N.V. Heathorn, Inc. v. U.S. Fidelity and Guaranty Co.

Filed 1/22/07  N.V. Heathorn, Inc. v. U.S. Fidelity and Guaranty Co. CA1/1

NOT TO BE PUBLISHED IN OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b).  This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

FIRST APPELLATE DISTRICT

DIVISION ONE

            Plaintiff N.V. Heathorn, Inc. (Heathorn), a construction company, entered into a contract with the County of Alameda (the county).  Defendant United States Fidelity and Guaranty Company (USF& G) issued a performance bond in connection with the contracted work.  Prior to completion of the work, the county declared Heathorn in default and demanded that USF& G make good under the bond.

            The bond provided USF& G with several options in responding to the county's demand, including assuming responsibility for the project and hiring its own workers to complete it.  After discussions between Heathorn and USF& G, it was agreed that USF& G would elect this option, that it would designate Heathorn as its agent to finish the project, and that Heathorn would complete the work under the supervision of USF& G's consultant.  In its letter to the county making this election, USF& G sought the county's concurrence in a takeover agreement as a precondition to USF& G's assumption of responsibility.  The county rejected the election, citing USF& G's request for this agreement and certain other conditions as the primary reason for the rejection.  The work was ultimately finished by a different contractor retained by the county.

            Heathorn brought this action alleging that USF& G's manner of electing under the bond constituted a breach of an oral agreement to secure Heathorn's return to the worksite.  USF& G countered with a cross-complaint for contractual indemnity from Heathorn and its principals to reimburse the costs USF& G incurred under the bond.  The jury was unable to render a unanimous verdict on Heathorn's oral contract claim, but it found that USF& G was not entitled to indemnity because it had acted in bad faith.  The trial court thereafter entered judgment for USF& G on Heathorn's claim under Code of Civil Procedure section  630, subdivision (f), concluding that there was no evidence of an agreement requiring USF& G to make its election under the bond in a manner designed to promote Heathorn's return.  In addition, the court granted USF& G a new trial on its cross-complaint on the ground that the jury's verdict must have been the result of a misconception about USF& G's contractual obligations.  We affirm both rulings.

            USF& G also filed a cross-appeal challenging the merits of the jury's findings on its cross-complaint.  Because we affirm the trial court's grant of a new trial on the cross-complaint, we dismiss this cross-appeal as moot.

I.  BACKGROUND

            In July 2000, Heathorn entered into a $3.1 million contract with the county for construction at a county hospital (contract).  Heathorn obtained from USF& G a performance bond (bond) to secure its performance of the contract.  The terms of the bond stated that if the county declared Heathorn in default, USF& G could respond by electing among four options listed in section 4:  to arrange for Heathorn to complete its performance, upon the county's consent (§  4.1), to perform the contract itself, retaining its own agents or independent contractors (§  4.2 (hereafter option 4.2)), to solicit bids and secure a replacement contractor acceptable to the county (§  4.3), or to waive its right to secure performance and pay damages to the county (§  4.4).  The bond also capped USF& G's potential liability to the county at an amount, referred to as the â€