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Eagle Fire Protection Corp. v. First Indem. of America Ins. Co.

March 28, 1995


On appeal from the Superior Court of New Jersey, Law Division, Monmouth County.

Approved for Publication March 28, 1995

Before Judges Michels, Stern and Keefe. The opinion of the court was delivered by Michels, P.j.a.d.

The opinion of the court was delivered by: Michels


Defendant First Indemnity of America Insurance Company appeals from a judgment of the Law Division entered on a molded jury verdict that awarded plaintiff Eagle Fire Protection Corp. damages and interest in the total sum of $69,163.61, under a labor and material payment bond.

On May 8, 1989, 185 Monmouth Parkway Associates (Parkway) entered into a contract with Olsen & Hassold, Inc. (Olsen), a general contractor, to remove asbestos and renovate a building located at 185 Monmouth Parkway, West Long Branch, New Jersey. As a condition of the contract, Olsen was required to furnish a surety bond guaranteeing its performance as well as ensuring payment to its subcontractors. Paragraph 22 of the contract, in pertinent part, provided:


Contractor hereby agrees to furnish for the benefit of Company a Performance Bond in the amount of $1,750,000.00, to cover the faithful performance of all obligations of Contractor and completion of all Work under this Agreement. The cost of obtaining this Bond shall be borne by the Contractor, and the Bond shall remain in full force and effect until all Work under this Agreement has been completed and Company acknowledges in writing that no further Orders shall be submitted to Contractor pursuant to this Agreement. The entity which shall issue this Performance Bond is the First Indemnity of America Insurance Company . . .

Defendant executed bonds covering the three construction stages of the project on May 10, 1989. The bond which covered the subcontractors' work was titled "Labor and Material Payment Bond." This bond contained a provision that any suit by an unpaid subcontractor had to be filed within one year of the date that the general contractor ceased work on the contract. The bond, in pertinent part, provided:

Principal [Olsen] has by written agreement dated May 8, 1989, entered into a contract with Owner [Parkway] for re-insulate structure & install sprinkler systems, install ceiling lights and duct work at 185 Monmouth Parkway, West Long Branch, N.J. . . . which contract is by reference made a part hereof . . .

3. No suit or action shall be commenced hereunder by any claimant:

On September 12, 1989, Olsen issued a purchase order for $129,437.50 to plaintiff to install a sprinkler system required under phase two of the project. Although plaintiff fully performed the work of installing the sprinkler system, Olsen allegedly made progress payments of $66,023.50 on the total amount due, leaving an unpaid balance of $63,414. The last such payment was made on May 4, 1990.

Payments made by Parkway's agent to Olsen for work done by the subcontractors were not being remitted to the subcontractors in a timely manner. As a result, Parkway's agent terminated Parkway's contract with Olsen by written notice on September 11, 1990. The termination letter to Olsen in part, read:

Further, we were bonded by the First Indemnity of America Insurance Company and numerous attempts have been made during the past three months to schedule a meeting with the First Indemnity of America Insurance Company to obtain payment for these invoices under the bond. We have now advised each of the suppliers who have notified us of non-payment, of the bonding company's name and contact person.

Jerry J. Massell, plaintiff's attorney, by letter dated September 18, 1990, notified defendant of the default, and demanded payment and threatened to file suit within 20 days if a settlement was not forthcoming. Defendant responded by letter dated September 26, 1990, requesting that plaintiff return an enclosed proof of loss claim form in order to process the claim. Two months later, on November 30, 1990, plaintiff returned the proof of loss claim form to defendant's claim manager, Paul Alongi, and in December 1990, Alongi selected Frank Galdieri, an outside adjuster, to investigate the claim.

On December 7, 1990, Galdieri called Massell and discussed what payments had been made by Olsen to plaintiff and what was the remaining balance. Plaintiff's attorney spoke with Galdieri again on December 10, 1990 also concerning the payments that had been made and the balance owed. Galdieri told Massell that he was reviewing the records of Olsen and was waiting for canceled checks and other written proof. Galdieri informed Massell that if he felt there was a "stall job" he should file suit. That same day, plaintiff sent a letter to Galdieri putting in writing their past Discussion concerning payments made and monies still owed. The letter also stated that Massell would check with plaintiff on some past payments and would refrain from suing for the present time. On January 29, 1991, Galdieri again informed Massell that his inability to verify the claim was holding up payment. On February 4, 1991, Galdieri informed Massell of the same problem. The parties last conversation occurred on February 8, 1991.

On May 23, 1991, plaintiff instituted this action against defendant to recover the unpaid balance due under the latter's bond. Defendant denied that it was under any liability to plaintiff, and, by way of separate defense, claimed that plaintiff failed to comply with the terms of the bond that required it to institute suit within one year of Olsen's completion of work. Plaintiff argued that its suit was timely instituted and, that even if it was not, its failure to do so was because of defendant's conduct during negotiations. Plaintiff claimed that the negotiations and Discussions with defendant misled it to not institute suit and, therefore, the contractual limitations period should be tolled.

At trial, Massell admitted that the bond required the filing of a suit within one-year from the date that Olsen ceased work at the site. However, according to Massell, the reason he did not file this action earlier was that he and Galdieri were negotiating. Massell acknowledged, however, that Galdieri never told him not to file suit. Galdieri testified that the parties had engaged in several conversations during which Galdieri told Massell that he was having problems verifying the claim. Galdieri testified that he wrote letters to Mr. Olsen in an effort to get his cooperation and was finally able to meet with him about the claim a month later. He also stated that Mr. Massell had promised to provide him with information verifying the claim, but that he never did. Alongi testified that it was defendant's policy to investigate a claim upon the receipt of a proof of claim and that if upon investigation it was determined to be valid, it would be paid. Both Galdieri and Alongi testified that neither told Massell not to file suit.

At the Conclusion of the proofs, the trial court submitted special interrogatories to the jury. The jury found that Olsen ceased work on the project before May 23, 1990; that the negotiations, conversations and communications between plaintiff and defendant resulted in plaintiff being caused to delay the filing of suit until May 23, 1991; and that plaintiff sustained damages in the sum of $63,414 - the unpaid balance due under the contract. This appeal followed.

Defendant seeks a reversal of the judgment and the entry of a judgment in its favor dismissing the action with prejudice. It contends essentially that the trial court erred in not granting its motion for an involuntary dismissal at the Conclusion of the proofs because there was no evidence from which a jury could reasonably find that plaintiff instituted suit within one year of the general contractor ceasing work and there was no evidence that plaintiff was lulled into not instituting suit by any negligent or affirmative action on its part, thus, tolling the bond's one-year limitation period for instituting suit. Alternatively, defendant seeks a reversal of the judgment and a remand ...

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