The Hanover Insurance Company v. Northern Building Company et al

Filing 65

Enter MEMORANDUM Opinion and Order. Signed by the Honorable Elaine E. Bucklo on 9/4/2012:Mailed notice (jdh)

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

)
)
)
)
Plaintiff,
)
)
v.
)
)
NORTHERN BUILDING. CO., a Michigan
corporation, and THOMAS VANDUINEN, a )
)
Michigan citizen
)
Defendants.
THE HANOVER INS. CO. a Delaware
corporation,

No. 11 C 2020

MEMORANDUM OPINION AND ORDER
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.1

1

For the reasons set forth below, I

Northern Building’s counter motion is styled as
“DEFENDANTS’ MOTION FOR SUMMARY JUDGMENT/OR IN THE ALTERNATIVE,
DEFENDANTS’ MOTION FOR DISMISSAL FOR A LACK OF DIVERSITY
JURISDICTION (THE AMOUNT IN CONTROVERSY DID NOT EXCEED $75,000
WHEN THE CASE WAS FILED)/OR IN THE ALTERNATIVE FOR CHANGE OF
VENUE.” (Dkt. No. 42.)

grant Hanover’s Motion for Summary Judgment, and deny Northern
Building’s motion in its entirety.
I.
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.2

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
2

See, e.g., McDaniel Fire Sys., Inc. v. Northern Bldg. Co.,
No. 09 cv 3320 (Hon. Suzanne B. Conlon, presiding) and USA for
use of McDaniel Fire Sys. et al. v. Hanover Ins. Co., No. 10 cv
01595 (Hon. Charles P. Kocoras, presiding).
2

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.)
Northern

By this point, McDaniel had been paid $20,688.84 by

Building,

$127,452.78.

Id.

and

its

lawsuit

sought

an

additional

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

3

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

agreement.

required

Northern

(Pl. St. ¶ 11.)

Building

to

sign

an

indemnity

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.
St. ¶¶ 29-33.)

(Pl.

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.

4

(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.
II.
A.

Diversity Jurisdiction

First, Northern Building argues that the case should be
dismissed because Hanover cannot establish that the amount-incontroversy exceeds $75,000, which is required before the Court can
exercise diversity jurisdiction under 28 U.S.C

§ 1332(a).

determining

Section

whether

a

plaintiff

has

satisfied

In

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

5

$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 seeks from Northern Building
is immaterial; the Court must instead look to the amount alleged at
the time of the filing of the Complaint.
At the time Hanover filed its complaint in this case, it had
not yet received the reimbursement from Parsons, and therefore it
alleged the full $154,195.27 in damages. Under the legal certainly
test, that sum—which is clearly above the $75,000 amount-incontroversy requirement—controls unless: (1) Hanover alleged it in
bad faith or (2) it appears to a legal certainty that the claim is
really for less than that amount.

In moving to dismiss, Northern

Building argues that, at the time of filing, Hanover expected to
receive a reimbursement from Parsons and knew, therefore, that it

6

would not need to collect full sum from Northern Building.

(Dkt.

No. 44 at 8.)
Northern Building contends that the settlement of the
underlying litigation hinged on payment from Parsons.

Taken

together, Northern Building’s Motion for Summary Judgment,
Memorandum in Support thereof, and Rule 56.1 Statement include
only one record citation in support of that assertion.

That

citation is to a 30-page “Transcript of Settlement Proceedings
Before Magistrate Judge Cole”

(Dkt. No. 44 at 6.)3

I have

reviewed that transcript and it does not appear to contain any
reference to the Parsons reimbursement.4 In its Local Rule
56.1(b)(3)(B) response to Hanover’s statement of facts, Northern
Building also cites an August 9, 2010, letter from Parsons to
Hanover.

(Dkt. No. 53 Ex. 12.)

That letter contains the

following passage:
3

In its Local Rule 56.1(b)(3)(B) response to Hanover’s
statement of facts, Northern Building cites certain pages of the
transcript in support of its claim that Hanover would not have
settled the underlying litigation if Parsons did not make the
$127,452.78 payment to Hanover. These pages, however, all
discuss the fact that Hanover only intended to proceed with the
settlement if the bankruptcy court concluded that it reflected
the extent of Hanover’s liability, and if Rex Electric and
McDaniel discharged Hanover of its liability.
4
I note that Hanover objects to the use of the settlement
transcript, citing Fed. R. Evid. 408, which prohibits the use of
settlement negotiations to prove the validity or amount of a
disputed claim. Settlement discussions can be used for other
purposes, however, including to determine if the amount-incontroversy requirement has been met. See Tellis v. Sipes, No.
12–cv–00007–SEB–WGH, 2012 WL 1969054, at *3–*5 (S.D. Ind. May
31, 2012).
7

Currently $133,486.19 is available for payments, less
costs associated with the fire alarm inspections and
warranty services. Total cost to date for inspection
services paid by Parsons is $3,400.00. Two additional
inspections will be required, one in October 2010 and the
other in April 2011, at an estimated cost of $3,000. No
additional performance is anticipated to meet subcontract
closeout requirements. Parsons is not holding any funds
for payment. Upon receipt of an invoice and your written
instructions, the government will be billed and payment
provided to Hanover within 30 days.
This appears to be an assurance from Parsons to Hanover that
the government would reimburse Hanover for most of the amount
Hanover was to pay in settlement of the McDaniel claim.5

However,

regardless of whether Hanover expected repayment, it is undisputed
when this action was filed, Hanover had not received it, and had
paid $127,452.78 to the bankruptcy trustee to settle McDaniel’s
claim.

See Hart v. Schering-Plough Corp., 253 F.3d 272, 273–74

(7th Cir. 2001) (holding that “the amount

in controversy

is

whatever is required to satisfy the plaintiff's demand, in full, on
the date suit begins.”)
Northern Building has not cited any case law standing for
the proposition that a claim for damages must take into account
any potential future reimbursements from a third party, and I
have not found any. Thus, I cannot conclude with legal certainty
that the amount in controversy was below $75,000 at the time this
case was filed or that Hanover acted in bad faith.
5

Accordingly,

In fact, the amount left after the inspections was
$127,086.19, and the government, through Parsons, later paid
Hanover $127,086.
8

Northern Building’s Motion to Dismiss based on lack of
jurisdiction is denied.
B. Change of Venue
Northern Building also makes a cursory one-paragraph motion
for “change of venue,” arguing that the Northern District of
Illinois is an improper venue and that the case should be
transferred to some venue in the state of Michigan.
In a case such as this, where federal jurisdiction is
predicated on diversity of the parties, venue is proper in “a
judicial district in which a substantial part of the events or
omissions giving rise to the claim occurred.” 28 U.S.C. §
1391(a)(2).

A court’s decision about whether to transfer a case

to a different venue is discretionary. Coffey v. Van Dorn Iron
Works, 796 F.2d 217, 219 (7th Cir. 1986); see also 28 U.S.C. §
1404(a).

When a party moves for transfer, that party bears the

burden of establishing that the transferee venue is more
convenient.

Allied Van Lines, Inc. v. Aaron Transfer & Storage,

Inc., 200 F. Supp. 2d 941, 946 (N.D. Ill. 2002).

Courts may

transfer a case under Section 1404(a) when: (1) venue is proper
in the transferor district; (2) venue is proper in the transferee
district; (3) the transfer will serve the convenience of the
parties and witnesses; and (4) the transfer will serve the
interests of justice. Gueorguiev v. Max Rave, LLC, 526 F. Supp.
2d 853, 856 (N.D. Ill. 2007).

In evaluating the convenience of
9

the parties and witnesses, courts weigh the following factors:
(1) the plaintiff’s choice of forum; (2) the situs of the
material events; (3) the relative ease of access to sources of
proof; (4) the convenience of the witnesses; and (5) the
convenience to the parties of litigating in the respective
forums.

Allied Van Lines, 200 F. Supp. 2d at 946. In considering

the interests of justice, courts weigh additional factors,
including: (1) the speed at which the case will proceed to trial;
(2) the court's familiarity with the applicable law; (3) the
desirability of resolving controversies in each locale; and (4)
the relation of each community to the occurrence at issue. Id.
First, the Northern District of Illinois is a proper venue
because the construction project underlying the dispute took
place at Chicago’s Midway Airport.

To the extent Northern

Building meant to argue that venue is proper here, but would also
be proper and more convenient somewhere in Michigan, I reject
that argument as well because Northern Building has completely
failed to present an argument regarding convenience.

Northern

Building says nothing about the access to sources of proof; the
convenience of the witnesses; and the convenience to the parties
of litigating in the respective forums.

Accordingly, Northern

Building’s Motion for Change of Venue is denied.
C. Cross Motions for Summary Judgment
I note that while Northern Building moved for summary

10

judgment, Hanover is correct that its motion in that regard reads
more like a response to Hanover’s motion than a motion in its own
right.

Hanover also moves to strike Northern Building’s Local

Rule 56.1 Statement of Facts, arguing it is deficient in several
ways.

Although Northern Building’s briefing of its summary

judgment motion is problematic in certain respects, motions to
strike are disfavored, and I am capable of determining which
facts are relevant to the present motions and disregarding
extraneous or improper factual statements.

See Zaitzeff v.

Peregrine Fin. Grp., Inc., 08 C 4053, 2010 WL 438158, at *4 (N.D.
Ill. Feb. 1, 2010). As such, Hanover’s
denied.

motion to strike is

Regardless, the undisputed facts show that Hanover is

entitled to summary judgment, so its motion is granted.
On summary judgment, the moving party bears the burden of
establishing the basis for its motion, together with evidence
demonstrating the absence of any genuine issue of material fact.
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

Once the

moving party has met this burden, the nonmoving party may not rest
on mere allegations, but must present specific facts showing that
a genuine issue exists for trial.

Big O Tire Dealers, Inc. v. Big

O Warehouse, 741 F.2d 160, 163 (7th Cir. 1984).

To support their

positions that a genuine issue of material fact does or does not
exist, the parties may cite to materials in the record, including
depositions,

documents,

electronically

11

stored

information,

affidavits

or

declarations,

stipulations,

admissions,

and

interrogatory answers, or show that the materials in the record do
or do not establish a genuine dispute.

Fed. R. Civ. P. 56(c).

Hanover alleges that Northern Building breached the indemnity
agreement by failing to reimburse Hanover for costs expended in
litigating and ultimately settling the McDaniel lawsuit.

Hanover

contends that summary judgment is appropriate because Northern
Building has failed to raise any issue of material fact concerning
its obligation to reimburse Hanover.

I agree.

In Illinois, indemnity agreements are construed—like any other
contract—to give effect to the intention of the parties.

See

Hanover Ins. Co. v. Smith, 182 Ill. App. 3d 793, 796 (Ill. App. 1st
Dist. 1989).

In order to discern the intent of the parties, a

court will look to the language in the contract.

United States

Fidelity Guarantee Co., v. Klein Corp., 190 Ill. App. 3d 250, 254
(Ill. App. 1st Dist. 1990).

The language is to be given its plain

and ordinary meaning unless it is ambiguous.

Id.

It is undisputed that Northern Building entered into the
indemnity agreement with Hanover.

In doing so, it agreed to

indemnify Hanover for all losses arising by reason of, or in
consequences of, its execution of the bonds, including sums paid in
settlement of claims or demands. The indemnity agreement states:
The Surety [Hanover] shall have the exclusive right to
adjust, settle, or compromise any claim, demand, suit or
any other proceeding arising out of any bond against the
Surety and/or the Indemnitors [Northern Building], take
12

whatever action it deems appropriate in response thereto,
and its determination of whether to defend or settle the
same shall be binding and conclusive upon the
Indemnitors.
(Dkt. No. 41-1 at 11-13.)
Hanover has presented prima facie evidence that it suffered
damages in settling the McDaniel bond claims and lawsuit.
indemnity agreement is clear and unambiguous.

The

According to its

plain terms, Northern Building is responsible for reimbursing
Hanover for the costs associated with that settlement.
In response, Northern Building makes two arguments. First, it
argues that there is a factual dispute concerning whether the
provisions of the bond were sufficiently triggered such that
Hanover was permitted to settle the claim.

(Dkt. No. 44 at 4-5.)

The bond in this case is a one-page document, separate from the
indemnity agreement, in which Hanover agrees to be jointly and
severally

liable

to

Parsons

for

any

failure

performance on the part of Northern Building.

in

payment

or

(Dkt. No. 53-13.)

The bond states: “If Principal [Northern Building] shall promptly
make payment to all claimants as hereinafter defined for all labor
and material used or reasonably required for use in the performance
of the subcontract, then this obligation shall be void.”

Id.

Thus, as far as I can tell, Northern Building seeks an opportunity
to prove at trial that Hanover’s obligation under the Bond was void
because Northern Building paid McDaniel in full.

The problem with

that argument is that Northern Building has, again, failed to
13

present evidence supporting its contention that it paid McDaniel in
full, and it is clear from the record that Northern Building
stopped making payments to McDaniel after McDaniel failed the FAA
inspection.

Northern Building’s own Rule 56 statement indicates

that it halted payments to McDaniel. (Def. St. ¶ 10 “Northern
refused payment to McDaniel on its last three pay applications for
the reason that the work for which McDaniel was seeking payment had
not been completed to the satisfaction of either Parsons or the
FAA.”).
Second, Northern Building argues that, because Judge Conlon
denied McDaniel’s summary judgment motion in the McDaniel v.
Northern Building lawsuit, I must deny Hanover’s motion here.
(Dkt. No. 44 at 4.)

That argument is without merit.

In McDaniel

v. Northern Building, McDaniel alleged that Northern Building
failed to pay for work McDaniel performed on the Midway project.
(McDaniel Fire Systems, Inc. v. Northern Building Co., Case No 09
cv 3320, Dkt. No. 1.)

The parties in that case filed cross

motions for summary judgment, and Judge Conlon denied both motions.
(Dkt. No. 53-1) Judge Conlon found that there was a material issue
of fact concerning whether McDaniel substantially performed under
the

McDaniel/Northern

Building

contract.

Id.

If

it

did

substantially perform, McDaniel would be entitled to recover under
its breach of contract claim; and, if it did not substantially
perform, Northern Building would be justified in its non-payment.

14

That suit had nothing to do with whether an indemnity agreement was
breached.
Building

In this case, the central issue is whether Northern
breached

an

indemnity

agreement

when

it

failed

to

reimburse Hanover for costs associated with the McDaniel claim and
lawsuit.

When Northern Building stopped paying McDaniel, Hanover

was exposed to a costly lawsuit, which it defended and ultimately
settled.

Under

the

indemnity

agreement

between

Hanover

and

Northern Building, barring any bad faith, Hanover had the exclusive
right to settle and resolve bond claims as it saw fit.

The fact

that McDaniel may or may not have substantially performed is
irrelevant.
Northern

Building

argues

Hanover

acted

in

bad

faith

by

settling the claims, when in prior proceedings it had asserted that
Rex Electric was not a proper claimant under the bond and was
simply an unsecured creditor of McDaniel.

Hanover asserts that

although payment to McDaniel satisfied Rex Electric’s claim, it
settled

with

McDaniel,

so

the

issue

Electric’s claim is irrelevant.

of

the

validity

of

Rex

Regardless, even if Hanover had

changed its position as to the validity of Rex Electric’s claim,
this would not enough to support a finding of bad faith, and
Northern Building fails to bring forth any evidence to support a
finding of bad faith.

By contrast, Hanover has presented evidence

that prior to it settling McDaniels’ bond claim, it investigated
the merits of the claim and potential risks, and examined documents

15

supporting

McDaniel’s

Building’s position.

position

and

those

supporting

Northern

Hanover also considered the undisputed fact

that Northern Building failed to post collateral, as required by
the indemnity agreement. (See Dkt No. 41, Ex. B.)

Hanover and

Northern Building clearly disagreed as to whether the claim should
have been paid, but that does not amount to bad faith.
IV.
For the reasons stated herein, Hanover’s Motion for Summary
Judgment (Dkt. No. 39) is granted.

Northern Building’s Motion

for Summary Judgment, and its associated motions to dismiss (Dkt.
No. 42) are denied.

Hanover’s Motion to Strike Northern

Building’s Local Rule 56.1 Statement of Facts (Dkt. No. 45) is
denied.
ENTER ORDER:

____________________________
Elaine E. Bucklo
United States District Judge

Dated: Sept. 4, 2012

16