mutual first contends that paragraph 3 of the bond was never activated
because the City defaulted on the construction contract. As discussed above, we have
determined that Dave‟s, not the City, breached the contract. As such, Liberty Mutual‟s
argument under paragraph 3 must fail.
Liberty Mutual next argues that the City “usurped [Liberty Mutual‟s] right to
mitigate its damages” when it sought bids from completion bidders and ultimately hired
another contractor to complete the work. Appellant‟s Brief at 33. Liberty Mutual further
argues that the City did not comply with the bond when seeking recovery under it and
that such conduct by the City caused prejudice to Liberty Mutual, “nearly doubling the
cost of the Project after a significant portion had already been completed[.]” Id. But the
facts belie those assertions. Indeed, a review of the timeline of events shows that the
City‟s efforts in obtaining bids and hiring Eagle Valley to complete the Project mitigated
its damages and complied with the terms of the performance bond and that Liberty
Mutual did not act promptly as required to assert its rights under the bond.7
Again, on July 15, 2004, the engineer, on behalf of the City, sent a letter to Dave‟s
and to Liberty Mutual notifying them that the City was considering declaring Dave‟s in
default of the construction contract. The letter referred to paragraph 3.1 of the
7
Liberty Mutual alleges that the City did not mitigate but actually increased its damages.
Specifically, Liberty Mutual asserts that the City‟s actions were “actually prejudicial” because the total
cost of completing the project exceeded the amount of the performance bond. Liberty Mutual asserts that
the costs for the project increased, but Liberty Mutual has not shown that the increase was attributable to
the City.
19
performance bond and requested a meeting within fifteen days. Liberty Mutual
responded on July 22, requesting a meeting date outside of the fifteen-day period. That
meeting occurred on August 4. When the parties were not able to resolve their issues at
that meeting, the engineer sent a letter to Liberty Mutual on August 9 giving notice that
the City had declared Dave‟s in default of the construction contract and had terminated
the contract.
Meanwhile, on July 19, 2004, the City‟s Board of Works and Safety voted to
declare the Project an emergency and to solicit bids from other contractors to complete
the Project. The City accepted bids in late July and, on July 29, the City held a pre-
quotation meeting with four potential completion bidders.
On August 9, following a vote by the Board of Works and Safety, the City gave
Dave‟s written notice that it had “declared a Contractor Default and formally terminated
[Dave‟s] right to complete the contract.” Id. at 569. The City sent a copy of the notice to
Liberty Mutual. That correspondence also informed Liberty Mutual that the City had
declared the Project an emergency, that the City was scheduled to receive completion
bids on August 11, and that the City “demand[ed] that [Liberty Mutual] perform its
obligations as required by Paragraph 4 of the [performance b]ond.” Id. at 108. In a letter
dated August 10, Liberty Mutual informed the City that it was investigating the City‟s
claim on the performance bond “under a strict reservation of all rights and defenses under
the bond and common law[.]” Id. at 210. Liberty Mutual also “call[ed] on [the City] to
mitigate [its] damages[.]” Id.
20
On August 16, the City‟s Board of Works and Safety awarded the completion bid
contract to Eagle Valley, Inc. at a contract price of $1,215,000. Eagle Valley
immediately began work on the Project and completed the work on December 16, 2004,
more than five months ahead of schedule and weeks in advance of the statutory deadline.
Eagle Valley completed the work at a rate nearly 100 feet per day faster than Dave‟s
actual rate.
On March 29, 2005, the City gave its written demand to Liberty Mutual for
payment under the performance bond. Specifically, the City sought $427,524.54, the
amount paid in excess of the unpaid balance on Dave‟s contract. On April 29 Liberty
Mutual responded, stating that it had received the March 29 letter, postmarked April 25,
on April 28. The letter also requests additional information before Liberty Mutual “will
begin [its] evaluation of [its] obligation under the terms and conditions of the bond.” Id.
at 606. Under section 4.4, Liberty Mutual was required to act promptly. But Liberty
Mutual has not shown that it ever reported the results of its investigation to the City, nor
did Liberty Mutual deny liability before the City filed its complaint on January 6, 2006,
some sixteen months after August 9, 2004, when the City had first demanded that the
surety perform its obligation under the bond.
The correspondence outlined above shows that the City gave Liberty Mutual
notice of possible default on July 15, 2004 (bond paragraph 3.1); attempted to meet with
Liberty Mutual within fifteen days of that notice (bond paragraph 3.1); terminated
Dave‟s‟ contract no fewer than twenty days later on August 9 (bond paragraph 3.2); and
hired a replacement contractor on August 16 (bond paragraph 3.3). By hiring a
21
replacement contractor, the City worked to mitigate its damages—as instructed in Liberty
Mutual‟s August 10 letter—and in fact hired a contractor that worked faster than Dave‟s
had and completed the Project ahead of schedule.
Moreover, Liberty Mutual did not act promptly in asserting its rights under
paragraph 4 of the performance bond. Significantly, while Liberty Mutual asserted on
August 10, 2004, that it was investigating the City‟s claim on the bond, it has not shown
that it ever provided the City with the results of its investigation or that it ever denied
liability in whole or in part and notified the City of its reasons. And the City waited well
over one year before filing its complaint to recover under the bond. Liberty Mutual failed
to exercise its rights under paragraph 4. As a result, under paragraph 5 of the bond, the
City is “entitled to enforce any remedy available” to it. Id. at 514.
Still, Liberty Mutual cites the holding of Town of Plainfield v. Paden Engineering
Co., 943 N.E.2d 904 (Ind. Ct. App. 2011), trans. denied, in support of its argument that
the City‟s failure to “afford Liberty Mutual its contractual right to elect how it would
mitigate damages” renders the trial court‟s entry of summary judgment in favor of the
City in error. Appellant‟s Brief at 31. In Paden we held that a contractor and its sureties
had no liability for a breach of contract where the town had not satisfied a condition
precedent before terminating a public construction contract. Id. at 914. But the failure to
perform a condition precedent is an affirmative defense that must be specifically and
particularly asserted in a responsive pleading. Ind. Trial Rule 9(C); see also Collins v.
McKinney, 871 N.E.2d 363, 369 n.3 (Ind. Ct. App. 2007), trans. denied. Liberty Mutual
did not assert with its answer an affirmative defense that the City had failed to comply
22
with any condition precedent. Thus, Liberty Mutual waived any argument that the City
failed to perform a condition precedent. Waiver notwithstanding, we consider Liberty
Mutual‟s argument under Paden on the merits.
The facts in Paden are clearly distinguishable. Here, as discussed in detail above,
the City satisfied the conditions precedent in the performance bond when it timely
contacted Liberty Mutual and, on Liberty Mutual‟s instructions, proceeded to mitigate its
damages by hiring a replacement contractor. And, again, Liberty Mutual did not timely
exercise any of its contractual options to mitigate damages but asked the City to mitigate.
The City proceeded accordingly and was able to secure completion of the Project ahead
of schedule. Thus, Liberty Mutual‟s reliance on Paden is misplaced.
In sum, Liberty Mutual has not shown that it asserted its rights to elect how to
mitigate damages “promptly.” See Appellant‟s App. at 514. Nor has Liberty Mutual
shown that the City failed to comply with any conditions precedent before making a
claim under the performance bond. As such, Liberty Mutual has not shown that the trial
court erred when it entered summary judgment in favor of the City on its claim asserted
against Liberty Mutual.
Issue Three: Attorney’s Fees
Finally, Liberty Mutual contends that the trial court erred when it entered
summary judgment in favor of the City and against Liberty Mutual on the issue of
attorney‟s fees. Specifically, Liberty Mutual argues that the City should not have been
23
awarded attorney‟s fees because the City did not comply with section 15.02 of the
construction contract.8 Again, we cannot agree.
Section 15 of the construction contract pertains to the City‟s termination of the
contract for cause. Liberty Mutual relies on section 15.02.B of the contract, which
provides:
If one or more of the events identified in paragraph 15.02.A occur,
OWNER may, after giving CONTRACTOR (and the surety, if any) seven
days[‟] written notice, terminate the services of CONTRACTOR, exclude
CONTRACTOR from the Site, and take possession of the Work and of all
CONTRACTOR‟s tools, appliances, construction equipment, and
machinery at the Site, and use the same to the full extent they could be used
by CONTRACTOR (without liability to CONTRACTOR for trespass or
conversion), in corporate in the Work all materials and equipment stored at
the Site or for which OWNER has paid CONTRACTOR but which are
stored elsewhere, and finish the Work as OWNER may deem expedient. In
such case, CONTRACTOR shall not be entitled to receive any further
payment until the Work is finished. If the unpaid balance of the Contract
Price exceeds all claims, costs, losses, and damages (including but not
limited to all fees and charges of engineers, architects, attorneys, and other
professionals and all court or arbitration or other dispute resolution costs)
sustained by OWNER arising out of or relating to completing the Work,
such excess will be paid to CONTRACTOR. If such claims, costs, losses,
and damages exceed such unpaid balance, CONTRACTOR shall pay the
difference to OWNER. Such claims, costs, losses, and damages incurred
by OWNER will be reviewed by ENGINEER as to their reasonableness
and, when so approved by ENGINEER, incorporated in a Change Order.
When exercising any rights or remedies under this paragraph OWNER shall
not be required to obtain the lowest price for the Work performed.
Appellant‟s App. at 510-11 (emphasis added). The contract defines the following
relevant terms:
8
The City also contends that Liberty Mutual waived any defense based on the City‟s purported
failure to satisfy conditions precedent because Liberty Mutual failed to plead that defense specifically and
with particularity as required by Indiana Trial Rule 9(C). The City is correct. Nevertheless, we exercise
our discretion to consider on the merits Liberty Mutual‟s contention that the City did not comply with the
terms of the bond with regard to the claim for attorney‟s fees.
24
9. Change Order—A document recommended by ENGINEER which is
signed by CONTRACTOR and OWNER and authorizes an addition,
deletion, or revision in the Work or an adjustment in the Contract Price or
the Contract Times, issued on or after the Effective Date of the [contract].
10. Claim—A demand or assertion by OWNER or CONTRACTOR
seeking an adjustment of Contract Price or Contract Times, or both, or
other relief with respect to the terms of the Contract. A demand for money
or services by a third party is not a Claim.
Appellant‟s App. at 484.
Liberty Mutual contends that, with regard to the request for attorney‟s fees, the
City “failed to submit even the „general nature‟ of its claim to the Engineer or Dave‟s
Excavating, failed to obtain a decision of „reasonableness‟ from the Engineer, and did not
incorporate the claim in a Change Order, as required by the Contract.” Appellant‟s Brief
at 27. Liberty Mutual misconstrues section 15.02 of the construction contract. A change
order results in an addition, deletion, or revision in the “Work” or an adjustment in the
“Contract Price,” the “Contract Times,” or both. A change order as used in the contract
does not contemplate a request for attorney‟s fees. The definition of “claim” used in the
construction contract also does not contemplate attorney‟s fees. Such fees are derivative
of the transaction memorialized in the contract, but they are not the “relief” referred to in
the definition of “claim.”
Moreover, Liberty Mutual‟s argument that the contract requires an engineer to
review attorney‟s fees for reasonableness defies common sense. Attorney‟s fees are
reviewed for reasonableness by other attorneys. And the engineer employed by the City
is not alleged to have any expertise in reviewing attorney‟s fees.
25
Liberty Mutual also relies on Weigand Constr. Co. v. Stephens Fabrication, Inc.,
929 N.E.2d 220 (Ind. Ct. App 2010), in support of its contention that summary judgment
in favor of the City regarding attorney‟s fees was in error. In Weigand, the fabricator
made a claim for additional compensation outside the time period required under the
contract between the parties. Also, the fabricator had continued to work after submitting
its untimely claim for additional compensation, despite a contract provision requiring the
cessation of work following a claim for an increase in the contract price. This court held
that the fabricator was not entitled to an increase in the contract price due to the untimely
claim and the violation of the cessation-of-work provision. Id. at 227-28.
The holding in Weigand is inapposite. Here, again, the construction contract did
not require the City to submit a “claim” for attorney‟s fees to the engineer for a
determination of reasonableness. Indeed, the claim procedures Liberty Mutual relies on
do not apply to attorney‟s fees. The City did not fail to comply with relevant contract
provisions, and, thus, the trial court did not err when it granted summary judgment in
favor of the City and awarded attorney‟s fees.
Conclusion
The trial court correctly entered summary judgment that Dave‟s is liable to the
City for breach of the construction contract. Dave‟s breached the construction contract
when it refused to return to work after receiving orders to do so. The court also correctly
entered summary judgment that Liberty Mutual is liable to the City for Dave‟s‟ breach as
surety on the performance bond. The City complied with its obligations under the
performance bond. Moreover, Liberty Mutual specifically directed the City to mitigate
26
its damages, which it did by hiring another contractor to complete the Project. Finally,
Liberty Mutual has not shown that the City failed to comply with the contract in seeking
attorney‟s fees, and the trial court did not err when it granted summary judgment for the
City on that issue.
Affirmed.
RILEY, J., and MAY, J., concur.
27