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The Hanover Ins. Co. A Delaware Corporation v. Northern Building. Co.

September 4, 2012


The opinion of the court was delivered by: Elaine E. Bucklo United States District Judge


Hanover Insurance Company ("Hanover") brought this action against Northern Building Company and Thomas VanDuinen (collectively "Northern Building"), arguing that defendants beached an indemnity agreement relating to a construction project. Hanover moved for summary judgment on its breach of contract claim, contending that there is no dispute of material fact concerning Northern Building's breach. Northern Building filed a counter motion seeking summary judgment in its favor, dismissal of the action, or change of venue.*fn1 For the reasons set forth below, I grant Hanover's Motion for Summary Judgment, and deny Northern Building's motion in its entirety.


The following facts, derived from the parties' Local Rule 56.1 statements and exhibits, are undisputed unless otherwise indicated.

In the Spring of 2008, the Federal Aviation Administration ("FAA") began safety upgrades to the air traffic control tower at Chicago's Midway Airport. The general contractor, subcontractors, and insurance companies who provided construction bonds for that project have since become embroiled in various disputes, which have resulted in an array of litigation before the District Court.*fn2 The instant case involves the following entities: (1) the general contractor on the project: Parsons Infrastructure & Technology Group, Inc. ("Parsons"); (2) a subcontractor: the defendant in this case, Northern Building; (3) the subcontractor's bonding company: Hanover; (4) the subcontractor's sub-subcontractor: McDaniel Fire Systems("McDaniel"); and (5) a final subcontactor hired by McDaniel, Rex Electric and Technologies LLC ("Rex Electric"), that also claimed it was due payment.

The dispute began between subcontractor Northern Building and its sub-subcontractor, McDaniel. Northern Building and McDaniel had a contract specifying that McDaniel was to complete certain upgrades to Midway's fire alarm system by March 9, 2009; and, in exchange, Northern Building was to pay McDaniel $134,584.00. (Pl. Rule 56.1(b)(3) Statement (hereinafter "Pl. St.") ¶ 8.)

On May 10, 2009, the FAA inspected McDaniel's work, which was to have been finished, and found that it was deficient in a number of respects. (Defs. Rule 56.1(a)(3) Statement (hereinafter "Defs. St.") ¶ 10.) Northern Building directed McDaniel to address the deficiencies, but McDaniel refused. (Def. St. ¶ 12.) In turn, Northern Building completed the project itself and withheld payment from McDaniel. (Def. St. ¶ 13.) When Parsons (the general contractor) learned that Northern Building was withholding payments from McDaniel, it suspended payments to Northern Building. (Def. St. Ex. 12.)

McDaniel then sued Northern Building, arguing that Northern Building's failure to pay was a breach of contract because, although the FAA inspection noted certain deficiencies, McDaniel had substantially performed under the parties' agreement. (McDaniel Fire Sys., Inc. v. Northern Bldg. Co., No. 09 cv 3320, Dkt. No. 1.) By this point, McDaniel had been paid $20,688.84 by Northern Building, and its lawsuit sought an additional $127,452.78. Id. In the midst of that suit, McDaniel filed for bankruptcy and the bankruptcy trustee thereafter pursued the case against Northern Building. (Pl. St. ¶ 23.) On March 10, 2010, the bankruptcy trustee brought another suit against Hanover, because Hanover had bonded Northern Building's work on the Midway project. (Pl. St. ¶ 22.) Generally, when a construction company is "bonded," the bond provider (usually an insurance company) promises to pay either: (1) the construction company's client if the construction company fails to complete the job, and/or (2) the company's subcontractors if the construction company fails to pay the subcontractor's bills.

In consideration of Hanover's issuance of bonds for the Midway project, it required Northern Building to sign an indemnity agreement. (Pl. St. ¶ 11.) The indemnity agreement gave Hanover the exclusive right to settle any claims or lawsuits arising out of the bond and required Northern Building to indemnify Hanover for those settlements, meaning Northern Building would have to reimburse Hanover for costs associated with settling the bond claims. (Dkt. No. 41-1 at 11-13.)

On September 22, 2010, Hanover settled the McDaniel lawsuit for $127,452.78. (Pl. St. ¶ 24.) Hanover demanded that Northern Building indemnify it for the costs associated with litigating and settling the McDaniel suit, and Northern Building refused. (Pl. St. ¶¶ 29-33.) Northern Building strenuously objected to that settlement on the grounds that McDaniel did not deserve to get paid for the incomplete work it did on the Midway project. (Def. St. ¶ 24.) Hanover filed this lawsuit against Northern Building on March 23, 2011, seeking indemnification. (Dkt. No. 1.) Later, in July 2011, Hanover received reimbursement for the McDaniel settlement from Parsons in the amount of $127,086. (Pl. St. ¶ 25.) Accounting for that reimbursement, Hanover claims that it incurred an additional $53,504.44 in damages as a result of claim payments, legal fees, and expenses in defending the suit against McDaniel; and it now seeks that amount from Northern Building.


A. Diversity Jurisdiction

First, Northern Building argues that the case should be dismissed because Hanover cannot establish that the amount-in-controversy exceeds $75,000, which is required before the Court can exercise diversity jurisdiction under 28 U.S.C § 1332(a). In determining whether a plaintiff has satisfied Section 1332's amount-in-controversy requirement, federal courts generally look to the sum alleged in the complaint, and that sum will control unless it appears to have been made in bad faith or it appears "to a legal certainty that the claim is really for less than the jurisdictional amount . . . ." Smith v. Am. Gen. Life and Accident Ins. Co, Inc., 337 F.3d 888, 892 (7th Cir. 2003) (citing St. Paul Mercury Indem. Co. v. Red Cab Co., 303 U.S. 283, 289 (1938)). Aside from the longstanding "legal certainty" test, it is also well established that the requirements for diversity jurisdiction must be satisfied only at the time a suit is filed. Once jurisdiction vests, subsequent events that reduce the amount-in-controversy to below $75,000 will not ordinarily divest the Court of jurisdiction. See Grinnell Mut. Reinsurance Co. v. Shierk, 121 F.3d 1114, 1116 (7th Cir. 1997).

In this case, it is undisputed that Hanover currently seeks less than $75,000 from Northern Building. As noted above, Hanover settled with McDaniel in the underlying lawsuit for $127,452.78. In July 2011, after this suit was filed, Hanover received reimbursement from the government, through Parsons, in the amount of $127,086, leaving it with $53,504.44 in costs associated with defending that suit and prosecuting this one to recover from Northern Building. (Dkt. No. 44 at 8.) However, in analyzing jurisdiction, the amount Hanover now ...

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