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United Coastal Insurance Company v. Bechtel Hanford, Inc.
January 24, 2008, Ninth Circuit Court of Appeals
Cite as 06-35310

Decision on Insurer’s Liability with Contractor Reversed
 
The issue of the case started from a breach of contract dispute between Bechtel Hanford, Inc. and P.W. Stephens Contractors, Inc. (PWS) in an environmental project contracted by the Department of Energy. The project includes cleaning-up of the Hanford Nuclear Reservation in Washington.

According to records, PWS entered a subcontract work with Bechtel and obtained a performance bond from Acstar. When PWS defaulted on its subcontract, litigation followed.

Bechtel Hanford, Inc. had previously won the judgment against Acstar Insurance Co. and P.W. Stephens Contractors, Inc.

In response, Acstar obtained a supersedeas bond from United Coastal Insurance Company (UCIC) to stay the judgment while the appeal was pending. PWS, on the other hand, did not appeal the judgment.


The judgment against Acstar on its bond was affirmed.

Meanwhile, Bechtel petitioned the court to collect the entire judgment from UCIC. The district court granted the motion. Acstar paid Bechtel its portion of the judgment. Bechtel acknowledged that the payment satisfied Acstar’s own obligation under the judgment. UCIC appealed the decision.

In ruling, the court of appeals reversed the decision, holding that UCIC could not be held to have assumed PWS’s liability for the judgment based on the following grounds:

•    That there was nothing in the bond that established Acstar’s liability for PWS’s portion of the judgment. Accordingly, Acstar’s debts did not include Stephens’s debts.
•    That the state law governs interpretation of surety bonds. In this case, under Washington law, the “interpretive touchstone” is the intent of the parties. Here, the bond named Acstar as the sole principal and Acstar alone executed the bond as principal.

Further, the appeals court contended that the bond made no mention of an appeal by Stephens of a judgment against it. Stephens was not a party to the surety contract, and UCIC could only be liable for Acstar’s obligations.

On the other hand, Bechtel argued that the bond secured the liability of both Acstar and Stephens because Acstar was under obligations to satisfy the PWS judgment and UCIC was therefore similarly bound.

The appeals court disagreed, citing that the mere mention of PWS by name in the bond’s paragraph stating Acstar’s need for the bond cannot be considered a promise ‘amounting to a contractual element of the agreement’.

In ruling, the appeals court held that in cases where co-defendants insurance company and contractors had appealed the judgment, the supersedeas bond obtained by the insurance company secured judgment only against insurance company, based on the following reason:

•    It was the only principal identified in the surety contract.
•    The contractors were not party to contract and nothing in bond stated that insurance company was liable for contractors' portion of judgment.

The court of appeals therefore reversed judgment of the district court. In resolution, the court held that where a bond named as principal only one party to litigation, that party alone executed the bond as principal, and no other party was named in the bond, the surety’s obligation was limited to that one party’s liability for the judgment.

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