The insured's claim that the insurer improperly refused to provide a supersedeas bond was rejected by the federal district court. James River Ins. Co. v. Interlachen Property Owners Ass'n v. Kuepers Constr., 2016 U.S. Dist. LEXIS 71825 (D. Minn. June 1, 2016).
Kuepers Construction, Inc. constructed a townhome project on property owned by the Association. After completion of the project, the Association sued Kuepers for construction defects on the project. Kuepers tendered its defense to State Auto Insurance Company, its CGL carrier. Later, the Association amended its complaint to assert claims for professional engineering negligence and professional design negligence. Kuepers tendered these claims to James River, who had issued an Architects and Engineers professional Liability policy. James River agreed to defend subject to a reservation of rights.
On summary judgment in the underlying case, the design claims were dismissed as well as certain construction defect claims. The remaining claims continued to trial. James River agreed to continue to provide a defense to the action pending and through any appeal of the summary judgment order.
The remaining construction defect claims were tried and the jury returned a verdict against Kuepers. Judgment was entered against Kuepers for $2,147,000. Kuepers requested State Auto to post a supersedeas bond to stay execution while the case was appealed. State Auto refused. Kuepers then demanded that James River post the bond. James River also refused, relying on policy language that provided James River would pay,
reasonable and necessary fees, costs and expenses resulting from the investigation, adjustment, defense and appeal of a "claim", including the cost of appeal bonds, however, we shall not be obligated to apply for or furnish appeal bonds on your behalf.
The Association filed a notice of appeal, seeking to reinstate the design defect claims against Kuepers that had been dismissed by summary judgment. An agreement was reached whereby Kuepers stipulated to a $2,000,000 judgment on the design defect claims and assigned its rights under the James River policy to the Association. The agreement was then sent to James River.
This action was filed by James River, seeking a determination that the agreement was collusive and unenforceable. Kuepers filed counterclaims, seeking a declaratory judgment that James River breached the policy by failing to provide the supersedeas bond and that the agreement with the Association was reasonable and enforceable.
James River moved for summary judgment. It argued it did not neglect its duty to defend and was under no obligation to post the supersedeas bond. Kuepers breached the policy's cooperation clause by stipulating to a judgment and assigning rights under the policy to the Association. Kuepers argued that failure to provide the supersedeas bond was a material breach by James River, voiding Kuepers' cooperation obligation.
The court disagreed with Kuepers. The policy did not obligate James River to post the supersedeas bond. The bond would have stayed execution of judgment for damages arising from the jury verdict on the construction defect claims, liabilities that James River did not agree to cover. Requiring James River to post the supersedeas bond would extend its duty to indemnify beyond the policy's coverage, since the posting of a supersedeas bond bound the appellant and its surety to pay the judgment if the appeal was unsuccessful.
Further, since James River did not breach the policy, Kuepers was required to provide notice to James River of the stipulated judgment and assignment of policy rights. Therefore, James River's motion for summary judgment was granted.