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Selective Insurance Company of America v. KCS Construction, LLC

United States District Court, M.D. Tennessee, Columbia Division

May 10, 2018

SELECTIVE INSURANCE COMPANY OF AMERICA, Plaintiff,
v.
KCS CONSTRUCTION, LLC, et al., Defendants.

          MEMORANDUM OPINION

          WAVERLY D. CRENSHAW, JR., CHIEF UNITED STATES DISTRICT JUDGE

         Selective Insurance Company of America (“Selective” or “Surety”) brought this diversity action against KCS Construction, LLC (“KCS”), and its two members (collectively, the “Indemnitors”), Wade and Jessica Kincaid, to enforce an Indemnity Agreement. (Doc. No. 1.) Before the Court is Selective's Motion for a Preliminary Injunction. (Doc. No. 11.) For the following reasons, Selective's Motion is granted.

         I. BACKGROUND

         On March 21, 2016, KCS, though Wade Kincaid as its Managing Member, signed a General Agreement of Indemnity as an Indemnitor with Selective as the Surety. (Doc. No. 13-1 at 8; Doc. No. 17-1 at 1.) Wade and Jessica Kincaid also signed the agreement as individual Indemnitors. (Doc. No. 13-1 at 9; Doc. No. 17-1 at 1.) The Indemnity Agreement states that if Selective “shall establish a reserve to cover any liability, claim asserted, suit, award or judgment in connection with any Bond, or any loss, cost, expense or fee in connection therewith, ” KCS, Wade Kincaid, and Jessica Kincaid shall “immediately, upon demand . . . provide to [Selective] at its Home Office, funds and/or other collateral security, which [Selective] in its sole discretion deems adequate, equal in value to such reserve and any increase thereof as collateral security on such Bond.” (Doc. No. 13-1 at 2.) If the Indemnitors fail to do so, “they shall be in default of [the Indemnity Agreement].” (Id.) Their failure to provide collateral

shall constitute irreparable harm to Surety for which it has no adequate remedy at law and that Surety may obtain injunctive relief compelling the delivery to Surety of sufficient collateral or in the alternative, Surety may obtain a judgment against each or any of the Indemnitors for the amount of the Collateral Demand plus the costs of obtaining the judgment, including attorneys fees by any legal or equitable process.

(Doc. No. 13-1 at 2.) The Indemnity Agreement also stated that Selective

shall have continuous and uninterrupted access to the books, records, accounts and nonconsumer and consumer credit reports of the Indemnitors and to all matters and information concerning any Bond(s) or instrument(s) executed by Surety and the financial condition, credit worthiness and assets of any Indemnitor until the liability of Surety under each and every Bond or other instrument executed by it and each and every obligation of the Indemnitors under this Agreement is terminated and discharged to the satisfaction of the Surety.

(Doc. No. 13-1 at 4-5.)

         In reliance on the Indemnity Agreement, Selective issued performance and payment bonds on behalf of KCS on two construction projects in Kentucky and Tennessee. (Doc. No. 13 at 2.) The Obligees of those construction projects have signaled their intent to pursue claims against KCS, and in turn the performance bonds, due to delays in the project. (Doc. No. 13 at 2-4.) Selective established loss and expense reserves totaling $802, 285.00 because of the claims against its bonds.[1] (Doc. No. 13 at 4.) After twice previously demanding payment from the Indemnitors, on January 5, 2018, Selective demanded that they (1) tender payment of $66, 152.80 to Selective for fees and expenses that Selective has already paid in relation to its ongoing investigation and defense of the liability that has been asserted against Selective; (2) deposit collateral in the amount of $802, 285.00, equaling the aggregate amount of the expense and loss reserves Selective has established; and (3) provide a date and location at which Indemnitors will provide Selective continuous and uninterrupted access to Indemnitors' books, records, accounts, nonconsumer/consumer credit reports, etc. (Doc. No. 13 at 5.)

         KCS, for its part, is actively working to resolve all claims against the bonds. (Doc. No. 17-1 at 2-3.) It has identified defenses to the claims of both projects, is actively working on both projects, and is not in default. (Doc. No. 17-1 at 2-3.) As of February 27, 2018, KCS expected to complete both projects by the end of March. (Doc. No. 17-1 at 2-3.) It provided a reviewed financial report to Selective in November 2017. (Doc. No. 17-1 at 3.) On February 8, 2018, KCS offered as collateral to assign its interest in a pending real estate purchase agreement, which is expected to net approximately $1, 200, 000. (Doc. No. 17-1 at 4.) On February 9, 2018, KCS offered as alternative collateral to provide Selective with a lien against five acres of commercial property that KCS currently utilizes as its office, valued at $1, 200, 000. (Doc. No. 17-1 at 4.) Selective rejected both offers of collateral, instead demanding a blanket lien on all residential and commercial owned by the Indemnitors. (Doc. No. 17-1 at 4.) A cash collateral in excess of $800, 000 would bankrupt KCS and make it impossible for it to complete work on both projects. (Doc. No. 17-1 at 4.) There is no evidence about how a deposit of over $800, 000 would affect Wade and Jessica Kincaid individually.

         On May 2, 2018, Selective filed a supplemental declaration that it has paid “or will very soon be paying” $1, 210, 008.22 in claims on behalf of KCS. (Doc. No. 24-1 at 2.) It also noted $254, 950.15 of unresolved claims against its bonds. (Doc. No. 24-1 at 2.) It asked the Court to expedite decision on the preliminary injunction to avoid any irreparable harm to Selective. (Doc. No. 24-1 at 2.)

         II. ANALYSIS

         Selective seeks a preliminary injunction against Indemnitors, requiring them to (1) deposit collateral security with Selective totaling $802, 285.00, which equals the aggregate amount of the reserves that Selective has established, and (2) provide Selective continuous/uninterrupted access to their financial records. (Doc. No. 12.) The Indemnitors do not dispute the facts, but instead argue that Selective is not likely to succeed on the merits because Selective has not complied with its obligation to act in good faith in assessing its exposure and attempting to enforce the Indemnity Agreement. (Doc. No. 17 at 6.)

         In determining whether to grant a preliminary injunction, the Court considers four factors: whether (1) “the moving party has a likelihood of success on the merits”; (2) “the movant will suffer irreparable harm without a preliminary injunction”; (3) “issuance of a preliminary injunction would cause substantial harm to others”; and (4) “the public interest would be served by issuance of a preliminary injunction.” McNeilly v. Land, 684 F.3d 611, 615 (6th Cir. 2012) (citing Am. Imaging Servs., Inc. v. Eagle-Pitcher Indus, Inc. (In re Eagle-Pitcher Indus., Inc.), 963 F.2d 855, 858 (6th Cir. 1992)). “Each of these factors ‘[should] be balanced against each other and should not be considered prerequisites to the grant of a preliminary injunction.'” Liberty Coins, LLC v. Goodman, 748 F.3d 682, 690 (6th Cir. 2014) (quoting Leary v. Daeschner, 228 F.3d 729, 736 (6th Cir. 2000)). The ...


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