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Safeco Insurance Co. v. Siciliano

January 29, 2009


The opinion of the court was delivered by: Jeanne E. Scott, U.S. District Judge


This cause is before the Court on Plaintiff Safeco Insurance Company of America's Motion for Summary Judgment (d/e 28) and Defendants' Motion to Strike the Affidavit of Nicholas Hyslop (d/e 36). Plaintiff Safeco Insurance Company of America (Safeco) issues surety bonds to construction contractors. By law, contractors such as Defendant Siciliano, Inc. (Siciliano) often are required to obtain surety bonds, by which the bond issuer (the surety) guarantees that the contractor will satisfy its contractual obligations to a third party (the obligee). Specifically, these surety bonds reassure both the owner of a construction project that the contractor will complete the project as specified and the subcontractors, laborers, and material suppliers that they will receive payment. If the contractor does not satisfy these obligations, the surety must uphold the contractor's contractual promises.

Safeco issued numerous surety bonds for Siciliano's construction projects. In exchange for these bonds, Siciliano and Defendants K&R Properties, Inc., Richard E. Lawrence, and Mary Kim Lawrence entered into an indemnity agreement. In 2005, Siciliano encountered financial difficulties, and Safeco alleges that Siciliano could not complete several construction projects, which led numerous entities to make claims with Safeco on the bonds. In this lawsuit, Safeco claims that Defendants then refused to meet their obligations under the indemnity agreement. Safeco has now moved for summary judgment on its breach of contract claim. For the reasons stated below, both the Motion to Strike and the Motion for Summary Judgment are denied.


A motion for summary judgment must be granted "'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)). Any doubt as to the existence of a genuine issue for trial is resolved against the moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986); Herman v. Nat'l Broad. Co., 744 F.2d 604, 607 (7th Cir. 1984). Evidence is key. The parties may not rely merely on allegations or denials; they must present competent evidence to support their positions. Fed. R. Civ. P. 56(e).

Once the moving party has produced evidence showing that it is entitled to summary judgment, the non-moving party must present evidence to show that issues of fact remain. Matsushita Elec. Indus. Co. Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986). "Summary judgment is appropriately entered 'against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.'" McKenzie v. Ill. Dept. of Transp., 92 F.3d 473, 479 (7th Cir. 1996) (quoting Celotex, 477 U.S. at 322). It is not a discretionary remedy; if the non-moving party lacks sufficient evidence, summary judgment must be granted.

Jones v. Johnson, 26 F.3d 727, 728 (7th Cir. 1994).

To successfully oppose a motion for summary judgment, the non-moving party must do more than raise a "metaphysical doubt" as to the material facts. See Matsushita Elec. Indus. Co., 475 U.S. at 586. It must "come forward with 'specific facts showing that there is a genuine issue for trial.'" Id. at 587 (emphasis in original) (quoting Fed. R. Civ. P. 56(e)). "Where the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no 'genuine issue for trial.'" Id. In determining whether a genuine issue exists, courts should construe all facts and reasonable inferences in the light most favorable to the non-moving party. Moser v. Ind. Dept. of Corr., 406 F.3d 895, 900 (7th Cir. 2005). Courts are "not required to draw every conceivable inference from the record. [They] need draw only reasonable ones." Tyler v. Runyon, 70 F.3d 458, 467 (7th Cir. 1995) (internal quotation marks omitted).


Because a case may proceed to trial only if a genuine issue of fact exists, at the summary judgment stage this Court must determine which material facts are undisputed. Here, the parties neglected to follow two requirements of the Local Rules, which will affect the Court's findings.

First, in the Central District of Illinois, at summary judgment the parties must submit lists of facts they deem undisputed and material, and they must provide evidence in support of these proposed facts. Cent. Dist. IL L.R. 7.1(D). The opposing party then must state whether it disputes those facts or considers them immaterial. Cent. Dist. IL L.R. 7.1(D)(2)(b)(2) & (3)(a). Here, both parties indicated in numerous instances that they lacked sufficient information to dispute or concede a proposed fact. See, e.g., Defendants' Opposition to Plaintiff's Motion for Summary Judgment (d/e 35) (Defendants' Opposition), Exhibit 1, Defendants' Responses to Plaintiff's Statement of Undisputed Material Facts and Defendants' Statement of Disputed Material Facts, ¶ 21; Safeco Insurance Company of America's Reply Brief in Support of Its Motion for Summary Judgment (ECF #28) (d/e 38), Exhibit A, Safeco Insurance Company of America's Response to the Defendants' Statement of Additional Material Facts, ¶ 2. This is not an acceptable position at summary judgment. Where a party indicates that it lacks sufficient information to take a position on a proposed fact, the Court deems the fact undisputed.

Second, to dispute a proposed fact, the Central District Local Rules require a party to cite evidence in support of its denial. Cent. Dist. IL L.R. 7.1(D)(2)(b)(2) & (3)(a). In responding to Defendants' proposed facts, Safeco denies numerous facts, but it fails to provide any evidentiary support for its denials. See, e.g., Safeco Insurance Company of America's Reply Brief in Support of Its Motion for Summary Judgment (ECF #28) (d/e 38), Exhibit A, Safeco Insurance Company of America's Response to the Defendants' Statement of Additional Material Facts, ¶ 1. Thus, where the Court finds those facts material and sees no obvious support for a denial in the evidence otherwise before it, it deems those facts undisputed. Without presenting evidence, a party cannot satisfy its burden at the summary judgment stage. Fed. R. Civ. P. 56(e). Bare denials are insufficient. Id.

Having clarified these procedural matters, the Court finds the following facts. At different points in a period from 2003 to 2005, Siciliano obtained 13 Illinois construction jobs for which it needed surety bonds under the Illinois Public Construction Bond Act. See 30 ILCS 550/1, 2. Safeco issued these bonds for Siciliano in favor of various Illinois state and municipal entities -- the obligees. In consideration for the bonds, Safeco and all four Defendants entered into a General Agreement of Indemnity for Contractors (Indemnity Agreement). Mary Kim Lawrence signed the Indemnity Agreement three times: as Secretary of Siciliano, as Secretary of K & R Properties, Inc., and as an individual. Richard E. Lawrence also signed the Indemnity Agreement three times: as President of Siciliano, as President of K & R Properties, Inc., and as an individual. See Safeco Insurance Company of America's Memorandum in Support of Its Motion for Summary Judgment (d/e 30) (Plaintiff's Memorandum), Exhibit C, Indemnity Agreement, at 3.

Under the Indemnity Agreement, the Defendants agreed to pay Safeco "upon demand:"

1. All loss, costs and expenses of whatsoever kind and nature, including court costs, reasonable attorney fees (whether Surety at its sole option elects to employ its own attorney, or permits or requires Undersigned to make arrangements for Surety's legal representation), consultant fees, investigative costs and any other losses, costs or expenses incurred by Surety by reason of having executed any Bond, or incurred by it on account of any Default under this agreement by any of the Undersigned.

In addition the Undersigned agrees to pay to Surety interest on all disbursements made by Surety in connection with such loss, costs and expenses incurred by Surety at the maximum rate permitted by law calculated from the date of each disbursement;

2. An amount sufficient to discharge any claim made against Surety on any Bond. This sum may be used by Surety to pay such claim or be held by Surety as collateral security against loss on any bond;

3. Any original, additional or renewal premium due for any bond.

Id., Exhibit C, Indemnity Agreement, at 1. Moreover, the Indemnity Agreement specifies that a contractor shall be deemed to be in default if it:

(1) Is declared to be in default by the Obligee of any Bond;

(2) Actually breaches or abandons any Contract;

(3) Fails to pay, to the extent due in whole or in part, claims, bills or other indebtedness incurred in connection with the performance of any Contract;

(4) Becomes the subject of any agreement or proceeding of liquidation or receivership, or actually becomes insolvent;

(5) If an individual, dies, is adjudged mentally incompetent, is convicted of a felony or disappears and cannot be immediately found by Surety by use of usual methods;

(6) Breaches, fails to perform, or comply with, any provision of this agreement.


In the event claims were filed with Safeco, the Indemnity Agreement provided Safeco the right "to determine in good faith whether any claim or suit upon any Bond shall, on the basis of belief of liability, expediency or otherwise, be paid, compromised, defended or appealed." Id. The Indemnity Agreement also provides that in the event of default, Safeco had the right, "at its sole discretion, to . . . [t]ake possession of the work under any and all Contracts and to arrange for its completion by others or by the Obligee of any Bond." Id. Finally the Indemnity Agreement provides that "[a]n itemized statement of loss and expense incurred by Surety, sworn to by an officer of Surety, shall be prima facie evidence of the fact and extent of the liability of Undersigned to Surety in any claim or suit by Surety against Undersigned." Id.

At the same time that Siciliano was engaged in the 13 construction projects for which Safeco issued surety bonds, Siciliano also was working on another major construction project -- the Lincoln Museum and Lincoln Library in Springfield, Illinois. At some point during this construction project, the State of Illinois Capitol Development Board declared Siciliano in default on its contract. It then informed Siciliano's bank, Carrollton Bank, that it would make no further payments to Siciliano, and on September 14, 2005, Carrollton Bank closed Siciliano's account. Siciliano had no remaining funds to continue its construction projects.

On September 15, 2005, Siciliano asked Safeco for financial assistance. On September 19, 2005, officers of both companies met to discuss Siciliano's request for assistance. Safeco stated that it would provide assistance only if the money Siciliano obtained in the future on its bonded projects could not be accessed by Carrollton Bank. To prevent the bank from obtaining this money, Safeco proposed that the parties set up a joint trust account.

On this same day, the parties also discussed insurance problems Siciliano was experiencing. At this time, Siciliano lacked sufficient funds to pay its insurance premiums or its project vendors on any of its jobs. Siciliano asked Safeco to fund its insurance premiums so that it could maintain coverage. On September 29, 2005, Safeco paid a large portion of Siciliano's outstanding insurance premiums.

On October 14, 2005, the parties entered into two additional contracts. Under one of the contracts, the Joint Control Trust Account Agreement, the parties agreed to establish the joint trust account they had discussed on September 19, 2005. Under the other contract, the Assignment of Contract Agreement, the parties agreed that Safeco could access and use contract balances on the bonded projects. Safeco demanded these two contracts and a series of identical pre-signed default letters from Siciliano before it would fund Siciliano's current payroll obligations.

In the pre-signed default letters, Mr. Lawrence informed each owner of the 13 bonded projects that Siciliano was unable to complete its work or comply with its contractual obligations on the project. See Plaintiff's Memorandum, Exhibit D, Hyslop Affidavit, Exhibit 2, Default Letters. In these letters, Mr. Lawrence also stated that Siciliano voluntarily waived the owners' rights to declare Siciliano in default and Siciliano's rights to cure such defaults, and he informed the owners that Siciliano abandoned and terminated its right to complete their projects. Id. Under the Joint Trust Account Agreement, Safeco had authority to issue these letters only if: (1) Siciliano consented; (2) Siciliano or the other Defendants sought bankruptcy protection; (3) Siciliano failed to progress with the completion of six specific bonded projects; (4) Safeco ceased to provide its own funds to finance completion of the bonded projects; or (5) Siciliano entered into a material breach of any of the contracts, even if such breach were caused by Safeco withdrawing financial support. Defendants' Opposition, Exhibit 3, Lawrence Affidavit, Exhibit C, Joint Trust Account Agreement, ¶ I.5.

On October 25, 2005, Siciliano asked Safeco again to pay its insurance premiums. Safeco never responded, but Siciliano's insurer canceled its policies for non-payment. The parties agree that once Siciliano lost insurance coverage, Safeco stopped advancing Siciliano funds to cover Siciliano's payroll on the 13 bonded jobs, as Safeco had done previously. Siciliano was then unable to pay its workers, except during two payroll periods, which Siciliano covered after the Lawrences liquidated Siciliano's emergency reserve investments and sold personal assets.

After Siciliano began experiencing financial difficulty, Safeco received claims against the bonds on at least some of Siciliano's 13 bonded projects. Neither of the parties ...

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