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American Safety Casualty Insurance Co. v. Happy Acres Enterprises Co., Inc.

United States District Court, W.D. Washington, Seattle

January 26, 2017

HAPPY ACRES ENTERPRISES CO., INC., a Washington corporation, et al., Defendants.




         This matter comes before the Court on Plaintiff's Motion for Partial Summary Judgment. Dkt. #18. Plaintiff seeks judgment in its favor on its breach of contract and declaratory judgment claims, and asks the Court to enter judgment against Defendants in excess of $285, 000. Id. at 15. Plaintiff further requests an Order declaring that Defendants are obligated to indemnify it for its losses and that Plaintiff has exclusive right and title to certain funds currently being held in the registry of the San Juan County Superior Court. Id. Defendants argue that because there are genuine issues of material fact related to the actions taken by American Safety prior to, during and after the arbitration in the underlying matter, summary judgment is not appropriate. Dkt. #27. For the reasons discussed herein, the Court disagrees with Defendants and GRANTS Plaintiff's motion.


         This matter arises out of an underlying construction contract dispute. The parties appear to agree to the following facts:

1. American Safety Casualty Insurance Company (“American”) issued Performance Bond No. OKC607701 (“Bond”) on Happy Acres Enterprises Co., Inc.'s (Happy Acres”) behalf. Dkts. #27 at 2 and #19 at ¶ 1, Ex. A. Under the Bond, Doe Bay Water Users Association, Inc. (“Doe Bay”) was named as the obligee, and Happy Acres as principal. Dkt. #19, Ex. A. The penal sum of the Bond was $664, 632.86 and was issued as to the contract dated November 15, 2010, between Doe Bay and Happy Acres for the construction of the Slow Sand Filter Facility located in Doe Bay, Washington. Id.
2. Prior to the issuance of the Bond, Happy Acres executed a General Agreement of Indemnity (“GAI”) as partial consideration for American's issuance of the bonds on Happy Acres' behalf. Dkt. #19 at ¶ 2, Ex. B.
3. The GAI provides in part:
A. The PRINCIPAL and INDEMNITORS, jointly and severally, shall exonerate, hold harmless, indemnify and keep indemnified the SURETY from and against any and all claims, demands, liability, losses, costs, and expenses of whatsoever kind or nature, including court costs, attorneys' fees, adjusting costs and investigative costs, and from and against any and all other such losses and expenses which the SURETY may sustain, suffer or incur: (i) By reason of having executed or procured the execution of BONDS; (ii) By reason of the failure of the PRINCIPAL or INDEMNITOR to perform or comply with any of the covenants or conditions of this Agreement, including but not limited to the payment of all premiums due for BONDS; (iii) In enforcing any of the covenants, obligations or conditions of this Agreement; . . . (v) In prosecuting or defending any action or claim in connection with any BOND, whether SURETY at its sole option elects to employ its own counsel or permits or requires PRINCIPAL and INDEMNITORS to make arrangements for the SURETY's legal representation; . . . (viii) As a result of liability incurred or expenses paid in connection with claims, suits or judgments relating to an obligation, CONTRACT, or a BOND, including, without limitation, attorney's fees and all legal expenses, including in-house attorney's fees, adjusting fees or investigative fees, and all fees and costs for investigation, accounting, adjusting, engineering or other professional services related to the adjustment of claims and losses deemed necessary or appropriate in the sole discretion of the SURETY.
B. Payment shall be made to the SURETY by the PRINCIPAL and INDEMNITORS as soon as liability exists or is asserted against the SURETY, or upon the demand of SURETY, whether or not the SURETY shall have made any payment therefore. . . .
C. In the event of any payment by the SURETY, the PRINCIPAL and INDEMNITORS further agree that in any account between the SURETY and the PRINCIPAL, or between the SURETY and the INDEMNITORS, or either or both of them, the SURETY shall be entitled to reimbursement for any and all disbursements made by it in good faith in and about the matters contemplated by this Agreement under the belief that it is or was liable for the sums and amounts so disbursed, or that it was necessary or expedient to make such disbursements, whether or not such liability, necessity, or expediency existed; and, that the vouchers or other evidence of any such payments made by the SURETY shall be prima facie evidence of the fact and amount of the liability of PRINCIPAL and INDEMNITORS to the SURETY. In addition to the payments to be made to SURETY as set forth above, PRINCIPAL and INDEMNITORS agree to pay to SURETY interest on all disbursements made by SURETY at the maximum rate permitted by law calculated from the date of each disbursement.
Dkt. #19, Ex. B at II. A., B. and C. (bold in original).
4. The GAI also included an assignment clause as follows:
A. The PRINCIPAL, and the INDEMNITORS as their interests may appear in the following subsections of this paragraph, hereby assign, transfer, pledge and set over to SURETY effective as of the effective date of each BOND executed by SURETY, the rights and property described hereafter, as collateral, to secure any and all obligations in this Agreement and any other indebtedness or liabilities of the PRINCIPAL or INDEMNITORS to the SURETY, whether heretofore or hereafter incurred: (i) All the rights of the PRINCIPAL or INDEMNITORS in, and arising in any manner out of any CONTRACT;…(iv) All the right, title and interest of the PRINCIPAL or INDEMNITORS in and to any actions, causes of action, claims or demands whatsoever which the PRINCIPAL or INDEMNITORS may have or acquire against any party to any CONTRACT, or actions, causes of action, claims or demands arising out of or in connection with any CONTRACT including but not limited to those against obliges [sic] on bonds, design professionals, general contractors, subcontractors, laborers or materialmen or any person furnishing or agreeing to furnish or supply labor, material, supplies, machinery, tools, inventory or other equipment in connection with or on account of any CONTRACT and against any surety or sureties of any obligee, general PRINCIPAL, subcontractor, laborer, or materialmen; (v) All monies retained and any and all monies that may be due or which hereafter become due on account of any CONTRACT, bonded or unbonded, or on any promissory note or account receivable;
. . . . ….
Dkt. #19, Ex. B at ¶ III. A. (bold in original).
5. In approximately March 2013, Happy Acres filed an arbitration demand against Doe Bay relating to the sand filter contract with the American Arbitration Association (“Arbitration”). Dkts. #22 at ¶ 5 and #19 at ¶ 3. Doe Bay brought a counterclaim against Happy Acres regarding Happy Acres' alleged deficiencies in ...

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