U.S. Court of Appeals for the Fifth Circuit Holds Performance Bond Claim Time Barred – Estoppel Excuse Not Available to City

Hartford Fire Insurance Co. v. City of Mont Belvieu
2010 U.S. App. Lexis 14277 (5th Cir. July 13, 2010)

The Court of Appeals for the Fifth Circuit recently held that a Texas City’s bond claim was time barred under the statute of limitations and equitable remedies based on estoppel were unavailable to revive claims on the bond.

Hartford Fire Insurance Company issued a performance bond for a contractor constructing a public recreational facility for the City of Mont Belvieu, Texas. The bond was a requirement under Texas public work contracts. By statute, the bond was subject to a one-year limitations period commencing from project final completion. The project progressed with numerous delays and changes. However, the City issued a certificate of occupancy in mid-2001, taking possession and operating the facility by July 2002. At that time, numerous punch list items remained and several subcontractors owed payment by contractor filed claims on a payment bond. Hartford advised the City to be cautious when releasing further payment to contractor. Thereafter, in July 2002, City paid contractor almost $675,000 as an equitable adjustment via a change order. Critically, the change order stated that the project’s completion date was July 19, 2001.

Contractor’s shaky performance continued as it neglected to complete punch list and warranty items. In October 2002, the City informed Hartford of the same. Hartford investigated the situation, agreed to some reimbursement, requested additional information and reserved its rights and defenses. When the City provided the additional document in November 2003, the claims were much larger than those identified a year earlier. Hartford did not respond to City. Concerned about what it perceived as the impending statute of limitation, the City reached out to Hartford in October 2004, requested a tolling agreement. Hartford’s response failed to address the tolling agreement, but the City and Hartford entered into settlement discussions. These ultimately proved unsuccessful and Hartford filed suit seeking declaratory judgment that the City’s performance bond claims were barred. City countered for payment under the performance bond. Hartford filed a motion for judgment as a matter of law, which was denied. At trial, a jury found that Hartford breached the performance bond and that the City’s delay in filing a claim on the bond over a year after final completion was excused by both promissory estoppel and quasi-estoppel.

On appeal, U.S. Court of Appeals for the Fifth Circuit reversed the denial of Hartford’s motion for judgment as a matter of law. Concluding that the City’s bond claim was barred by the statute of limitation, the Court found that there was no equitable basis to excuse the City’s failure to assert that claim within the one-year statutory limitations period. The court rejected the argument that promissory estoppel applied because Hartford’s statements neither amounted to an affirmative inducement to delay the City from bringing legal action, nor was the City’s claimed rely on the Hartford’s statements justifiable. Further, estoppel could not revive a claim already expired at the time the promise was made. Similarly, the court rejected the City’s quasi-estoppel argument – which would have precluded Hartford from asserting an inconsistent prior position that would be to the City’s detriment – because the City was unable to demonstrate that Hartford had acted inconsistently with respect to the one-year limitation period. As a matter of law, reversal was proper.

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