A federal appeals court overturned a decision in favor of a Hanover Insurance Group entity in a bond dispute, and the lower court's decision was premature.
In 2013, Memphis, Tennessee-based Dunbar Mechanical Contractors LLC, called Service Disabled Veteran Owned Small Business, was awarded an Army Corps of Engineers ditch and tributary project in Arkansas with a $ 2 million tender price, according to Thursday's Dec. 8 The U.S. Circuit Court of Appeals in St. Louis Hanover Insurance Co. vs. Dunbar Mechanical Contractors, LLC.
On the day it was awarded the primary contract, Dunbar signed a subcontractor agreement with Poplar Bluff, Missouri-based Harding Enterprises LLC to work on the $ 1
Hanover Insurance, a unit of Worcester, Massachusetts-based Hanover Insurance Group, issued a bond for the full stated value of the contract, listing Harding Enterprises as the principal and Dunbar as a liability under the decision.
In April 2017, Dunbar Hanover announced that it closed Harding Enterprises as a subcontractor and Gregg Harding as a project manager due to Harding Enterprises' alleged standard under the subcontracting agreement. "Dunbar demanded bond performance," the decision said.
During an investigation, Hanover discovered that Dunbar had subcontracted more than 85% of its work under the primary contract to Harding Enterprises, which was against federal regulations, and denied Dunbar's claim on that basis.
Hanover then appealed in the US District Court in Jonesboro, Arkansas, seeking a declaration that it had no obligation to Dunbar under the bond and demanded termination of the bond on the basis of the alleged illegality of the underlying contract.  The district court granted Hanover a summary judgment in the case and concluded the subcontractor "indisputable violation of federal law" as the amount of the contract plus Harding's compensation amounted to 90.66% of the value of the primary contract, despite the federal mandate 85% limit.
A three-judge appeals court panel unanimously selected the district court's verdict. "Based on the regulation language, we agree with Dunbar that the district court erroneously concluded that the subcontractor undoubtedly violated this regulation because the percentage that Dunbar spent on contract performance relative to the primary contract price could not be definitively determined until the completion of the contract," said in the decision by reversing the lower court and recalling the case for further proceedings.
Dunbar & # 39; s attorney, Matthew W. Willis, with Ashley, Ashley & Arnold in Dyersburg, Tennessee, said, "The Court analyzed the Charter very carefully and very carefully" and "obviously we believe they are right."
Hanover's attorneys did not respond to a request for comment.
Earlier this month, a federal appeals court affirmed a lower court ruling and held the former co-owner of a now bankrupt energy company must compensate RLI Insurance Co. in connection with the company's failure to fulfill its malicious obligations.