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

July 22, 1996

EAGLE FIRE PROTECTION CORP., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
FIRST INDEMNITY OF AMERICA INSURANCE COMPANY, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at The opinion of the court was delivered by Garibaldi, J. Justices Handler, O'hern, Stein and Coleman join in Justice GARIBALDI's opinion. Justice Pollock filed a separate Dissenting opinion. Chief Justice Wilentz did not participate.

The opinion of the court was delivered by: Garibaldi

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).

Eagle Fire Protection Corp. v. First Indemnity of America Insurance Company (A-80-95)

Argued January 29, 1996 -- Decided July 22, 1996

GARIBALDI, J., writing for a majority of the Court.

In May 1989, 185 Monmouth Parkway Associates (Parkway) finalized its plans to renovate an office building. Pursuant to those plans, on May 8, 1989, Parkway hired Olsen & Hassold, Inc. (Olsen) as general contractor in charge of the renovation. The contract between Parkway and Olsen envisioned three phases. Olsen never reached Phase III because of its financial demise.

One of Olsen's obligations under the contract was to hire a surety company that would guarantee the successful performance of its contractual duties. Olsen purchased a labor and material bond from First Indemnity of America Insurance Co. (First Indemnity) that provided that First Indemnity, as surety, would pay claims made by subcontractors of Olsen, as principal, where the contractors had not been paid in full within ninety days of the completion of the subcontractor's work.

The Phase II of the project included the installation of a sprinkler system. Olsen purchased the system from Eagle Fire Protection Corp. (Eagle Fire) and hired Eagle Fire to install the system. Eagle Fire started work on the project in mid-September 1989 and completed it in June or July of 1990. Originally, Olsen made progress payments but, by May 1990, Olsen had stopped making any payments to Eagle Fire. Eagle Fire retained counsel, Gerald Massell, Esq., to obtain from Olsen or First Indemnity the money owed it was for the sprinkler system installation. Massell's efforts were unsuccessful.

On September 11, 1990, Parkway terminated its contract with Olsen. In April 1991, Olsen filed for bankruptcy. On May 23, 1991, Eagle Fire filed suit against First Indemnity, claiming that the bond rendered First Indemnity liable for Olsen's sprinkler-system debt. First Indemnity defended by claiming that Eagle Fire had not timely filed its lawsuit and, thus, was precluded from recovering under the bond. First Indemnity based its defense on a provision in the bond that stated that no suit could be brought after the expiration of one year following the date on which Olsen "ceased work" on the contract. Eagle Fire claimed that it had commenced suit within one year of the day that Olsen ceased work on the contract or that, in the alternative, any failure to file suit in a timely manner was the fault of First Indemnity's representatives, who employed delay tactics and misled Eagle Fire into not bringing suit within the specified one-year time limitation. In support of its arguments, Eagle Fire proffered testimony at trial that: there was presence on the work site through September 1990 of trailers that Olsen had rented to store partitions that were to be used in Phase III; Olsen subcontractors were working on the site through, at least, July and August of 1990; and First Indemnity representatives impermissibly misled or lulled it into not filing suit at an earlier date.

At the close of all the evidence, both parties made motions for judgment as a matter of law. The trial court denied both motions. Thereafter, the trial court instructed the jury that the work done by subcontractors of Olsen did not constitute work done by Olsen itself. As such, the presence or absence of subcontractors on the site after May 23, 1990 was not relevant. The jury returned a verdict in favor of Eagle Fire, finding that Olsen had ceased work on the project before May 23, 1990, but that the negotiations, conversations and communications between Eagle Fire and First Indemnity resulted in Eagle Fire being caused to delay the filing of the suit. The trial court rejected Eagle Fire's application for attorneys' fees.

On appeal, the Appellate Division reversed, finding that the trial court erred in submitting to the jury the issue of whether the one-year statute of limitation period contained in the bond was tolled by First Indemnity's conduct. The court reasoned that the delay was not caused by any unconscionable conduct on the part of First Indemnity; therefore, as a matter of law, the limitation period was not tolled by First Indemnity's ongoing investigation of Eagle Fire's claim. Thus, Eagle Fire's suit was untimely.

The Supreme Court granted Eagle Fire's petition for certification.

HELD:

Eagle Fire Protection Corporation commenced suit within one year of the date that the general contractor, Olsen & Hassold, ceased work under the contract. Complying with the terms of the surety bond between Olsen & Hassold and First Indemnity, Eagle Fire is entitled to judgment against First Indemnity as a matter of law. Eagle Fire is not, however, entitled to an award of attorney's fees.

1. Because Eagle Fire had a direct contract with Olsen, it had standing as a third-party beneficiary under the surety bond between Olsen and First Indemnity to enforce the bond's provisions. As a third-party beneficiary, Eagle Fire's rights are determined by the terms of the bond. First Indemnity is chargeable only according to the strict terms of the surety agreement; its obligation cannot be extended either by implication or construction beyond the terms of that agreement. (pp. 9-11)

2. Provisions in a contract limiting the time parties may bring suit have been held to be enforceable, if reasonable. This Court has routinely upheld contractual provisions that create a one-year time limitation in which claimants may bring suit, despite the six-year statutory limitations period for contract actions. Thus, the one-year limitations provision in First Indemnity's surety bond was reasonable and enforceable.

(pp. 11-13)

3. The surety bond between Olsen and First Indemnity incorporates the contract by reference; therefore, in ascertaining the meaning of the bond's provisions, the bond and the contract must be considered as a whole. Although the bond does not define the term work, the contract provides guidance. The language in the Scope of the Agreement provision supports Eagle Fire's contention that Olsen ceased its work on the contract after May 23, 1990. Undisputed testimony demonstrates that Olsen's subcontractors were working under the contract as late as July or August 1990. The Scope of the Agreement provision provides that Olsen's "Work" included "furnishing the supervision" of the construction work. Thus, the language of the contract as well as the limited case law in this area, supports the Conclusion that Olsen's work included the work performed by its subcontractors. To hold otherwise would create too restrictive a result. The bond contained a provision that bars claimants from bringing suit before the expiration of ninety days after the date on which the last of the claimant's work or labor was done or performed. If Eagle Fire completed its work any time after June 10, 1990, the ninety day period would have ended after September 8, 1990, thereby leaving Eagle Fire with no opportunity to file a complaint against First Indemnity. Such a severe restriction on the ability to bring suit would be unreasonable and unenforceable. (pp. 13-18)

4. The trial court erred both in its instruction to the jury and in its answer to the jury's question when it responded that the work done by Olsen's subcontractors does not constitute work done by Olsen itself. The trial court also erred in denying, after the close of evidence, Eagle Fire's motion for judgment as a matter of law. Eagle Fire complied with the terms of the labor and material bond and commenced suit against First Indemnity in a timely manner. Because there was uncontroverted evidence that Olsen continued to work on the project after May 23, 1990, Eagle Fire is entitled to recover under the bond the amount still owed it by Olsen for installation of the sprinkler system. (pp. 17-23)

5. Rule 4:42-9(a)(6) provides that attorney's fees are only obtainable when an insurer refuses to indemnify or defend its insured's third-party liability to another. The rule does not authorize an award of counsel fees to an insured on a direct suit against the insurer to enforce a casualty or other first-party direct coverage. Because First Indemnity did not agree to protect Olsen from third-party claims, Rule 4:42-9(a)(6) does not apply. Accordingly, Eagle Fire is not entitled to counsel fees. (pp. 23-26)

Judgment of the Appellate Division is REVERSED and the matter is REMANDED to the Law Division for entry of a judgment consistent with this opinion.

JUSTICE POLLOCK, Dissenting, would not impute to a general contractor that has stopped work, the work of unsupervised subcontractors that remain on the job. Likewise, Justice Pollock agrees with the lower courts that after Olsen ceased work, the presence on the work site of trailers that Olsen had rented is irrelevant.

JUSTICES HANDLER, O'HERN, STEIN and COLEMAN join in JUSTICE GARIBALDI's opinion. JUSTICE POLLOCK filed a separate Dissenting opinion. CHIEF JUSTICE WILENTZ did not participate.

The opinion of the court was delivered by

GARIBALDI, J.

This appeal concerns the resolution of one question: in determining the one-year limitation period under which a claimant must institute a suit in a surety bond, when does a general contractor "cease work" under a construction contract? Specifically, we must determine if the work of subcontractors on a construction site constitutes the work of the general contractor.

I

In May 1989, 185 Monmouth Parkway Associates (Parkway), a limited partnership, finalized its plans to renovate an office building. Pursuant to those plans, on May 8, 1989, Parkway hired Olsen & Hassold, Inc. (Olsen), as general contractor in charge of the renovation. The contract between Parkway and Olsen envisioned three phases. In Phase I, Olsen was to remove the asbestos in the building. Phase II consisted of the reconstruction and restoration of the building, and in Phase III, Olsen was to erect certain metal partitions in the building. Olsen never reached Phase III due to its financial demise.

One of Olsen's obligations under the contract was to hire a surety company that would guarantee Olsen's successful performance of its contractual duties. As a result, Olsen purchased a series of bonds from First Indemnity of America Insurance Co. (First Indemnity), who agreed to act as Olsen's guarantor. The particular bond implicated in this case is a "labor and material bond." That bond provided that First Indemnity, as surety, would pay claims made by subcontractors of Olsen, as principal, where the contractors had not been paid in full within ninety days of the completion of the subcontractor's work. In drafting that bond, the parties simply filled in the blanks of the American Institute of Architects' standard labor-and-material payment-bond form.

The Phase II renovation of the Parkway building included the installation of a sprinkler system in the building. Olsen purchased the sprinkler system from Eagle Fire Protection Corp. (Eagle Fire), and hired it to install the system for $129,437.50. Eagle Fire started working on the project in mid-September 1989 and completed it in June or July of 1990. Olsen made progress payments to Eagle Fire from October 1989 to early 1990. However, a later installment check from Olsen bounced, and by May 1990, Olsen had stopped making payments to Eagle Fire. When Eagle Fire's president, William Vinsko, began to sense that he would have difficulty collecting from Olsen, he attempted to contact First Indemnity regarding its obligation under the bond. However, First Indemnity failed to return numerous calls made by a Parkway representative on Eagle Fire's behalf. Vinsko then retained counsel, Gerald Massell, Esq., to obtain from Olsen or First Indemnity the money owed Eagle Fire for the sprinkler system installation. Massell spoke with an Olsen vice-president about Olsen's debt in April or May 1990, but was unable to elicit payment from Olsen. Massell was similarly unsuccessful in his eight month effort to persuade First Indemnity to pay Olsen's debt to Eagle Fire.

On September 11, 1990, Parkway terminated its contract with Olsen. In April 199l, Olsen filed for bankruptcy. On May 23, 1991, Eagle Fire filed suit against First Indemnity, claiming that the bond rendered First Indemnity liable for Olsen's sprinkler-system debt. The sole defense offered by First Indemnity was that Eagle Fire had not commenced its suit in a timely manner, and was thus precluded from ...


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