Case Title: Hoiness-LaBar Ins. v. Julien Const. Co.

Citation: 

Docket Number: 

State: wyoming

Court: Wyoming Supreme Court

Date: 1987-10-08T00:00:00Z

Document:
Hoiness-LaBar Ins. v. Julien Const. Co.1987 WY 136743 P.2d 1262Case Number: 86-268, 86-271, 86-269, 86-270Decided: 10/08/1987Supreme Court of Wyoming
HOINESS-LaBAR 
INSURANCE, a Montana corporation, Appellant (Third-Party 
Defendant)

 
 
v.

 
 
JULIEN 
CONSTRUCTION COMPANY, a Wyoming corporation, Appellee 
(Plaintiff),

 
 
and

 
 
Allied 
Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and 
Cross-Defendant), NIELSEN PLUMBING AND HEATING, INC., a Wyoming corporation, 
(Defendant, Cross-Complainant, and Third-Party 
Complainant).

 
 
Allied 
Fidelity Insurance Co., an Indiana corporation, Appellant (Defendant and 
Cross-Defendant)

 
 
v.

 
 
JULIEN 
CONSTRUCTION COMPANY, a Wyoming corporation, Appellee 
(Plaintiff),

 
 
and

 
 
Hoiness-LaBar 
Insurance, a Montana corporation, Appellee (Third-Party 
Defendant),

 
 
and

 
 
Nielsen 
Plumbing and Heating, Inc., a Wyoming corporation, Appellee (Defendant, 
Cross-Complainant, and Third-Party Complainant).

 
 
JULIEN 
CONSTRUCTION COMPANY, a Wyoming corporation, Appellant 
(Plaintiff)

 
 
v.

 
 
NIELSEN 
PLUMBING AND HEATING, INC., a Wyoming corporation, Appellee (Defendant, 
Cross-Complainant, and Third-Party Complainant),

 
 
and

 
 
Allied 
Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and 
Cross-Defendant),

 
 
and

 
 
Hoiness-LaBar 
Insurance, a Montana corporation, Appellee (Third-Party 
Defendant).

 
 
NIELSEN 
PLUMBING AND HEATING, INC., a Wyoming corporation, Appellant (Defendant, 
Cross-Complainant, and Third-Party Complainant)

 
 
v.

 
 
JULIEN 
CONSTRUCTION COMPANY, a Wyoming corporation, Appellee 
(Plaintiff),

 
 
and

 
 
Allied 
Fidelity Insurance Co., an Indiana corporation, Appellee (Defendant and 
Cross-Defendant),

 
 
and

 
 
Hoiness-LaBar 
Insurance, a Montana corporation, Appellee (Third-Party 
Defendant).

 
 
Dan B. 
Riggs, and Robert W. Brown of Lonabaugh & Riggs, Sheridan, for Hoiness-LaBar 
Insurance.

 
 
Charles 
G. Kepler of Simpson & Kepler, Cody, for Julien Construction 
Company.

 
 
Michael 
K. Shoumaker of Shoumaker and Murphy, Sheridan, for Allied Fidelity Insurance 
Co.

 
 
John O. 
Housel of Housel and Housel, Cody, for Nielsen Plumbing and Heating, Inc. 

 
 
Thomas, 
Cardine, Urbigkit, and Macy, JJ, and Guthrie, J., Retired. 

 
 
URBIGKIT, 
Justice.

 
 

[¶1.]     This opinion discusses 
bond-liability issues stemming from the subcontractor's default in the course of 
the restoration of the Park County Courthouse. The subcontractor was issued a 
performance bond, but not the requested payment bond. We will affirm in part, 
reverse in part, and remand.

 
 
FACTS

 
 

[¶2.]     In 1984, ParkCounty 
contracted with Julien Construction Company (Julien) to reconstruct and restore 
the old CountyCourthouse. Julien entered 
into a subcontract with Nielsen Plumbing and Heating, Inc. (Nielsen), the 
mechanical subcontractor. The form written subcontract provided that Nielsen 
would obtain both payment and performance bonds.1 Thereafter,  Nielsen ordered the required bond 
coverages from Hoiness-LaBar Insurance (Hoiness), an independent insurance 
broker writing with Allied Fidelity Insurance Co. (Allied). Representatives from 
Hoiness contacted Allied to inquire if the coverages could be issued, and 
approval was given. At that time, Nielsen, Hoiness and Allied all understood 
that two bond coverages were desired to insure both contract performance and 
bill payment. The memorandum order written by Nielsen to Hoiness 
stated:

 
 
"Please 
send a bond and certificate of liability insurance for this job. Enclosed is 
a copy of the sub-contract agreement." (Emphasis 
added).

 
 

[¶3.]     An employee of Hoiness, 
intending to issue a bond with both coverages, used the wrong form, signed 
pursuant to a power of attorney, and issued only a performance bond. These bonds 
are written either in one document as a combined payment and  performance bond, or separately in two 
documents with different coverages and separate provisions. Allied, the record 
reflects, had forms for a performance bond, a payment bond, and a combination 
performance and payment bond.2

 
 

[¶4.]     Nielsen paid the billed 
premium3 and received only the performance 
bond. None of the parties discovered the coverage omission until after 
subcontractor default problems developed approximately a year later in the 
spring and summer of 1985. This information emerged when Julien became aware 
that Nielsen's suppliers were having collection difficulties. After the 
resulting claim communications, Hoiness sought to obtain Allied's permission to 
issue the payment bond in conjunction with the already outstanding performance 
bond, but Allied refused.

 
 

[¶5.]     In midsummer 1985, 
Nielsen's suppliers and subcontractors submitted payment claims to Allied which 
were rejected because no payment bond had been issued. Actually, the record 
reflects that the mechanical subcontract was essentially completed except for 
punch-list and warranty items. When Nielsen defaulted, Julien, the general 
contractor, completed these remaining back-charge or punch-list items, and paid 
suppliers who would otherwise have the right to make claims against the payment 
and performance bond provided by Julien to ParkCounty, as required by statute. Payment of 
the bills and work completed was also necessary for Julien to secure escrow-fund 
release from the owner then withheld because of the outstanding materialmen's 
claims. After payment, Julien instituted this litigation against Nielsen and 
Allied and, at a later stage, added Hoiness as a third-party defendant to secure 
reimbursements of claims paid and final work-completion costs incurred. In March 
1986, Allied went into receivership in Indiana, its state of 
domicile.

 
 

The 
Parties' Claims:

 
 

[¶6.]     All four litigants, 
Nielsen, Allied, Hoiness and Julien, became actively involved in the trial 
litigation, and separately present appeals.

 
 

[¶7.]     Julien asserted several 
claims in initial and supplementary pleadings. First, Julien sued Nielsen for 
breaching the subcontract by failing to complete its work, and by failure to pay 
the suppliers and sub-subcontractors. Second, Julien sued Allied for Allied's 
failure to pay Nielsen's materialmen under the performance bond. Third, Julien, 
in amended claims, sued Hoiness claiming that Julien was a third-party 
beneficiary of the contract between Nielsen and Hoiness and that Hoiness 
breached its contract with Nielsen by failing to procure the payment bond. 
Further, Julien separately claimed that Hoiness was negligent in failing to 
obtain the payment-bond coverage. Julien claimed attorney's fees and costs from 
all three defendants.

 
 

[¶8.]     Nielsen also made 
multi-defendant claims, first claiming that Allied was liable to Nielsen for any 
judgment against Nielsen by virtue of the performance bond and payment bond 
which, though unissued, was requested and for which the premium was paid. The 
complaint also alleged damages for injury to reputation and bad-faith denial of 
payment under the bond as a premise for punitive damages. Nielsen asserted 
liability of Hoiness for any judgment obtained by Julien against Nielsen due to 
Hoiness' breach of its contract with Nielsen to obtain the proper coverage under 
the bonds. Again, Nielsen included claims against Hoiness for damage to its 
reputation, bad faith, and punitive damages. Nielsen also asked for costs and 
attorney's fees from both Allied and Hoiness. Consequently, we have the 
contractor suing the subcontractor, the insurance broker and surety; and the 
subcontractor also suing the broker and surety.

 
 

[¶9.]     Allied asserted a claim 
against Nielsen for indemnity in accord with the provisions of the issued 
performance bond documents. Allied then claimed indemnity from Hoiness, alleging 
that Hoiness negligently failed to properly prepare the bonds. Allied also 
sought to recoup its attorney's fees and costs from both Nielsen and Hoiness. 
Finally, Hoiness asserted an indemnity claim, including legal fees and costs, 
against Allied for Allied's refusal to honor the agency relationship and issue 
the payment bond. In summary, Allied sued the broker and bond principal, and the 
broker sued the surety.

 
 

The 
Trial Court's Disposition:

 
 

[¶10.]  Not surprisingly, the trial court found 
that Nielsen's failure to pay its suppliers and materialmen constituted a 
material breach of its subcontract with Julien, and imposed liability for all 
consequent damages. Furthermore, under the contractual decision, Nielsen was 
also liable to Julien for costs and attorney's fees.

 
 

[¶11.]  Next, the trial court found that Hoiness 
breached its agreement with Nielsen by failing to provide the payment-bond 
coverage as ordered, and found "that Julien was an intended beneficiary of the 
contract between Hoiness-LaBar and Nielsen * * * * and the benefit of the bonds 
was solely for the protection of Julien." Thus, Julien had standing to maintain 
an action for the breach of the contract between Nielsen and 
Hoiness.

 
 

[¶12.]  In defense to Julien's claim, Hoiness 
asserted that Julien and Nielsen had waived any rights they may have had to 
demand a payment bond by their failure to object to the absence of payment-bond 
coverage at the time the performance bond was issued. Responding to this 
defense, the trial court determined that there was no intentional waiver of a 
known right, and relied upon the course of dealing between Nielsen and Hoiness 
whereby Nielsen would request a "bond," and by that order Hoiness would provide 
both coverages. This course of dealing excused Nielsen's failure first to 
discover and then to object to the omitted coverage, and the course-of-dealing 
rationale also inured to the third-party beneficiary, 
Julien.

 
 

[¶13.]  Thus, the trial court found that by the 
third-party beneficiary obligation breach,  
Hoiness was liable to Julien for resulting contractual damages. On that 
basis, the court granted judgment to Julien against Hoiness under the contract 
theory, and denied any award of attorney's fees in the absence of any 
contractual or statutory provision which would allow recovery. No apparent 
ruling on the negligence theory was made.

 
 

[¶14.]  With regard to Julien's claim against 
Allied, the trial court found (1) that all the parties intended that both a 
performance and a payment bond issue; (2) Nielsen paid for both bonds; and (3) 
Allied granted Hoiness the authority to issue both bonds. Therefore, the trial 
court reformed the issued bond to accurately reflect the intentions of all the 
parties so that payment-bond coverage was provided. Under the reformed 
dual-coverage bond, the trial court held Allied liable to Julien for the amounts 
paid by Julien to Nielsen's suppliers, and additionally for costs and attorney's 
fees. The court found Nielsen liable for any and all amounts Allied may be 
called to pay based on a written indemnity agreement, and thus granted Allied's 
cross-claim against Nielsen and denied Nielsen's cross-claim against 
Allied.

 
 

[¶15.]  Nielsen's cross-claim against Hoiness was 
denied because the court found that although Hoiness breached its contract with 
Nielsen, Nielsen had not suffered any damages as a result of the breach because 
of Nielsen's indemnity obligation to Allied. The court denied Nielsen attorney's 
fees from Hoiness by reasoning that the statute under which recovery was sought 
applies only to insurance companies (and sureties), but not insurance brokers 
(agents). Finally, the trial court considered Allied's and Hoiness' claims 
against each other and denied both, pointing to the distinct theories  under which both parties were separately 
liable to Julien.

 
 

[¶16.]  In summary, the trial court granted 
judgment for Julien against Nielsen, Hoiness and Allied, and only imposed 
liability for Julien's costs and attorney's fees against Nielsen and Allied.4 The trial court also granted 
Allied's indemnity claim against Nielsen. All other claims were 
denied.

 
 
ISSUES

 
 

[¶17.]  All four parties have appealed the 
judgment of the trial court and presented as appellate 
issues:

 
 

Julien:

 
 
I. The 
trial court erred in failing to find appellee Hoiness negligent in the 
nonissuance of payment-bond coverage (so that attorney's fees were recoverable 
in addition to the money judgment).

 
 

Hoiness:

 
 
I. 
Julien, as an incidental and not an intended beneficiary of the contract between 
Nielsen and Hoiness, may not sue for breach of that 
contract.

 
 
II. 
Julien, by its conduct, waived any right to performance of the contract between 
Hoiness and Nielsen.

 
 
III. The 
surety, Allied, is obligated under its performance bond to pay for all materials 
and labor for which Nielsen, the principal, was unable to 
pay.

 
 
IV. The 
surety, Allied, is liable under the terms of the bond, reformed to include a 
payment bond, to pay all unpaid laborers and materialmen.

 
 
And 
responsively to appellate briefs:

 
 
V. 
Julien cannot sue Hoiness for negligence.

 
 

Allied:

 
 
I. The 
trial court erred in not granting Allied a stay or continuance until 
reorganization or liquidation could be completed in Indiana.

 
 
a. The 
requirement of "full faith and credit" and principles of comity compel the trial 
court's deference to the Indiana proceedings.

 
 
b. The 
Insurance Commissioner of Indiana, as rehabilitator of Allied Fidelity 
Insurance Company, is an indispensable party to this action, and he cannot be 
sued herein.

 
 
II. The 
district court judge procedurally abused his discretion in granting 
Hoiness' Rule 15(b), W.R.C.P. motion to amend the pleadings to conform to the 
evidence which reformed the bond to effectuate a payment-bond 
coverage.

 
 
III. The 
district court judge erred substantively in reforming to add the 
payment-bond coverage on grounds of mutual mistake.

 
 
And 
responsively to appellate briefs:

 
 
IV. 
Allied should have judgment against Hoiness.

 
 

Nielsen:

 
 
I. 
Hoiness was negligent in its failure to obtain payment-bond insurance in favor 
of Nielsen.

 
 
II. 
Hoiness is responsible to Nielsen for reasonable attorney's fees and costs 
incurred by Nielsen based on statutory obligation, contract and 
negligence.

 
 
DECISION 
AND ANALYSIS

 
 

Hoiness' 
Rule 15(b), W.R.C.P. Motion to Amend the Pleadings:

 
 

[¶18.]  During the trial but after evidence was 
closed, Hoiness moved the court to amend its pleadings to conform to the 
evidence.  Hoiness sought only to 
amend the pleadings so that it, too, had a claim against Allied. The trial 
court's subsequent decision letter indicated that the court had granted Hoiness' 
motion, yet denied Hoiness' cross-claim against Allied. Instead, the trial court 
apparently also amended Julien's complaint premised on the motion of Hoiness to 
include a claim for reformation of the performance bond because of mutual 
mistake, and allowed Julien recovery against Allied on that basis. Julien did 
not support the reformation for the obvious reason of insolvency of Allied as 
well as  Nielsen and apparent 
collectability only from Hoiness.

 
 

[¶19.]  This court will reverse a trial court's 
decision to grant or deny a Rule 15(b) motion only where there has been an abuse 
of discretion.  Rose v. Rose, Wyo., 576 P.2d 458 (1978); Breazeale v. Radich, Wyo., 500 P.2d 74 (1972); Strahan v. Strahan, Wyo., 
400 P.2d 542 (1965). In determining the propriety of an 
amendment subject to this review, the basic guideline to be followed is whether 
or not the allowance of the amendment prejudiced the adverse party.  Rose v. 
Rose, supra; Beaudoin v. Taylor, Wyo., 
492 P.2d 966 (1972).

 
 

[¶20.]  We find no authority to support the trial 
court's procedural actions. As noted, Julien, the party allowed to recover on 
the reformed bond, opposed Hoiness' motion to amend the pleadings to include the 
reformation claim. None of the parties had initially sought reformation of the 
bond because of mutual mistake, and that issue was not litigated; it was only 
urged upon the trial court by Hoiness in a supplemental brief filed after all 
the evidence had been presented. Because this issue was presented as an 
after-thought, without the benefit of any evidence designed to challenge or 
support Hoiness' claim, we think that the trial court's Rule 15(b) amendment was 
prejudicial to Allied. The amendment was probably even more prejudicial to 
Julien which sought no new bond from the insolvent surety, but rather, sought 
the old liability for the negligent insurance agency.

 
 

[¶21.]  Allied had no opportunity to present 
evidence regarding mutual mistake or reformation. On appeal, Allied makes 
several arguments why a payment bond cannot be created by reformation based on 
mutual mistake. Certainly, it should have been allowed to make those arguments 
to the trial court. We hold that Allied was prejudiced by its lack of 
opportunity to litigate the reformation issues below, and, therefore, the trial 
court's amendment of the pleadings pursuant to Rule 15(b) was an abuse of 
discretion. Consequently, it is necessary to reverse the trial court's judgment 
for Julien against Allied based on the reformed payment 
bond.

 
 

Reformation:

 
 

[¶22.]  With the procedural decision on the 
motion to amend, this court has effectively eliminated the issue of reformation 
from the case, and substantive discussion would be academic in context and will 
not be pursued.  Feeney v. State, 
Wyo., 714 P.2d 1229 (1986); Reno Livestock Corporation v. Sun Oil Co., Wyo., 638 P.2d 147 
(1981); Chicago 
& Northwestern Ry. v. City of Riverton, 70 
Wyo. 119, 247 P.2d 660 (1952).

 
 

The Stay 
of Litigation Against Allied:

 
 

[¶23.]  Next, we will address Allied's claim that 
this action against Allied should have been stayed because of the full faith and credit clause of the United States 
Constitution and because of principles of comity, and because Allied's 
rehabilitator, the Insurance Commissioner of Indiana, was an indispensable party to the 
action. Both Wyoming and Indiana have adopted the 
uniform insurers' liquidation act, found at § 
26-28-101, et seq., W.S.1977. The relevant portion of the uniform act 
provides in part:

 
 
"During 
the pendency of any delinquency proceedings in this or any reciprocal state, no 
action or proceeding in the nature of an attachment, garnishment or execution 
shall be commenced or maintained in the courts of this state against any 
delinquent insurer or its assets." Section 26-28-118, 
W.S.1977.

 
 
We agree 
with Allied that under principles of comity and under the full faith and credit clause of the United States 
Constitution, the Wyoming courts should adhere to the provisions 
and restrictions contained in the uniform act.

 
 

[¶24.]  A careful reading of the above-quoted 
statute reveals that the uniform act enjoins the enforcement of a judgment 
through attachment, garnishment or execution proceedings. The act does not, 
however, prohibit a party from maintaining an action to obtain a judgment, or 
prohibit a court from entering a judgment. The act only prohibits actions to 
enforce or collect on a judgment. The receivership proceeding in Indiana is more properly an issue affecting the 
collectability and enforceability  
of any Wyoming judgment. The uniform act does not 
contemplate the discontinuance of an action to obtain a judgment underway in 
Wyoming. We 
find that the trial court's action was entirely consistent with the uniform 
act.

 
 

[¶25.]  Allied's next contention that Indiana's Insurance 
Commissioner was an indispensable party to this action also fails. Under Rule 
19(a), W.R.C.P., "[a] person who is subject to service of process shall be 
joined as a party in the action * * * *." Thus, in order to be an indispensable 
party, that party must be subject to service of process. Allied has not shown 
that the Indiana Insurance Commissioner was subject to service of process in 
Wyoming, and, in fact, asserts that the Commissioner is beyond the jurisdiction 
of the Wyoming court. Therefore, the Commissioner cannot be an indispensable 
party to this action, and the trial court did not err in refusing to make the 
Commissioner a party. This litigation was commenced long before Allied became 
involved in rehabilitation proceedings in Indiana, and the Wyoming court was 
entitled to conclude this case without involving the Indiana Insurance 
Commissioner unless the receiver intervened to assist in actively concluding the 
pending trial by liability determination. We do not understand the asserted 
differential between Allied that then and now continues as a totally involved 
litigant and the receiver or conservator which never entered a litigative 
appearance in the continuing course of this lawsuit.

 
 

Julien's 
Standing to Sue for Breach of the Contract Between Nielsen and 
Hoiness:

 
 

[¶26.]  Hoiness argues that the contract between 
Nielsen and Hoiness was made only for the benefit of Nielsen, and that Julien 
was not an intended beneficiary. We do not find Hoiness' argument persuasive, in 
concurring with the trial-court decision that Julien was an intended third-party 
beneficiary of the Nielsen-Hoiness payment/performance-bond 
contract.

 
 

[¶27.]  In Peters 
Grazing Association v. Legerski, 
Wyo., 544 P.2d 449, 457 (1975), reh. denied 546 P.2d 189 
(1976), we stated:

 
 
"* * * * 
Where a person makes a promise to another for the benefit of a third person, 
such third person may maintain an action thereon even though he is a stranger to 
the contract and the consideration therefor and had no knowledge of the contract 
when it was made and was not specifically named therein so long as he is 
otherwise sufficiently described or designated."

 
 

[¶28.]  Nielsen did obtain a benefit from its 
contract with Hoiness in its eligibility to enter into and continue the 
construction subcontract with Julien. It was Julien that required Nielsen to 
obtain the bonds for the protection of Julien. This is not disputed by Hoiness 
which by brief, however, argues, "The fact that the bonds to be obtained 
under the contract were intended to benefit Julien Construction does not make 
Julien Construction an intended beneficiary of the contract." We refuse 
to follow the semantic gymnastics urged upon us by Hoiness and contrarily hold 
that Julien was an intended beneficiary of both the contract and the bond which 
attaches to Nielsen's agreement with Hoiness to be furnished the bond. 
Consequently, Julien has standing to maintain a breach-of-contract claim against 
Hoiness.

 
 
"It is a 
well settled rule of law that where one person agrees with another, on a 
sufficient consideration, to do a thing for the benefit of a third person, the 
third person may enforce the agreement * * * *." Peters Grazing Association v. Legerski, supra, 544 P.2d  at 457.

 
 
See also 
Kaiser Engineers, Inc. v. Grinnell Fire Protection 
Systems Co., Inc., 173 Cal. App. 3d 1050, 
219 Cal. Rptr. 626 (1985), following the same rule.

 
 

The 
Nature of the Default:

 
 

[¶29.]  It is apparent from trial exhibits that 
the project was substantially completed by Nielsen as mechanical subcontractor. 
The Julien back-charge claim, which is the basis of its money prayer and 
ultimate award, was $ 156,649 for unpaid subcontractors or suppliers to Nielsen 
and only $ 1,940 as  finishing 
costs. Of the 18 creditors included in the $ 156,649 payment, at least 17 had 
received identical denial letters from Allied based on nonissuance of a payment 
bond as written in July of 1985. Contractor takeover and completion costs were 
nominal, essentially including punch-list type final work. It should also be 
noted that without regard for the absence of a litigant's argument or briefing 
here, this amount of $ 1,940 was unquestionably due from Allied to Julien as 
covered specifically and directly by the performance bond. Properly at 
issue were only the $ 156,649 unpaid subcontractor bills as a payment 
obligation.

 
 

[¶30.]  It should also be noted that the written 
subcontract form used by Julien did not include a customary lien-claim indemnity 
or bill-paid covenant provision. Actually, these requirements were substantially 
to have been accomplished by virtue of the subcontractor's execution as 
principal of the payment bond for which Allied, by additionally signing, became 
surety. The subcontract agreement provided that the 
subcontractor:

 
 
"* * * * 
will furnish all materials and labor * * * *.

 
 
* * * 
*

 
 
"* * * * 
indemnify and save harmless the Contractor from any and all manner of claims or 
suits for infringement of patents * * * *."

 
 

[¶31.]  It was a trial argument of Hoiness, now 
continued on appeal, that the covenant to furnish a 100 percent payment and 
performance bond meant that the issuance of the performance bond insured 
issuance also of a payment bond by virtue of the nonperformance-of-the-contract 
provision. The default terminology, "If Subcontractor fails to comply with this 
provision, the Contractor, at its option, may declare this contract in default 
and may hold Subcontractor liable for all additional expenses incurred by 
Contractor as a result of Subcontractor's default," does not necessarily support 
the convoluted performance-bond liability arising from neglect to furnish the 
payment bond which inures as a liability to the issuer of the payment bond who 
was not aware of the dual bond order given to the issuing agent or the specific 
premium-payment purpose.

 
 

Performance-Bond 
Requirement of Payment-Bond Obligation:

 
 

[¶32.]  The heavily contested and principal 
substantive issue of this appeal arises from the contention of Hoiness that the 
performance bond required Allied to pay the subcontractor claims as a stated 
bond undertaking, and that consequently, if it was negligent or in breach of 
contract to fail to issue the payment bond, which contendably had duplicative 
coverage, no damage was caused either to Nielsen or Julien. Consequently, we are 
faced with the issue whether or not, by interpretation of the performance bond 
and the terms of the subcontract, the payment obligation under suretyship law 
existed without the additional execution of a payment bond. The issue had been 
heavily debated in pretrial argument by the litigants with an attendant decision 
of the trial court that a payment bond was different from a performance bond. 
This resolution was then clouded by the decision to reform and essentially 
create a payment bond by acceptance of Hoiness' Rule 15(b) motion to amend 
following trial. No specific decision on this contention was made by the court 
at trial conclusion, although the judgment granted to Julien against Hoiness 
essentially constitutes a denial of the validity of this claimed 
defense.

 
 

[¶33.]  This is the money issue of the appeal, in 
that Hoiness, the insurance broker, seeks to avoid damage liability on the 
premise that Julien sustained no damages in contractual breach since Allied 
should have paid in any event. Consequently, Hoiness argues that nonissuance of 
the payment bond did not adversely affect Julien who retained identical rights 
without the requested protection from the additional payment-bond 
coverage.

 
 

[¶34.]  The number of cases that can be found 
which consider the obligation of the surety in writing a performance bond to be 
responsible for payment defaults is extensive.5 This court is not now inclined to 
base a decision by rule selection, and particularly so because of the unusual 
absence of any contractual covenants of payment or lien-claim, hold-harmless 
provision in the subcontract. Consequently, we review the standards and results 
from the events of occurrence in that subcontractor nonpayment occurred in 
spring and early summer of 1985, with attendant denial by Allied premised on the 
absence of bond liability, and Allied did not go into insolvency until March of 
1986, nine months later.

 
 

[¶35.]  If for no other reason than the benefit 
of the chance or opportunity principle, there was a singular business advantage 
to Julien if the payment-bond obligation had clearly existed in 1985 when the 
unpaid-supplier issues first arose.  
Zinnel v. United States Shipping Board 
Emergency Fleet Corporation, 10 F.2d 47 
(2d Cir. 1925); Action Ads v. 
Judes, Wyo., 671 P.2d 309 (1983); Hursh Agency, Inc. v. Wigwam Homes, Inc., Wyo., 664 P.2d 27 
(1983).

 
 

[¶36.]  The record in this case reflects that 
ParkCounty would not release 
retainages until the unpaid claims against the insolvent subcontractor were 
paid. Whether or not the county was properly protected by the surety bond issued 
with the contractor has little significance if by unilateral decision of the 
owner the contractor cannot receive final construction contract payments without 
suit. The business and financing justification for Julien to pay to get the 
retainage and then sue Allied, Nielsen and Hoiness for repayment rather than 
ParkCounty for collection is 
self-evident.

 
 

[¶37.]  Consequently, we determine, without 
regard for the legal conflict derived from cases where subcontractors seek to 
enforce performance-bond provisions to secure obligation payment, that the 
failure of Hoiness to provide the agreed bond for which Hoiness was paid caused 
damage in the amount consequently paid by Julien, and that any dispute between 
Hoiness and Allied can, if they desire, be further pursued in their continued 
litigation upon remand. On this record, as an issue not decided by the trial 
court by express decision, we do not have sufficient facts upon which 
either  a factual decision or a 
determination as a matter of law can be justified to determine performance-bond 
obligation for the supplier, and subcontractor claims under these specific 
circumstances where no specific hold-harmless or payment clause was included in 
the subcontract. We here recognize the right of subrogation between the issuing 
agency and the insurance carrier, if, in fact, the carrier has a liability 
beyond $ 1,920, but do not determine whether that liability can be established 
from the four corners of the performance bond and the written subcontract 
terms.  Commercial Union Insurance Company v. 
Postin, Wyo., 610 P.2d 984 (1980); Criss v. Folger Drilling Company, 195 Kan. 552, 407 P.2d 497 
(1965).

 
 

[¶38.]  It is clear that both the beneficiaries 
and the aspects of the two forms of surety coverage, performance and payment, 
are different, with an obvious example in the circumstance that a payment-bond 
obligation can be enforced by the supplier-creditor, but the performance bond 
cannot: "shall promptly and faithfully perform said subcontract" (performance 
bond); "shall faithfully perform said contract according to its terms, covenants 
and conditions and shall promptly pay all persons supplying labor or material to 
the Principal for use in the prosecution of the work under said contract" 
(payment bond).

 
 

[¶39.]  By this analysis we conclude that Julien 
did not get what it desired and contractually requested in the surety instrument 
as a guarantee to not only protect against any lienable obligation of the 
subcontractor to pay its suppliers and subcontractors, but also to provide 
first-person obligation protection to such suppliers and subcontractors. 
Pragmatically, the general contractor was not obligated to litigate 
interpretative nuances of a performance bond to determine whether that coverage 
included payment-bond characteristics when the broker's obligation was to 
furnish the payment bond which would have obviated the need for litigation.  We could carry the analysis further by 
the supposition that Allied was financially responsible, but conjectural 
analysis contrary to the stated fact does not afford a logical basis for a legal 
resolution. We hold that Julien was not obligated to litigate a performance bond 
to determine whether payment-bond characteristics existed, and such an analysis 
and determination can be further pursued between the insurance agency and the 
insolvent surety if either or both care to continue that pursuit. A clear 
payment-bond protection is economically better than a conjectural 
performance-bond repayment right. In substantive conclusion, this court will 
recognize a right in the nature of subrogation to the defaulting insurance 
agency, but not a liability defense.  
Commercial Union Insurance Company v. 
Postin, supra, McClintock, J., 
dissenting; Wyoming Building & Loan 
Association v. Mills Construction Co., 38 
Wyo. 515, 269 P. 45, 60 A.L.R. 418 (1928).

 
 

Allied's 
Liability to Julien for Attorney's Fees:

 
 

[¶40.]  The trial court's award to Julien of its 
costs and attorney's fees from Allied was based on Allied's failure to comply 
with the payment bond created by reformation. As reformed,  the bond imposes liability on Allied to 
Julien for the amounts Julien paid out, less what it retained on the contract 
with Nielsen, plus interest, costs and attorney's fees. Section 26-15-124(c), W.S.1977. We have held that it 
was error to reform the bond, and no payment bond existed. We cannot tell 
whether demand was made for payment of the completion costs accrued from final 
completion requirements. At this time, with affirmance of the judgment of Julien 
against Hoiness to which attorney's fees will be added, we do not know whether 
Julien will care to continue in the litigation by asserting a $ 1,940 claim 
against Allied with a claim for attorney's fees implicit therein. These claims 
can be properly considered on remand.

 
 

Nielsen's 
Liability to Julien:

 
 

[¶41.]  The subcontract between Julien and 
Nielsen provides at paragraph Fifteenth as quoted in n.1, and at paragraph 
Sixteenth:

 
 
"If the 
Contractor is required to prosecute or defend any legal action as the  result of the failure of the 
Subcontractor to fully comply with the provisions of this contract, 
Subcontractor shall pay all legal costs and expense, including a reasonable 
attorney's fee incurred by the Contractor as a result of the prosecution or 
defense of said legal action."

 
 
Nielsen 
failed to properly perform the subcontract work, and failed to obtain the 
payment bond as required in the subcontract. We agree with the trial court that 
Nielsen's breach entitled Julien to recoup its attorney's fees from Nielsen. We 
also agree that Nielsen is liable to Julien for the consequent damages -- all 
additional expenses incurred by Julien as a result of Nielsen's failure to 
complete work under the subcontract.

 
 

Hoiness' 
Negligence:

 
 

[¶42.]  We also agree with the trial court that 
Hoiness breached its agreement with Nielsen to obtain a payment bond for the 
project. On appeal, Julien asserts that the trial court also should have found 
that Hoiness was negligent in failing to obtain the proper coverage under 
a payment bond for Nielsen as principal and Julien as a third-party beneficiary. 
Under the negligence theory, Julien asserts that it is entitled to recovery of 
its costs and attorney's fees from Hoiness, a claim which under the breach of 
contract finding, the trial court denied.

 
 

[¶43.]  This court has 
held:

 
 
"The law 
is clear that a broker or agent who, with a view to compensation for his 
services, undertakes to procure insurance for another and through fault or 
neglect fails to do so, will be held liable for any damage resulting. His 
liability arises under the concept that he is agent for the insured in 
negotiating for a policy and owes a duty to his principal to exercise reasonable 
skill, care and diligence in causing the issuance of a policy. His liability may 
arise either for breach of contract or negligent default in the performance of a 
duty imposed by contract, at the election of his client." Hursh Agency, Inc. v. Wigwam Homes, Inc., supra, 664 P.2d  at 32.

 
 
Courts 
in other jurisdictions have held that not only the principal, but also a 
third-party beneficiary under the insurance policy is entitled to maintain an 
action against the agent for breach of his duty to procure the appropriate 
coverage. Sturcke v. Clark, 
La. App., 261 So. 2d 717 (1971), app. 
denied 262 La. 309, 263 So. 2d 47 (1972); Rider v. Lynch, 42 
N.J. 465, 201 A.2d 561 (1964). We agree with those courts, and hold that 
Julien, as a third-party beneficiary of Hoiness' agreement to obtain the bond 
for Nielsen, is entitled to maintain an action against Hoiness for breach of 
contract and for negligence.

 
 

[¶44.]  In Count I of Julien's amended complaint 
against Hoiness, Julien asserts the breach-of-contract claim. In Count II, 
Julien asserts a negligence claim. The trial court granted judgment for Julien 
on the breach-of-contract claim, but did not determine Julien's claim against 
Hoiness for negligence in perhaps viewing that negligence claim as duplicative. 
While we do not intimate that Julien could be entitled to recover twice for 
Hoiness' failure to procure the bond for Nielsen, we do recognize the validity 
of a negligence claim under the unquestioned facts. On that basis, we conclude 
that Julien, in recognition of the negligence of Hoiness, should be granted 
attorney's fees as the natural and proximate result as injury from the negligent 
omission. Absence of the payment bond precipitated the litigation and incurrence 
of attorney's fees to pursue repayment by suing Allied and Nielsen. We do not 
necessarily say here nor decide that the right would have occurred if the 
initial litigation had only involved Hoiness. See Annot., 45 A.L.R.2d 1183. See 
also, Safway Rental & Sales Co. v. Albina 
Engine & Machine Works, Inc., 343 F.2d 129 (10th Cir. 1965); Hursh  
 Agency v. Wigwam Homes, 
Inc., supra; Kvenild v. Taylor, 
Wyo., 594 P.2d 972 (1979); Brem v. United 
States Fidelity & Guaranty Co., 
D.C.App., 206 A.2d 404 (1965); Griffin v. 
Bredouw, Okla., 420 P.2d 546 
(1966). Cf.  L.F. Pace & Sons, Inc. v. Travelers Indemnity 
Co., 9 Conn. App. 30, 514 A.2d 766, 
certification denied 201 Conn. 811, 516 A.2d 886 
(1986) (attorney's fees included in the punitive-damages award).  In this case, where negligent failure to 
provide the agreed bond coverage invoked litigation with the surety and the 
subcontractor, we find the damages proximately resulting properly include 
attorney's fees incurred.

 
 

Hoiness' 
Liability to Allied:

 
 

[¶45.]  The trial court correctly ruled that 
Hoiness' negligence did not result in its liability to Allied. Allied was in no 
way harmed by Hoiness' failure to issue the payment bond. If the payment bond 
had been issued, it is fair to contemplate that Allied, while still solvent, 
would have paid the subcontractor debts, and consequently, as a matter of law, 
Allied cannot now assert a claim against the agency in failing to issue a bond 
which would have created an additional liability.

 
 

Waiver:

 
 

[¶46.]  In its decision letter, the trial court 
comprehensively considered the evidence and then 
concluded:

 
 
"Hoiness-LaBar 
asserts that Julien and Nielsen have both waived any right they may have had to 
demand a payment bond by not objecting sooner to the failure to issue the 
payment bond along with the performance bond, citing 17A C.J.S. Contracts, §§ 
490, 491, pp. 688, 699 (1963); Western 
Transmission Corp. v. Colorado Mainline, Inc., 376 F.2d 470 (10th Cir. 1967); and Quin Blair Enterprises, Inc. v. Julien Construction 
Co., 597 P.2d 945, 951 (Wyo. 1979). 
The Court finds, however, that there was no intentional waiver of known right in 
this instance. 28 Am.Jur.2d Estoppel and Waiver, § 
158, p. 840 (1966). The testimony at trial was that the absence of a 
payment bond was not noticed until such time as payments to Nielsen's suppliers 
became a problem in 1985. While there may be a duty on the part of an insured to 
read an insurance policy, State Farm Mutual 
Automobile Insurance Co. v. Petsch, 261 F.2d 331 (10th Cir. 1958), the failure to read the policy does not 
constitute a waiver in all instances. Annot.  32 A.L.R.2d 661 (1970); Carlton Lumber Co. v. Lumber, Insurance 
Co., 81 Or. 396, 158 P. 807, 809-810 
(1916); Journal Co. v. General Accidental 
Fire & Life Assurance Corp., 188 Wis. 
140, 205 N.W. 800, 803 (1925). In this case, there was a course of 
dealing between Hoiness-LaBar and Nielsen in which Nielsen would request a 
'bond' and Hoiness-LaBar would provide either a combined performance and payment 
bond or separate performance and payment bonds. The course of dealing between 
the parties excused the failure on the part of Nielsen to object to the absence 
of the payment bond prior to June, 1985. This course of dealing, the Court 
finds, also inured to the benefit of the intended third party 
beneficiary."

 
 

[¶47.]  This court agrees that under these 
circumstances the failure of all participants to observe the omitted coverage 
did not constitute a waiver.  
Cusimano v. St. Paul Fire and Marine 
Insurance Co., La. App., 405 So. 2d 1382 
(1981), writ denied 410 So. 2d 762 
(1982); Rider v. Lynch, supra, 201 A.2d 561.

 
 

[¶48.]  We agree that Julien correctly states the 
law.

 
 
"Before 
there can be a waiver, it must be shown that the party against whom the waiver 
is asserted had at that time knowledge, actual or constructive, of the existence 
of its rights or of the material facts upon which they depend." 28 Am.Jur.2d Estoppel and Waiver § 
158.

 
 
CONCLUSION

 
 

[¶49.]  Where does all of this leave the trial 
court and the litigants?

 
 

[¶50.]  1. The judgment for Julien and against 
Hoiness is affirmed, but amended to award Julien attorney's fees stipulated to 
be $ 8,500.6

 
 

[¶51.]  2. Judgment should be entered in favor of 
Julien against Allied in the sum of $ 1,940, and the trial court should 
determine under the claims payment provisions of § 
26-15-124(c), W.S.1977 what, if any, part of the total attorney's fees of 
$ 8,500 might be a separate obligation of Allied. Otherwise the judgment in 
favor of Julien and against Allied is reversed as constituting Julien's election 
of remedies to proceed against Hoiness.

 
 

[¶52.]  3. The Julien judgment against Nielsen is 
affirmed.

 
 

[¶53.]  4. The case is remanded to afford Hoiness 
an opportunity to secure a trial-court determination as to what portion, if any, 
of the $ 114,853 in excess of the unquestioned $ 1,940 amount may be subrogated 
against Allied. Subrogation can be on the basis that the peculiar status of the 
claims, the specific terminology of the subcontract, and the nature of the 
Wyoming public contract statute created a determinable payment obligation for 
which Julien had a claim and for which Hoiness may be subrogated within the 
performance terminology of the surety bond as it was actually issued for 
repayment of supplier and subcontractor claims.

 
 

[¶54.]  5. Appeal costs, but no appellate 
attorney's fees, will be granted to Julien against Hoiness and Nielsen. No other 
appeal costs will be allowed.

 
 

[¶55.]  The case is remanded for further 
proceedings in conformity herewith.

 
 
FOOTNOTES

 
 

1The subcontract agreement 
provided:

 
 
 
 
 
 
"The Subcontractor further agrees that 
he will provide the Contractor, within 30 days following the execution of this 
contract, with 100% Payment and Performance Bonds conditioned for the faithful 
performance of this contract in all its particulars, duly executed with Surety 
Company acceptable to the Contractor as surety, and in the form and contents 
acceptable to the Contractor. If Subcontractor fails to comply with this 
provision, the Contractor, at its option, may declare this contract in default 
and may hold Subcontractor liable for all additional expenses incurred by 
Contractor as a result of Subcontractor's default."

 
 

2The differentiation in bond phraseology 
is evidenced by the Allied joint-coverage bond form, wherein the language 
provisions include payment not included in the single form as demonstrated by 
the emphasized language.

 
 
"NOW, THEREFORE, THE CONDITION OF THIS 
OBLIGATION IS SUCH, that if the Principal shall faithfully perform said contract 
according to its terms, covenants and conditions and shall promptly pay all 
persons supplying labor or material to the Principal for use in the prosecution 
of the work under said contract, then this obligation shall be void; 
otherwise it shall remain in full force and effect." (Emphasis 
added).

 
 

3The billed premium was $ 4,211 for the $ 
350,900 bond coverage. Generally, the Hoiness evidence reflected that no 
additional premium would have been required for issuance of the joint-coverage 
instrument.

 
 

4The award of costs and attorney's fees 
from Nielsen and Allied is probably meaningless because of the insolvency of 
those entities.

 
 

5Compare Seaboard Surety Co. v. Standard Accident Insurance 
Co., 277 N.Y. 429, 14 N.E.2d 778, 117 
A.L.R. 658 (1938) with Johns-Manville Sales 
Corp. v. Reliance Insurance Co., 410 F.2d 277 (9th Cir. 1969); Sun Indemnity Co. of 
New York v. American University, Washington, D.C., 58 A.D.C. 184, 26 F.2d 556 (1928); Annot., 77 
A.L.R. 21; Annot., 118 A.L.R. 57; Werbin, Law for Contractors, Architects and 
Engineers, 265 (1961); and Hart and Kane, What Every Real Estate Lawyer 
Should Know About Payment and Performance Bonds, 17 Real Property Probate 
and Trust J., 674, 675-676 (1982):

 
 
"2. Performance Bond. After the 
owner accepts the proposal, this bond, providing security in the form of a penal 
sum generally equal to the contract price, promises that the contractor will 
perform the terms of the contract. The bond is conditioned to protect the owner 
to the extent that the surety promises that the contract will be completed as 
specified. Before the surety uses its own funds to cure the default of the 
contractor or to pay for the completion of the project, the owner must make 
available to the surety the contract sums that remain unpaid at the time of the 
contractor's default.

"3. Labor and material payment 
bond. In addition to the performance bond, owners generally require a 
contractor to give assurance that all bills submitted by laborers, materialmen 
and subcontractors will be paid. This assurance permits the owner to take 
possession of a lien-free project on completion protected from third party 
claims which can result in materialmen's or mechanics' liens against the 
property. Creditors' claims on payment bonds have generated a considerable 
amount of litigation. The major areas of concern are: (1) who are the eligible 
claimants; (2) what types of claims are covered; and (3) have the requisite 
notice requirements been met.

* * * 
*

"6. Combined performance and payment 
bond. Combined performance and payment bonds may be required if the contract 
requires the contractor to pay bills, as well as to hold the owner harmless from 
mechanics' liens claims. Under those circumstances, a combined payment and 
performance bond may be required. However, it is better to require separate 
performance and payment bonds to assure adequate protection for the owner and 
creditors. The combined bond may not cover every contract duty required. 
Moreover, the bond penalty, under a combined bond, may not be sufficient to 
complete performance and pay unpaid subcontractors, materialmen, or suppliers in 
the event of default. Separate payment and performance bonds eliminate the 
problem of who should be paid by providing two penal 
sums."

 
 
See Insulation Contracting and Supply v. Kravco, 
Inc., 209 N.J.Super. 367, 507 A.2d 754 
(1986).

 
 

6An interesting question is created as to 
whether the trial court was in error in its judgment award of $ 114,853 against 
Hoiness, in consideration of the totals involved. The unpaid claims totaled $ 
156,649, and the follow-on work totaled $ 1,940, a grand total of $ 158,589. An 
unpaid retainage existed, which left a balance due on the subcontract as a 
difference of $ 114,853. Obviously the $ 1,940 is not claimable against the 
insurance agent, since it is clearly covered by the performance bond. However, 
it can be assumed that the trial court, in recognition of the status, could 
apply the retainage first to the completion costs of $ 1,940, so that there was 
left remaining only $ 42,795 retainage to be applied to the $ 156,649 unpaid 
subcontractor claims. Consequently, based on an election of the application of 
funds, we do not find it necessary as a matter of law to reduce the judgment 
entered, although at the same time we recognize that Allied retained a liability 
on the performance bond for the completion expenses. Although no double recovery 
is permitted, Julien can recover first wherever it 
can.