PHILADELPHIA - An insurance company says officials from a Pennsylvania township did
not adhere to the terms of a $3.5 million performance bond and cannot claim liability after a construction company went into default during a golf course improvement project, according to a lawsuit filed Feb. 4 at the U.S. District Court for the Eastern District of Pennsylvania.
Representatives from International Fidelity Insurance Company (IFIC) seek a declaratory judgment from the federal court that it is not obliged to pay Limerick Township more than $600,000 from a performance bond acquired by DHLP, a now-bankrupt land development company.
The complaint says that the township failed to keep IFIC informed of any default notices or communication with the construction company.
According to the claim, Limerick Township entered entered into a land development agreement with DHLP in October 2003, requiring the company to make public improvements to the Limerick Golf Course, at a cost of approximately $3.5 million.
The contract included a default clause, which says if DHLP failed to complete the improvement in accordance with the agreement, it would have 30 days after the receipt of a written notice of default. Failure to cure the default would result in Limerick receiving payment from the bond.
However, the complaint says, the insurance bond agreement with IFIC has its own protections, including a clause that requires the township to send copies of written notices of default to the insurance company.
According to the claim, Limerick officials sent a letter to DHLP in December 2011 demanding an increase to the amount of money in escrow or it would be declared in default.
A letter of default was sent to DHLP in May 2013, saying the previous note was also a default letter and that the company had 30 days to cure its status.
According to the letter, nothing had been done in the 18 months between the first and second letters to fix the situation. The complaint says that IFIC did not receive copies of either notice, nor was it notified of the ensuing complaint filed by DHLP against Limerick in the Montgomery County Court of Common Pleas in July 2013.
IFIC's claim says that both parties entered into a consent order on July 19, 2003, where Limerick officials agreed to not inform IFIC of any default notices against DHLP.
Approximately one year later, DHLP was once again found in default, followed by a June agreement that Limerick would receive $350,000 from DHLP's lender, M&T Bank, plus the deeds or $112,000 cash from the sale of three lots.
In October, the court ruled that DHLP was in default of the June agreement, and one month later the land development company filed for Chapter 7 bankruptcy. The first time IFIC learned of any communications between the two parties was when Limerick demanded payment of the bond in October , according to the complaint.
IFIC denied the request based on Limerick's failure to notify the insurance company of any default letters and the consent order.
"Limerick's failure to provide IFIC with timely notice of DHLP's alleged defaults
under the land development agreement as required by the terms of the bond operates to
discharge IFIC from liability to Limerick under the bond," the complaint says.
The claim says a declaratory judgment would resolve the controversy between IFIC and Limerick.
IFIC is represented by Scott Levin of McElroy, Deutsch, Mulvaney & Carpenter, LLP in Philadelphia.