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RLI wins dispute over surety bond

Posted On: Jul. 6, 2020 1:45 PM CST


A federal appeals court affirmed a lower court ruling and held the former partial owner of a now-bankrupt energy company must compensate RLI Insurance Co. in connection with the firm’s failure to meet its bond obligations.

Peoria, Illinois-based RLI issued surety bonds on behalf of Houston based Northstar Offshore Energy Partners LLC and Northstar Offshore Group LLC so they could operate oil and gas wells on public land in Louisiana, according to the July 2 ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in RLI Insurance Co. v. Stephen Glynn Roberts.

These bonds provided security to the Louisiana Department of Natural Resources for the cost of future plugging and abandonment of Northstar’s wells, according to the ruling.

As part of RLI’s deal to issue these bonds, particularly one called the “Creole” bond, Mr. Roberts, who was then a partial owner of Northstar, entered into an indemnity agreement with RLI, under which, if Northstar did not meet its bond obligations, Mr. Roberts would personally pay the bond premiums to RLI and personally deposit collateral security with the insurer, the ruling said.

After Northstar did not meet its bond obligations, the Louisiana Department of Natural Resources sued RLI to recover the full amount of the Creole bond. RLI in turn sought collateral security from Mr. Roberts. When he refused, RLI filed suit against him in U.S. District Court in Houston for allegedly breaching his agreement. 

The district court granted RLI summary judgment in the case. It later issued a final judgment ordering Mr. Roberts to deposit $1.25 million with RLI as collateral security, plus $98,000 in attorneys fees and $167,00 in pre-judgment interest.

The district court’s summary judgment ruling was affirmed by a unanimous three-judge appeals court panel. Mr. Roberts claims RLI did not have standing to file its breach of contract claim under Article III of the Constitution, which requires RLI must have suffered an injury that is “fairly traceable” to the defendant’s challenged conduct and is likely to be redressed by a  favorable decision, said the ruling.

“RLI plainly has standing,” said the ruling. He cannot dispute RLI suffered an injury.

The panel also agreed with RLI that the issue is not moot and that Northstar’s bankruptcy does not preclude RLI from filing suit, in affirming the lower court’s ruling.

Attorneys in the case did not respond to a request for comment.

In January, RLI prevailed in a complex coverage dispute with American International Group Inc. units over the issue of whether it must contribute $2.5 million toward settlements reached on behalf of a trucking company.