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REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND

No. 517 September Term, 2003

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, et al. v. WADSWORTH GOLF CONSTRUCTION COMPANY OF THE MIDWEST d/b/a WADSWORTH GOLF CONSTRUCTION COMPANY

Eyler, Deborah S., Barbera, Greene, JJ.

Opinion by Barbera, J. Filed: October 12, 2004 *Greene, J., now a member of the Court of Appeals, participated in the conference and decision of this case while a member of this Court; and participated in the adoption of this opinion as a member of this Court by special designation.

This case involves a surety's obligation under a payment bond. Appellants, National Union Fire Insurance Company of Pittsburgh, Federal Insurance Company, and Fidelity and Deposit Company of Maryland (collectively, "the Sureties"), appeal from an order issued by the Circuit Court for Dorchester County granting a motion for summary judgment Company Company in of favor the of appellee, d/b/a The Wadsworth Wadsworth raise Golf Golf the

Construction Construction

Midwest

("Wadsworth").

Sureties

following questions, which we have set forth substantially as they appear in their brief: I. Whether the trial court erred in granting [Wadsworth's] motion for summary judgment by ruling that [the Sureties] forfeited all defenses to the [Wadsworth's] payment bond claim when they did not communicate a decision on the claim to Wadsworth within 45 days of the date that the proof of claim was received. Whether the trial court erred in granting [Wadsworth's] motion for summary judgment by ruling that the subcontract payment clauses are void as a matter of public policy.

II.

For the reasons that follow, we answer "no" to the first question and affirm the judgment of the circuit court on that basis. Our disposition of the first issue obviates the need to

reach the second question presented. I. On November 22, 1999, Clark Construction Group, Inc. ("Clark" or "the general contractor") contracted with the Maryland Economic Development Corporation ("MEDCO" or "the owner") to serve as

general contractor for the construction of the Hyatt Regency Chesapeake Bay Resort in Cambridge.1 At the same time, for the

purpose of guaranteeing completion of the construction, Clark executed a surety bond (or "payment bond") in favor of MEDCO in the amount of $70,864,000.00.2 This bond secured Clark's obligation to

pay all labor, material, and equipment costs necessary to construct the resort. The payment bond provides, in pertinent part:

4 The Surety shall have no obligation to Claimants under this Bond until: 4.1 Claimants who are employed by or have a direct contract with the Contractor have given notice to the Surety (at the address described in Paragraph 12) and sent a copy, or notice thereof, to the Owner, stating that a claim is being made under this Bond and, with substantial accuracy, the amount of the claim. * * * 6 When the Claimant has satisfied the conditions of Paragraph 4, the Surety shall promptly and at the Surety's expense take the following actions: 6.1 Send an answer to the Claimant, with a copy to the Owner, within 45 days after receipt of the claim, stating the amounts that are undisputed and the basis for challenging any amounts that are disputed. 6.2 Pay or arrange undisputed amounts. for payment of any

1

Neither Clark nor MEDCO is a party to this appeal.

2 Clark and MEDCO used a "form" surety bond----the March 1987 edition of The American Institute of Architects ("AIA") Document A312.

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Eight days later, Clark subcontracted with Wadsworth to build an 18-hole golf course, and to complete excavation and rough grading work for all buildings, parking lots, and roads located on the resort. The subcontract provided that Clark would pay

Wadsworth a base price of $3,986,000.00.

During the course of

construction, the base price was increased to $5,696,318.00. Clark also asked Wadsworth to complete additional work, not included in the base price, totaling $138,714.45. The subcontract also provided, in Paragraph 4.j.: At any time all monies due Clark from the Owner are not paid, Clark shall, in its sole discretion, apportion the nonpayment equitably and reduce the payments otherwise due Subcontractor accordingly. Such reductions shall continue until Clark is paid all monies due it, provided, however, if the withholdings relate to Subcontractor's work, Subcontractor shall be paid in full when Clark's right to recover from the Owner is finally determined or expires. Subcontractor acknowledges that this Article 4.j. establishes a reasonable time for payment. According to Wadsworth, it completed construction of the golf course and the required site work sometime before March 2002. At

that time, Wadsworth unsuccessfully attempted to collect the monies Clark still owed it, approximately $720,963.45, i.e., the remainder of the base price ($582,249.00), plus the cost of the additional work ($138,714.45) performed by Wadsworth. The reason for Clark's

non-payment is that sometime in late 2001, MEDCO discontinued

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payments to Clark, causing Clark, in turn, to discontinue payments to Wadsworth. On March 23, 2002, Wadsworth notified the Sureties by

certified letter of its claim for payment under the payment bond. Ten days later, Federal Insurance Company, one of the Sureties, responded to Wadsworth's claim, stating: Please be advised that American International Group ["AIG"] is the lead surety with regard to this matter. As a result, by copy of this letter, I am forwarding a copy of your letter to Susan Hellerman of AIG for her review and investigation and request that she keep me appraised of the status of her investigation. Federal Insurance Company writes this letter under a full reservation of its rights and with the understanding that any actions we have taken or may take do not constitute a waiver of any defenses available under the bond or applicable law, including specifically any defenses pertaining to statutes of limitation or timely filing of appropriate notices. By letter dated April 5, 2002, Ms. Hellerman, of AIG,

acknowledged receipt of Wadsworth's claim.

She requested that

Wadsworth document its claim against the payment bond by submission of a completed Proof of Claim form (a blank form was enclosed with the letter) and supporting materials. The letter further stated:

"Please be advised that this action is taken at this time without waiver of or prejudice to any of the rights and defenses, past or present, known or unknown which either the above referenced Surety

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(National Union Fire Insurance Company) or Principal (The Clark Construction Group, Inc.) may have in this matter." On May 3, 2002, Wadsworth submitted to AIG the completed Proof of Claim form and supporting documentation. AIG notified Wadsworth by letter that it Shortly thereafter, had received the

documents, and that it would "immediately take[] this matter up with the above referenced Principal (The Clark Construction Group, Inc.), in order to ascertain their position on [the] claim as presented." The letter further stated: "I [Susan Hellerman] will

be in contact with you in due course regarding [Clark's] position on the Proof of Claim as presented by your company on the above referenced bond." Wadsworth, however, received no further

information from the Sureties regarding its claim, despite having sent a second letter, on July 23, 2002, requesting an answer to its claim. On November 6, 2002, Wadsworth filed a single count complaint in the Circuit Court for Dorchester County against the Sureties. The complaint alleged breach of contract and sought $752,738.72 in damages, plus pre-judgment and post-judgment interest.3 That same

day, Wadsworth also filed a motion for summary judgment, arguing that the Sureties had waived the right to challenge Wadsworth's claim under the payment bond because the Sureties had not

This sum was thereafter reduced to $720,963.45. At the subsequent motions hearing, Wadsworth did not request, nor did the court award, pre-judgment interest.

3

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"answered" Wadsworth's claim within 45 days of receiving notice of it. Wadsworth appended to its motion the affidavits of Wadsworth's vice-president, Brian R. Cunfer, and attorney, Stephen P. Lagoy. In response, the Sureties filed a motion to stay proceedings pending the outcome of litigation that Clark had initiated against MEDCO.4 judgment, The Sureties two also filed for a cross-motion relief: (1) for summary to

raising

grounds

pursuant

Article 4.j. of the subcontract, the money Clark owed to Wadsworth was not then "due" because MEDCO had not paid Clark; and (2) the Sureties' payment obligation under the terms of the payment bond arose only when Clark failed to pay amounts "due." Appended to the

Sureties' motion was the affidavit of Michael Mansager, employed by Clark as the Project Executive responsible for the management and oversight of Clark's contract with MEDCO, who testified that Clark had paid Wadsworth "all sums currently due and owing." The motions came on for a hearing on April 28, 2003. close, the court stated: I'm going to grant the motion for summary judgment on behalf of Wadsworth

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