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Berks Products Corp. v. Arch Insurance Co.

Commonwealth Court of Pennsylvania

July 11, 2013

Berks Products Corporation
Arch Insurance Company, Appellant

Argued: December 10, 2012




Arch Insurance Company (Arch) appeals from the March 23, 2012 order of the Court of Common Pleas of Northampton County (trial court), granting the motion for summary judgment filed by Berks Products Corporation (Berks). Berks had filed a civil action with the trial court seeking to recover $52, 679.26 from Arch as the surety on a payment bond which Arch had issued on behalf of Skepton Construction, Inc. (Skepton). We affirm.

Background and Procedural History

Skepton entered into an agreement with the Wilson Area School District (District) to be the general contractor for the construction of a new intermediate school. Under its agreement with the District, Skepton was required to secure a payment bond in order to guarantee its payment obligations. Skepton secured its payment bond through Arch. The bond document included the following language:

[T]he terms and conditions of this Bond are and shall be that if the Principal and any subcontractor of the Principal to whom any portion of the work under the Agreement shall be subcontracted, and if all assignees of the Principal and of any such subcontractor, promptly shall pay or shall cause to be paid, in full, all money which may be due any claimant supplying labor or materials in the protection and performance of the work in accordance with the Agreement and in accordance with the Contract Documents . . . for material furnished or labor supplies or labor performed, then this Bond shall be void; otherwise, the Bond shall be and shall remain in force and effect.

(R.R. at 90a) (emphasis added).

Skepton thereafter entered into a subcontract with R.A. Tauber, Inc. (Tauber) for the concrete work on the project. Tauber subsequently contracted with Berks to provide materials for its subcontract work.[1] In exchange, Tauber promised to pay Berks the agreed-upon amount set forth in Berks' invoices. Berks routinely supplied Tauber with materials as requested, and Tauber paid for some but not all of the materials. Specifically, Tauber failed to pay for $52, 679.26 worth of materials.

Skepton later terminated its contract with Tauber, and Tauber subsequently filed for bankruptcy. Berks then filed a civil action against Arch seeking to recoup the money owed under Arch's surety bond. Arch filed an answer with new matter denying liability and asserting that its principal, Skepton, had made full payment to Tauber for the materials which Tauber had furnished to the project, which acts as a complete bar to liability under section 3939(b) of the Commonwealth Procurement Code (Code), 62 Pa.C.S. §3939(b). Section 3939(b) of the Code, also known as the "safe harbor" provision, provides that "[o]nce a contractor has made payment to the subcontractor according to the provisions of this subchapter, future claims for payment against the contractor or the contractor's surety by parties owed payment from the subcontractor which has been paid shall be barred."

Following limited discovery and the exchange of documents, Berks filed a motion for summary judgment with the trial court. Berks attached an affidavit from Thomas O. Williams, its counsel, stating that counsel for Arch had admitted that full payment had not been made to either Tauber or Berks for the materials supplied for the project. Berks also attached an affidavit from Richard Dodson, its vice president, stating that Berks was still owed $52, 679.26 for materials incorporated into the project. Arch filed an answer to this motion which included an affidavit from Kevin Frantz, president of Skepton, verifying that Skepton had in fact paid Tauber in full for all materials which had been furnished for the project by Berks. Following oral argument, the trial court issued an opinion and order granting the motion for summary judgment in favor of Berks and against Arch in the amount of $52, 679.26.

In its opinion, the trial court identified the issues as whether the language of Arch's bond waived the "safe harbor" provision of the Code and whether Arch's principal, Skepton, had fully paid either Tauber or Berks such that the "safe harbor" provision would even be applicable. The trial court noted that the "safe harbor" provision of the "Prompt Pay Act" (PPA)[2] applies to all surety bonds regardless of whether or not the PPA is explicitly incorporated into the language of the bond. (Trial court op. at 8.) However, the trial court concluded that the bond language cited above waived any "safe harbor" protection and expanded Skepton's obligations as the general contractor beyond this protection to ensure that all "suppliers or material men such as Berks" get paid. (Trial court op. at 12.)

The trial court rejected Arch's claim that our decision in Trumbull Corporation v. Boss Construction, Inc., 768 A.2d 368 (Pa. Cmwlth. 2001), controls the outcome of this case and requires a ruling in its favor. Applying Trumbull to the present case, the trial court indicated that the holding in Trumbull simply confirmed its duty to carefully examine the bond language herein to determine whether the "safe harbor" provision had been waived, as Berks alleged.

Additionally, the trial court cited Diener Brick Company v. Mastro Masonry Contractor, 885 A.2d 1034 (Pa. Super. 2005), wherein our Superior Court essentially affirmed a common pleas court judgment in favor of a supplier and against a general contractor. In that case, the general contractor entered into a joint payee agreement with a subcontractor and a supplier whereby the general contractor was the issuer of checks jointly payable to the subcontractor and supplier and specifically agreed to reserve up to $250, 000 for the supplier. Our Superior Court concluded ...

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