Surety Case Law Note: Idle Rental Equipment
April 16, 2024
In this Surety Today: The Blog post we consider a Case Law Note addressing the issue of payment bond coverage for idle rental equipment under Indiana law and what appears to have been an AIA A312 bond.
The case is:
ER GRP., LLC V. FIGG BRIDGE BUILDERS, LLC,
No. 2:20-CV-426-PPS, 2024 WL 1344772 (N.D. IND. MAR. 27, 2024)
Figg Bridge Builders, LLC (“Figg”) was the general contractor for the design and construction of a bridge over the Indiana Harbor and Ship Canal in East Chicago. Great American Insurance issued the bonds for Figg. Eventually, Figg was terminated. Prior to its termination, Figg entered into an agreement to lease equipment from ER Group for the project. After Figg’s termination, ER Group contended that Figg owed it $135,900. ER Group asserted that it was not aware of Figg’s termination as general contractor until well after the fact. Meanwhile, the rental equipment remained sitting idle. Ultimately, ER Group submitted a claim against the bond totaling $192,432.10. Great American denied the claim and suit was filed.
In the litigation, Great American moved for summary judgment and ER Group filed a cross motion for summary judgment on its claims. The lease agreement for the rental equipment provided that the lease “begins on the date the first piece of Equipment is shipped to [Figg], and ends on the date that the last piece of Equipment is returned to [ER Group].” ER Group shipped the equipment on March 31, however, a little over a week later, on April 7, the owner terminated Figg. Figg did not provide notice of the termination to ER Group until June 4, 2020.
ER Group contended that this was a simple case and that there was no genuine triable dispute as to the operative facts: there was a rental agreement, equipment was shipped and delivered to the site, and Figg failed to pay. In its analysis, the court noted that the lease agreement was silent as to termination by written notice and explicitly provided that it “ends on the date the last piece of Equipment is returned to [ER Group].” The Payment Bond defined “labor, materials or equipment” to “include without limitation … that part of … rental equipment used in the Construction Contract, architectural and engineering services required for performance of the work of [Figg Bridge] and [its] subcontractors, and all other items for which a mechanic’s lien may be asserted in the jurisdiction where the labor, materials or equipment were furnished.” § 16.2 (emphasis added). Section 1 of the Payment Bond provided that the “labor, materials and equipment” must be “furnished for use in the performance of the Construction Contract,” as opposed to all labor, materials, and equipment a subcontractor could conceivably recover on a mechanic’s lien. Id.
Great American argued that the language of the bond was clear on its face: any work performed by ER Group following termination of the prime construction contract is not, by definition, “furnished for use in the performance of the Construction Contract,” and is thus unrecoverable. Great American pointed out that the bond makes clear that “[t]he intent of this Bond shall be to include without limitation in the terms ‘labor, materials or equipment’ that part of … rental equipment used in the Construction Contract[.]” and that § 10 states that Great American “shall not be liable … for obligations of the Contractor [Figg] that are unrelated to the Construction Contract.” The court observed that § 16.2 unambiguously limits the scope of liability under the bond to claims for “that part of” rental equipment costs “used in the Construction Contract.” Accordingly, since the equipment was not used by Figg after its termination, the court granted Great American’s motion for summary judgment. ER Group’s cross motion was denied.
If you have questions regarding the issues discussed in this post, please do not hesitate to contact Michael A. Stover, Esq. (410-659-1321/mstover@wcslaw.com) or any member of the Surety and Fidelity Practice Group.