Prior History: Williams Serv. Grp., LLC v. Nat'l Union Fire Ins Co., 495 F. App'x 1 (11th Cir. 2012) [USA], noted in 2013 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 521 (Failure to provide monthly invoice is not a material breach, and beneficiaries are not barred under limitations statutes from drawing on LCs); Williams Serv. Grp., LLC v. Nat'l Union Fire Ins Co. of Pittsburgh, NO. 1:09-CV- 832-TWT, 2011 U.S. Dist. LEXIS 142325 (N.D. Ga. Dec. 17, 2011) [USA]; Williams Serv. Grp., LLC v. Nat'l Union Fire Ins Co. of Pittsburgh, 2011 U.S. Dist. LEXIS 65828 (N.D. Ga. June 17, 2011) [USA], noted in 2012 ANNUAL REVIEW OF INTERNATIONAL BANKING LAW & PRACTICE at 550 (When an agreement establishes the rights and remedies of the parties, the right to draw on an LC can be determined from the underlying agreement with which they are associated).

Note: Williams Service Group, LLC (Employer) entered into employee compensation and general liability policies (Indemnity Agreements) with National Union Fire Insurance Company of Pittsburgh (Insurer) covering the years 1990 to 1995. In 1995, Employer and Insurer entered into a buyout agreement under which Insurer agreed to pay up to USD 4.2 million for claims against the policies under the Indemnity Agreements and Employer would reimburse Insurer for payments made above that amount. Employer then entered into another set of agreements (Program Agreements) with three other insurers as well as Insurer (collectively, Insurers).

To secure its payment obligations under the Program Agreements, Employer/Applicant provided Insurers/Beneficiaries with two evergreen standby letters of credit, one for USD 1 million and the other for USD 1.2 million. The LCs included a provision that Insurers/Beneficiaries could use the LC or any other cash security from Employer/Applicant to pay any obligation in default. In 1997, the parties entered into a collateral agreement that provided an overview for the security arrangements from 1990 to 1997 including the Indemnity Agreements, buyout agreement, and Program Agreements. Insurers/ Beneficiaries made payments in excess of the payment cap established in the buyout agreement by USD 1,850,572 under the 1990 to 1995 agreement and by USD 166,662.26 under the 1995 to 1997 agreement. However, Insurers/Beneficiaries did not bill Employer/Applicant on a monthly basis as required by the buyout agreement.

Employer/Applicant sued Insurers/Beneficiaries in Georgia state court for negligent supervision and recoupment, and sought a temporary restraining order to prevent Insurers/Beneficiaries from drawing on the LCs. The state court granted a temporary restraining order, and Insurers/Beneficiaries removed the case to the federal district court, which lifted the temporary restraining order. Insurers/Beneficiaries counterclaimed that Employer/Applicant owed them for claims paid in excess of the payment cap under the buyout agreement and that Insurers/Beneficiaries were permitted to draw on the standbys to recover that amount. Both parties moved for summary judgment. The U.S. District Court for the Northern District of Georgia, Thrash, J., granted in part and denied in part both motions, ruling that Insurers/ Beneficiaries were entitled to payment for some unpaid claims, but found others to be time-barred, and that Insurers/Beneficiaries could not draw upon the LCs. On appeal, the U.S. Court of Appeals for the Eleventh Circuit in a per curiam decision affirmed the dismissal of Employer/Applicant's claims, but ruled that Insurers/Beneficiaries were not time-barred from the remainder of their claims, and that they could draw upon the LCs. On remand before the trial court, both parties again moved for summary judgment. The District Court, Thrash, J. granted summary judgment for Insurers/Beneficiaries, ruling that Insurers/Beneficiaries were not time-barred from drawing upon the letters of credit for unpaid claims pursuant to the Appellate court decision.

The Judge ruled that the plain language of all the agreements, taken together, allow Insurers/ Beneficiaries to draw on the LCs due to the provision regarding its use towards any obligation in default to Insurers/Beneficiaries. The Judge found the Indemnity and Program Agreements sufficiently similar to implicate the collateral provisions of both agreements and further ruled that because there is nothing in the Buyout Agreement addressing collateral or the Indemnity Agreements themselves, the Buyout Agreement did not override any collateral provisions of the Indemnity Agreements.



The views expressed in this Case Summary are those of the Institute of International Banking Law and Practice and not necessarily those of ICC or the other partners in DC-PRO.