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Andre Const. Assoc., Inc. v. Catel

February 16, 1996

ANDRE CONSTRUCTION ASSOC., INC., PLAINTIFF,
v.
CATEL, INC., U.S. DEPARTMENT OF THE ARMY AND ULICO CASUALTY COMPANY, DEFENDANTS



John D'amico, J.s.c.

The opinion of the court was delivered by: D'amico

CIVIL ACTION OPINION

JOHN D'AMICO, J.S.C.

Defendant/third party plaintiff ULICO Casualty Company (ULICO) moves for summary judgment against defendant Catel, Inc. (principal) and third-party defendants Telmo and Cathleen Pires (indemnitors) for all expenses, including attorney's fees, incurred by ULICO under a performance and payment bond. ULICO issued the bond on behalf of the principal and in favor of the U.S. Army Corps of Engineers, in order to guarantee the principal's performance under a construction project.

As a condition precedent to issuance of the bond, ULICO requested and received a written indemnity agreement from the principal and from the indemnitors which included the following provisions:

Indemnitor will. . .at all times indemnify and save the Company (ULICO) harmless from and against every claim, demand, liability, loss, cost, charge, counsel fee, payable on demand of Surety, whether actually incurred or not, (including fees of special counsel whenever by the Company deemed necessary) expense, suit, order judgment and adjudication whatsoever, and any and all liability therefor, sustained or incurred by the Company by reason of having executed or procured the execution of said bonds or obligations, and will place the Company in funds to meet same before it shall be required to make payment....

...the Company shall have the right to pay, settle or compromise any expense, claim or charge of the character enumerated in this agreement, and the voucher or other evidence of such payment shall be prima facie evidence of the propriety thereof and of the indemnitor's liability therefore to the Company.

ULICO thereafter received claims from Andre Construction Associates against the bond in the total amount of $30,165.40. Andre Construction instituted suit against ULICO, the principal and the U.S. Department of the Army to collect monies allegedly due it for work performed on the project. ULICO filed an answer, crossclaim and 3rd party complaint. On July 28, 1995, the court granted ULICO's motion for summary judgment and dismissed Andre Construction's complaint against ULICO for lack of subject matter jurisdiction. Andre Construction then commenced a suit in federal court which was voluntarily dismissed.

ULICO submits that the principal and indemnitors have refused to reimburse ULICO for its attorneys' fees and expenses in the amount of $5,150.74 incurred as a result of having defended claims against its bond and as a result of having to prosecute this action. The principal concedes that pursuant to the terms of the bonding agreement, it agreed to defend and indemnify ULICO against these claims. Before the principal could file an answer on behalf of ULICO, however, ULICO retained independent counsel who entered an appearance and filed a cross-claim for the counsel fees expended in the defense of the action.

The principal argues that this matter should be submitted to mandatory fee arbitration pursuant to Rule 1:20A-2 on the ground that the relief sought by ULICO deprives the principal of its rights under the Rule. The principal therefore requests that ULICO'S motion be denied so that the matter can be presented to the District Fee Arbitration Committee.

The critical issue in this case is whether a District Fee Arbitration Committee has jurisdiction to arbitrate a fee dispute at the request of a principal or indemnitor of a surety. Rule 1: 20A-2(a) concerning District Fee Arbitration Committees provides, in relevant part:

Each Fee Committee shall, pursuant to these rules, have jurisdiction to arbitrate fee disputes between clients and attorneys. Fee Committees shall also have jurisdiction to arbitrate disputes in which a person other than the client is legally bound to pay for the legal services. . . .

To determine whether R. 1:20A-2 authorizes mandatory fee arbitration between a surety and its principal or indemnitors, the court must look to the contract of indemnity to determine the parties' respective rights and obligations. The court must interpret the indemnity agreement in accordance with the rules governing the construction of contracts generally. Levison v. Weintraub, 215 N.J. Super. 273, 521 A.2d 909 (App. Div. 1987). Where the obligations of the parties are clear and unambiguously set forth in the indemnity agreement, the court should summarily enforce such indemnification provisions. Id. at 276 (App. Div. 1987). As the Court in Cozzi v. Owens Corning Fiber Glass Corp., 63 N.J. Super. 117, 121, 164 A.2d 69 (App. Div. 1960) observed:

A contract of indemnity is to be interpreted in accordance with the rules governing the construction of contracts generally. The fundamental rule in construing contracts calls for the ascertainment of the intention of the parties in the light not only of the language used but also of the surrounding ...


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