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Continental Casualty Co. v. Pipeco





APPEAL from the Circuit Court of Bond County; the Hon. JOHN L. DeLAURENTI, Judge, presiding.


This is an interlocutory appeal by Pipeco, Inc., W.L. Waggoner Trucking Company, and Wilbur Waggoner Equipment Rental and Excavating Company, Inc. They appeal from two orders entered by the Circuit Court of Bond County in an interpleader action. Continental Casualty Company (Continental) brought the interpleader action to join all claimants against a subcontractor's bond, on which Continental was obligated as a surety against claims arising from a construction project in Bond County. The appellants were among the claimants named as defendants in the interpleader action.

In one of the orders appealed from, the court permanently enjoined the appellants from prosecuting their claims for actual damages and interest against Continental in an action in Madison County, which also involved claims against Continental for punitive damages and statutory penalties. The effect of the order was to require the appellants to present their claims for actual damages and interest in the interpleader action, consistent with the court's previous determination that interpleader was a proper remedy.

In the other order appealed from, the court stayed further proceedings in appellants' separate action for foreclosure of mechanics' liens filed in Bond County. The defendants in the mechanics' lien foreclosure were the general contractor, H.K. Ferguson Co. (Ferguson), the subcontractor with whom the appellants contracted to furnish labor, material and rental equipment, J.L. Simmons Company, Inc. (Simmons), and the owners, Carlisle Tire & Rubber Company (Carlisle) and the Bradford National Bank of Greenville, Illinois. In the order, the court noted that in an earlier consolidation order it had directed that all pleadings relating to the mechanics' lien be filed in the interpleader. The court struck the appellants' motion for summary judgment in the mechanics' lien action and stayed all proceedings relating to the imposition of mechanics' liens but not relevant to the action for recovery on the surety bond.

The litigation arose from the construction of a manufacturing plant for Carlisle. Ferguson subcontracted a portion of the work to Simmons. Simmons obtained a subcontractor's bond for $645,400, its contract amount. The bond named Simmons as principal, Ferguson as an obligee, and Continental as surety. The bond also provided that it was for the benefit of any person, firm or corporation furnishing labor or materials for use in performance of Simmons' subcontract, as well as for the benefit of Ferguson as named obligee.

On April 23, 1980, Simmons ceased performance and left unpaid the appellants and others who had provided materials and labor. Appellants notified Continental of their claims.

On May 12, 1980, Continental filed a complaint for declaratory judgment in Bond County naming as defendants Ferguson, Carlisle, Simmons, and the appellants, as well as other claimants against the bond. The complaint requested that the court enjoin the defendants from commencing suit in any other court and that the court adjudicate the amount of recovery, if any, due each of the defendants from the bond. Among the claims listed in the complaint were $149,929.57 claimed by Pipeco, $31,943 claimed by Waggoner Trucking, and $65,412.79 claimed by Waggoner Equipment Rental, the appellants herein. Other claims in considerably smaller amounts were also itemized in the complaint.

The total amount of the claims by the subcontractors and materialmen, including the appellants' claims, was about $323,000. Continental also alleged that it had been advised of "potential delay damage claims" by Ferguson and Carlisle, presumably resulting from Simmons' failure to complete its work on schedule.

Continental asserted that it was seeking declaratory judgment relief, rather than interpleader, because it had no way of ascertaining whether the amounts properly payable as claims against the bond would exceed the bond amount. As a consequence, Continental claimed that it was unable to allege that it had no interest in the funds in question, as would be required for an action in interpleader.

On May 14, 1980, the appellants filed suit for damages in Madison County against Continental, as surety, and Simmons, as principal, on the bond. Against Continental, appellants also sought statutory penalties for vexatious delay in refusing to process or pay their claims and for punitive damages "for tortious interference with their property rights."

Thereafter, appellants moved to dismiss Continental's complaint for declaratory judgment. Appellants alleged that Continental was attempting to file an interpleader without relinquishing its claim to the interpleaded fund; that the sum of the claims listed in the complaint were only one-half the bond amount; and that the complaint unlawfully attempted to restrict the jurisdiction of other courts> to hear claims of the respective defendants.

Subsequently, Continental moved for a preliminary injunction to restrain appellants from further proceedings in their Madison County action and from commencing any other actions against Continental in connection with the subject matter of the litigation.

The court heard these motions on May 29. In support of their motion to dismiss, the appellants contended that the potential delay damage claims alluded to in Continental's complaint were merely speculative. The appellants maintained that Ferguson and Carlisle, the latter not a party to the bond whose claim would be derivative through Ferguson, as a practical matter, would not file claims against the bond in amounts that would cause the aggregate claims to exceed the bond penalty, because to do so would result in only partial payment of bond claimants, who would then foreclose liens against Ferguson and Carlisle to recover amounts remaining unpaid for labor and materials provided.

In opposition to the motion to dismiss, Continental argued that the real question was not whether the total claims would exceed the bond amount, but whether Continental should be subjected to multiple lawsuits in different forums. Ferguson joined in the motion to dismiss, contending that if Continental had proceeded to investigate and pay the claims as it had contracted to do, it would not have to concern itself with multiple suits.

Following argument on the motion to dismiss, the court heard evidence on Continental's motion for a preliminary injunction against the appellants' Madison County action. James Roberts testified that he was Continental's manager of fidelity and surety claims. After learning of Simmons' default, he employed a surety consulting service to investigate possible claims. John O'Gara, head of the consulting service, testified to the results of the investigation. Aside from any potential delay damage claims, O'Gara stated that the claims against the bond would consist of the claims of the subcontractors and suppliers working under Simmons, together with Ferguson's direct cost to complete Simmons' work. Viewing the testimony in a light most favorable to Continental, these claims were estimated to total between $510,000 and $560,000. (Through subsequent pleadings, it appears that the total amount of claims against the bond, excluding potential delay damage claims, was $486,838.93.)

Roberts testified that a letter to Continental from Ferguson, dated May 20, 1980, stated that Ferguson would hold Simmons responsible not only for the cost of completing the work but also the costs resulting from the delays caused by Simmons' default and Continental's failure to assume its obligation under the performance bond. Roberts testified that it seemed apparent to him that the total claims could exceed the bond penalty.

Continental also called John Ebaugh, Ferguson's subcontracts manager, to testify as an adverse witness. He indicated that the Simmons portion of the work, which had been taken over directly by Ferguson, was expected to be completed in mid-June 1980. To the best of his knowledge Ferguson had not filed a delay damage claim, although he would not say that Ferguson would not file one. As of the hearing date, neither Ferguson nor Carlisle had demanded any money from Simmons or Continental.

The court took the motions under advisement. On May 29, 1980, the appellants also filed a complaint in the Circuit Court of Bond County for foreclosure of mechanics' liens against Carlisle, Ferguson, Simmons and the Bradford National Bank of Greenville. This action involved the same actual ...

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