Justice remand insurance case back to circuit court

By Kyla Asbury | Mar 26, 2015

CHARLESTON – The state Supreme Court of Appeals ruled to reverse and remand a case between Lexon Insurance and Berkeley County Council.

In the appeal, Lexon Insurance Co. challenged the entry of default judgment against it in an action filed by Berkeley County Council and Berkeley County Planning Commission.

Justice Robin Jean Davis authored the opinion.

"Because we find that the damages sought in this case are not a 'sum certain' as required by West Virginia Rule of Civil Procedure 55(b)(1), default judgment was improperly granted under that rule," the March 11 opinion states. "In addition, we find that default was improperly entered under the unique circumstances presented herein where the parties failed to follow the Rules of Civil Procedure pertaining to the extension of the time for filing an answer."

The case arises from two performance bonds issued by Lexon to DLM LLC where it sought to develop a 255-unit subdivision known as Chandler’s Glen in Berkeley County.

As part of the approval process for the Chandler’s Glen subdivision, Berkeley County’s subdivision ordinance required DLM to either complete all of the required site improvements and infrastructure for the project or post bonds guaranteeing future completion.

On Nov. 8, 2005, Lexon issued a performance bond in the amount of $1.05 million, which guaranteed completion of the site improvements for the Chandler's Glen subdivision. On Feb. 10, 2006, Lexon posted a second performance bond in the amount of approximately $2.38 million, which guaranteed completion of the infrastructure for the Chandler's Glen subdivision.

Both of the bonds issued named Berkeley as the obligee, and, upon obtaining the first bond, DLM began grading the Chandler's Glen subdivision site and installing site improvements.

On Nov. 17, 2010, Berkeley County learned that DLM had filed for bankruptcy, and, at that time, DLM had not completed the site improvements and infrastructure for the Chandler’s Glen subdivision site. Accordingly, DLM had defaulted under both bonds.

On Dec. 9, 2010, Berkeley County made a demand on Lexon under the $1.05 million site improvement performance bond, and, on Jan. 25, 2011, Berkeley County made a demand on Lexon under the $2.38 million infrastructure performance bond.

Lexon responded by letter dated Feb. 24, 2011, acknowledging receipt of Berkeley County’s demands, and, over the following months, Berkeley County and Lexon met on at least two occasions and also exchanged communications in an attempt to resolve the matter.

Berkeley County rejected offers made by Lexon to either complete only those portions of the Chandler’s Glen subdivision that contained purchased lots, or to settle the matter for an amount that was less than the face value of the two performance bonds. On Oct. 6, 2011, Berkeley County reiterated its demand for the full proceeds of the two performance bonds in a letter to Lexon.

Having received no response to its letter, Berkeley County filed the lawsuit on Nov. 17, 2011.

In the complaint, Berkeley County sought "specific performance of the surety’s obligations according to the terms of the subject bonds," according to the opinion.

Lexon and Berkeley County entered an informal agreement to extend the time for Lexon to file a response to Berkeley County’s complaint. On April 20, 2012, Norwood Bentley advised Bruce Maas that Berkeley County had "decided to go forward and press the litigation which was earlier filed against your client, Lexon ...Will appreciate your answer at your earliest convenience."

On May 9, 2012, Berkeley sent a second e-mail seeking acknowledgment that Lexon had received the first e-mail, and also sent a letter via the U.S. Postal Service informing Maas that Berkeley was moving forward with the case, which is received no response.

On June 14, 2012, Berkeley filed a motion for default judgment, pursuant to Rule 55(b)(1) of the West Virginia Rules of Civil Procedure, against Lexon.

Thereafter, intermittent settlement negotiations continued between Berkeley County and Lexon.

"During this time, Berkeley County indicated that it would not encourage the circuit court to rule on its motion for default," the opinion states. "Nevertheless, on July 5, 2012, the Circuit Court entered default judgment against Lexon for the sum of $3,438,565.20 (the total face value of the two bonds at issue), plus post judgment interest."

Lexon sought Berkeley County’s agreement to vacate the default judgment and Berkeley County refused and Lexon obtained local counsel and continued, unsuccessfully, its attempts to get Berkeley County to agree to vacate the default judgment.

On Feb. 22, 2013, Lexon filed a motion to set aside default judgment, which was denied on Feb. 6, 2014. Lexon appealed to the state Supreme Court after that.

Based upon the language in Berkeley County’s communications, and the policy favoring trial of all cases on their merits, the court agrees with Lexon that Berkeley County failed to provide clear notice that it was withdrawing its consent to give Lexon an indefinite time within which to answer Berkeley County’s complaint, according to the opinion.

"Berkeley County merely stated that it would 'appreciate [Lexon’s] answer at your earliest convenience,' and asked to be informed of when it 'might expect [Lexon’s] answer.' These ambiguous communications fail to clearly articulate an intent on the part of Berkeley County to seek default in the event that Lexon’s answer was not forthcoming," the opinion states.

Berkeley County’s motion was improperly filed and should not have been granted, according to the opinion.

Lexon was represented by Ancil G. Ramey and Eric J. Hulett of Steptoe & Johnson.

Berkeley County Council and Berkeley County Planning Commission were represented by William J. Powell, Albert F. Sebok and Ellen S. Cappellanti of Jackson Kelly PLLC.

W.Va. Supreme Court of Appeals case number: 14-0215

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