Skip to Navigation
The Collaborative Clearinghouse for Lawsuits and Other Claims Against ACE Group Insurance Companies

WESTCHESTER FIRE INSURANCE COMPANY v. INFRASTRUCTURE COALITION LP

ATTENTION: It is possible that this information may no longer be current and therefore may be inaccurate. The index contains both open and closed cases and is not a complete list of cases in which an ACE Insurance Group company is involved. This information is provided to give interested persons an idea of the issues disputed in the indexed cases. For a full understanding of a case, one should read the rest of the court file, including the response. For the most up-to-date and complete information on a case, visit www.pacer.gov or contact the clerk of the relevant court.

Case Number: 
1:15-cv-09452 Search Pacer
ACE Group party(s): 
Court Type: 
Federal
US District Court: 
Southern District of New York
Date Filed: 
Dec 3 2015

PARTIES AND JURISDICTION

1.    Westchester is a corporation organized and existing pursuant to the laws of the
State of Pennsylvania with its principal place of business at 436 Walnut Street, Philadelphia,
Pennsylvania.
2.    Upon    information    and    belief,    ICLP is a limited partnership formed under the
laws of the Province of Manitoba with its principal place of business at 55 University Avenue,
Toronto, Ontario.
3.    This    Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1332, as it
is between a citizen of a state and a citizen of a foreign state and the amount in controversy
exceeds $75,000, exclusive of interest and costs.
4.    Venue is proper in this Court pursuant 28 U.S.C. § 1391(b)(2) because the
subject Agreement of Indemnity (the “Indemnity Agreement”) executed by the parties provides
that the Indemnity Agreement is “deemed made in the State of New York.” Venue is further
proper because the Indemnity Agreement additionally provides that “[ICLP] agrees that all
actions or proceedings arising directly or indirectly from this Agreement shall be litigated only
in courts having status within the State of New York, and consents to the personal jurisdiction
and venue of any local, state or Federal Court located therein.” (A copy of the Indemnity
Agreement is attached hereto as Exhibit A).

STATEMENT OF FACTS

A.    The Indemnity Agreement
5.    Prior to March 18, 2013, ICLP requested that Westchester and certain related
companies consider executing surety bonds on its behalf, and on behalf of its subsidiaries and
affiliates, guaranteeing the performance of the obligations of ICLP and its subsidiaries and
affiliates pursuant to certain construction contracts and their payment of the laborers,
subcontractors, and suppliers who would provide labor, material, equipment and/or services
in furtherance of the performance of such contracts.
6.    Before it would consider executing such bonds, and as a condition of and
consideration for the future execution of such bonds, Westchester required that ICLP execute
the Indemnity Agreement.
7.    On or about March 18, 2013, ICLP, as Indemnitor, executed the Indemnity
Agreement in favor of Westchester and other companies, as Surety.
8.    One of the primary purposes of the Indemnity Agreement is to ensure that the
Surety is indemnified from and against any and all liability for losses, costs and expenses of
any kind including, but not limited to, court costs and counsel fees that the Surety may pay as
a result of having executed bonds on behalf of ICLP or any of ICLP’s subsidiaries or
affiliates.
9.    The Indemnity Agreement further provides that ICLP is required to “place the
SURETY in funds to meet all of its liability under [the subject bonds]” and that “[a]ny
demand upon the SURETY by the Obligee shall be sufficient to conclude that a liability
exists and the INDEMNITOR shall then place the SURETY with sufficient funds in a form
and amount deemed acceptable in the SURETY’S sole discretion, as collateral security to
cover the liability.”
10.    Specifically, Paragraph 1 and 2 of the Indemnity Agreement provides the
following, in relevant part:

1. PREMIUMS & COLLATERAL FOR SURETYSHIP-The

INDEMNITOR shall pay or cause to be paid to the SURETY both the
agreed premium and, upon written request by the SURETY at any time,
collateral security for the suretyship until the INDEMNITOR shall furnish
to the SURETY competent written evidence, satisfactory to the SURETY,
of the termination of any past, present and future liability under any Bond.
The INDEMNITOR expressly waives any right to interest which may be
earned on the collateral security and further consents that the collateral
security provided in consideration of suretyship may be held by the
SURETY in any investment or depository that the SURETY in its sole
discretion deems advisable and prudent. The Surety’s election not to
demand collateral at the inception of the suretyship obligation shall not
operate as a waiver of the right to demand and receive such collateral at
any time before liability has terminated under any Bond.

2. INDEMNITY & COLLATERAL FOR CLAIM- The INDEMNITOR

shall indemnify and save harmless the SURETY from and against any and
all liability, claim, demand, loss, damages, expense, cost, attorney’s fees
and expenses, including without limitation, fees and disbursements of
counsel incurred by the SURETY in any action or proceeding between the
INDEMNITOR and the SURETY, or between the SURETY and any third
party, which SURETY shall at any time incur by reason of its execution of
any Bond or its payment of or its liability to pay any claim, irrespective of
whether the claim is made against the SURETY as a joint or several
obligor and whether the INDEMNITOR is then liable to make such
payment, and to place the SURETY in funds to meet all of its liability
under any Bond, promptly upon request and before the SURETY may be
required to make any payment thereunder; and copy of the claim,
demand, voucher or other evidence of the payment by the SURETY of any
liability, claim, demand, loss, damage, expense, cost and attorney’s fees,
shall be prima facie evidence of the fact and amount of the
INDEMNITOR’S liability to the SURETY under this Agreement. Any
demand upon the SURETY by the Obligee shall be sufficient to conclude
that a liability exists and the INDEMNITOR shall then place the SURETY
with sufficient funds in a form and amount deemed acceptable in the
SURETY’S sole discretion, as collateral security to cover the liability.

B.    The Bonds
11.    On or about April, 20, 2012, Dorena Hydro, LLC (“Dorena”) and Mowat
Construction Company (“Mowat”) executed a construction contract, pursuant to which
Mowat was to provide certain materials, equipment, labor and supervision in relation to the
Dorena Hydroelectric Project, located at Dorena Dam, in Lane County, Oregon (the
“Contract”).
12.    Dorena is an indirect subsidiary of ICLP. (See Dorena Financial Statements,
dated December 31, 2014, p. 6, which is attached hereto as Exhibit B).
13.    At the specific request of ICLP and in specific reliance upon ICLP’s execution
of the Indemnity Agreement and the obligations ICLP agreed to perform thereunder,
Westchester, as surety, issued a Performance Bond (the “Performance Bond”) and a Payment
Bond (the “Payment Bond,” together with the Performance Bond, the “Bonds”), on behalf of
Dorena, as principal, in connection with the Contract. The Bonds are each in the penal sum of
$4,000,000.00. (Copies of the Performance Bond and the Payment Bond are attached hereto
as Exhibits C and D, respectively).
C.    The Claims Against Westchester
14.    On January 17, 2014, due to Dorena’s alleged failure to meet its obligations
under the Contract, Mowat filed a lawsuit against Dorena in the United States District Court,
District of Oregon, seeking to recover the amount allegedly due and owing to it under the
Contract (the “Action”). The Action is captioned Mowat Construction Company, United
States of America for the use and benefit of Mowat Construction Company v. Dorena Hydro.
LLC, Westchester Fire Insurance Company, Civil Action No. 6:14-cv-00094-AA. (A copy of
Mowat’s Second Amended Complaint in the Action is attached hereto as Exhibit E).
15.    On June 11, 2014, Mowat filed a Second Amended Complaint in the Action,
pursuant to which Mowat brought a claim against Westchester under the Payment Bond. (See
Ex. Eat11.1-11.4).
16.    In the Action, Mowat is seeking to recover the sum of least $7,109,200.20 in
damages, together with interest, costs and attorney’s fees. (See Ex. E at ^ 12.2).
D.    Dorena’s Failure to Pay Legal Fees
17.    In or about January of 2014, Dorena retained the law firm of Davis Wright
Tremain LLP (“DWT”) to defend itself and Westchester in the Action. (See Declaration of
Marcus Eyth in Support of Motion to Withdraw as Counsel, dated October 27, 2015,    2-3,
which is attached hereto as Exhibit F).
18.    On October 13, 2015, the parties in the Action submitted to the Court an
Amended Stipulated Scheduling Report, which provided that the trial of the Action is to
commence on January 4, 2016. (See Amended Stipulated Scheduling Report, dated October
13, 2015, which is attached hereto as Exhibit G).
19.    On October 27, 2015, DWT filed a motion in the Action to withdraw as
counsel for the defendants. (A copy of DWT’s Motion Papers are attached hereto as Exhibit
H).
20.    DWT sought to be relieved as counsel in the Action because of the failure of
Dorena to pay counsel fees and expenses due and owing to DWT for its representation of
Dorena and Westchester.
21.    On October 30, 2015, the Court granted the motion of DWT to withdraw as
counsel in the Action. (See Text Order Granting Motion to Withdraw, dated October 30,
2015, which is attached hereto as Exhibit I).
22.    Subsequently, Westchester and Dorena retained separate counsel to defend
themselves in the Action: Westchester retained the law firm of Cable Huston LLP and
Dorena retained the law firm of K&L Gates LLP. (See Cable Huston LLP Notice of
Appearance, dated November 20, 2015, and K&L Gates LLP Notice of Appearance, dated
November 20, 2015, which are attached hereto as Exhibits J and K, respectively).
23.    At the time that DWT filed its motion to withdraw, the Action had been
pending for close to two years, during which period extensive discovery and other litigation
activity had taken place involving: (a) the exchange of hundreds of thousands of documents;
(b) the taking of numerous depositions; and (c) the filing of multiple discovery motions; a
motion for a bifurcated trial and a motion for partial summary judgment. (A copy of the
Docket Sheet for the Action is annexed hereto as Exhibit M).
24.    ICLP and its subsidiary, Dorena, have exposed Westchester to substantial
expenses and losses in connection with a Bond containing a penal sum of $4,000,000.00, by
failing to provide a defense to Westchester and leaving Westchester in the position of
scrambling at the eleventh hour to retain new counsel which must review hundreds of
thousands of documents to prepare for a trial which is scheduled to commence in less than
five weeks.

E.    The Collateral Demand
25.    On November 12, 2015, Westchester demanded, under the Indemnity
Agreement, that ICLP deposit with it the sum total of $4,200,000.00, within ten days, to
provide Westchester with some protection against its potential losses and expenses in the
Action (the “Collateral Demand”). (A copy of the Collateral Demand is attached hereto as
Exhibit L).
26.    The Collateral Demand was calculated as follows:
Potential Losses:    $4,000,000.00
Estimated Expenses:    $200,000.001
TOTAL    $4,200,000.00
27.    Westchester deems the Collateral Demand to be the minimum amount
sufficient to protect Westchester from potential losses, including expenses incurred and to be
incurred, in connection with the Action.
28.    For the year ending on December 31, 2014, ICLP has represented to
Westchester that it had total assets exceeding $105,000,000.00.
29.    To date, ICLP has failed to provide Westchester with any collateral security.

FIRST COUNT
(Specific Performance - Deposit of Collateral Security)

30.    Westchester repeats and realleges paragraphs “1” though “29” hereof.
31.    On November 12, 2015, Westchester advised ICLP that Westchester had
determined that its exposure for potential losses as a result of the Action may exceed the sum
of $4,200,000.00 and that pursuant to the Indemnity Agreement, Westchester demanded that
ICLP deposit with it the sum total of $4,200,000.00, within ten days, to provide Westchester
with some protection against potential losses and expenses, including attorneys’ fees and
consulting fees, with respect to the Action.
32.    In material breach of its obligations under the Indemnity Agreement, ICLP has
failed and refused to satisfy the aforesaid demand for collateral.
1 These estimated expenses include attorneys’ fees and consulting fees.
33.    Westchester is suffering, and will continue to suffer, irreparable injury as a
result of ICLP’s failure and refusal to deposit with Westchester collateral security in the
amount demanded and as required by the Indemnity Agreement.
34.    The failure of ICLP and its subsidiary, Dorena, to pay counsel fees within
three months of the scheduled trial of the Action has seriously jeopardized the position of
Westchester in the Action, by forcing its new attorneys to first study hundreds of thousands
of documents and depositions and prepare for the direct and cross-examination of witnesses
in a grossly insufficient period of time.
35.    The failure of ICLP and its subsidiary, Dorena, to pay the fees of counsel,
causing counsel to withdraw from their joint representation of Dorena and Westchester within
three months of the scheduled trial of the Action notwithstanding ICLP’s indemnity
obligations places Westchester at the considerable risk of an adverse judgment and
demonstrates a similar likelihood that both ICLP and Dorena will fail to pay any loss which
Westchester sustains in the Action and will fail to pay Westchester’s substantial counsel fees
which it is now incurring and will continue to incur.
36.    Westchester is not receiving the benefit of the bargained for collateral security,
as Westchester currently faces substantial, uncollateralized exposure from the Action, in
which Mowat contends that it sustained damages in an amount exceeding the $4,000,000.00
penal sum of the Payment Bond.
37.    Unless the Court grants the requested preliminary injunction, Westchester will
be irreparably harmed because it will be forced to forego the collateral which it was
contractually promised and be subject to being only a general unsecured creditor subject to
sharing ICLP’s property with other creditors.
38.    Westchester lacks an adequate remedy at law.
Case l:15-cv-09452-NRB Document 1 Filed 12/03/15 Page 9 of 115
39.    By reason of the foregoing, Westchester is entitled to a judgment and a
preliminary and permanent injunction directing ICLP to specifically and immediately
perform its obligations under the Indemnity Agreement including, but not limited to, its
obligation to deposit collateral security with Westchester in the amount of at least
$4,200,000.00.

SECOND COUNT
(Contractual Indemnification)

40.    Westchester repeats and realleges paragraphs “1” though “39” hereof.
41.    Westchester has incurred and continues to incur expenses, including, but not
limited to, attorneys’ fees, as a result of having executed the Payment Bond and enforcing
and preserving its rights under the Payment Bond.
42.    ICLP has failed to indemnify Westchester for any portion of its expenses
incurred in connection with the Payment Bond, despite due demand.
43.    ICLP is therefore in material breach of the Indemnity Agreement.
44.    As a result of ICLP’s breach of the Indemnity Agreement, Westchester has
sustained damages, costs and expenses, including but not limited to attorneys’ fees.
45.    By reason of the foregoing and pursuant to the terms of the Indemnity
Agreement, Westchester is entitled to judgment against ICLP in the amount of all losses and
expenses including, but not limited to, attorneys’ fees and consulting fees, which Westchester
has incurred and continues to incur by reason of having executed the Payment Bond and/or
by reason of the failure of ICLP to perform or comply with the covenants and conditions of
the Payment Bond and the Indemnity Agreement and/or in enforcing and preserving
Westchester’s rights under the Payment Bond and the Indemnity Agreement, together with
interest, costs of suit and such other and further relief as may be just and equitable.

WHEREFORE Westchester demands the following relief:
a.    A judgment and a preliminary and permanent injunction directing ICLP to
specifically and immediately perform its obligations under the Indemnity Agreement including,
but not limited to, its obligation to deposit collateral security with Westchester in the amount of
at least $4,200,000.00; and
b.    A judgment against ICLP in the amount, of all losses and expenses including, but
not limited to, attorney’s fees and consulting fees, which Westchester has incurred and
continues to incur by reason of having executed the Payment Bond and/or by reason of the
failure of ICLP to perform or comply with the covenants and conditions of the Payment Bond
and the Indemnity Agreement and/or in enforcing and preserving Westchester’s rights under
the Payment Bond and the Indemnity Agreement; and
c.    Costs, disbursements, attorneys’ fees, interest and such other and further relief
as may be just and equitable.
 

The provided text is an excerpt from a document filed in this case. For a full understanding of the case, one should read the complete court file, including the response.