Ed Kimber Heating & Cooling, Inc. v.
Travelers Casualty & Surety Co. No. 3:03cv2111
(SRU), 2006 U.S. Dist. LEXIS 3323 (D. Conn. Jan. 26,
2006)
Trataros Construction, Inc. ("Trataros"),
the general contractor on a school addition and
renovation project, subcontracted with Ed Kimber
Heating & Cooling, Inc. ("Kimber") for
the performance of HVAC and plumbing work. Travelers
Casualty & Surety Co. ("Travelers")
issued payment and performance bonds as the surety for
Trataros.
Trataros made progress payments to Kimber
throughout the project. In January of 2003, however,
Trataros made out its progress payment check from an
account which required approval by Travelers.
Travelers refused to approve this payment. For reasons
unstated by the court, Trataros subsequently became
unable to complete the job, and Travelers hired a
replacement contractor. The replacement contractor in
turn employed another HVAC subcontractor, prompting
Kimber to cease work on the project.
Kimber sued Travelers on the payment bond.
Travelers counterclaimed, seeking the excess cost of
completing Kimber's work with the replacement
subcontractor, as well as the cost of correcting
certain deficient work by Kimber. Kimber moved for
summary judgment on the portion of Travelers'
counterclaim related to the completion costs. Applying
New York law as required by the subcontract, the court
granted Kimber's motion.
Kimber argued successfully that Trataros' and
Travelers' failure to make the January 2003 progress
payment constituted a material breach of the
subcontract which justified Kimber's cessation of
performance. Travelers put forth several
justifications for withholding the January payment,
contending that it and Trataros had the right to
terminate Kimber before failing to issue the payment.
The court rejected each of these contentions.
First, the court found that neither Trataros nor
Travelers had complied with the provisions of the
subcontract requiring written notice prior to
termination for default. The court held that this
failure alone defeated Travelers' claim of justified
termination. However, the court addressed Travelers'
other arguments as well, and held that Kimber could
not have been terminated even if proper notice were
provided.
Travelers had alleged that Kimber committed
numerous breaches of the subcontract which would have
permitted termination. Among other things, Travelers
maintained that Kimber had failed to secure the
required license for its work, had failed to pay
prevailing wages to its laborers, and had failed to
obtain required worker's compensation insurance. The
court held that Trataros' continual payments to Kimber
in spite of these various breaches constituted
acceptance of Kimber's performance and waived any
right to rely on these breaches as a ground for
termination.
Finally, Travelers had argued that the subcontract
allowed Trataros to withhold payment where it would be
"reasonable" to do so. Travelers cited
Kimber's overstatement of the percentage of work it
had completed to date as such a reason for its refusal
to issue the January 2003 progress payment. However,
the court noted that Travelers did not discover this
overstatement until March of 2003, and thus could not
reasonably have relied upon it at the time it withheld
the payment.
