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Travelers warns farmers they might not be able to claim against Express Grain's surety bonds

Thursday, April 21, 2022, 7:55 pm News Flash Archive

This afternoon, Travelers Casualty and Surety Company of America filed a notice of comment and reservation of rights in the Express Grain bankruptcy case.

In that notice, Travelers warns that farmers will not be able to claim damages under the $1 million warehouse bond, because that bond only covers grain stored by EG on the farmers' behalf, and EG had no storage agreements with farmers.

That leaves only the $100,000 Grain Dealer bond which EG had in place, but Travelers warns that any farmer who settles their grain ownership issues via the proposed Settlement Agreement will be disqualified from receiving damages under the smaller bond as well.

Travelers' filing may be read here: Travelers Comment and Reservation of Rights

Travelers wrote the two bonds for EG in favor of the Mississippi Department of Agriculture and Commerce. Travelers has filed suit against the Coleman family members who signed as Indemnitors to back the issuance of the bond. See our previous reporting here: Travelers sues Colemans for bond in Express Grain bankruptcy case

In today's filing, Travelers discloses that it has opposed MDAC's plan to adjudicate who ought to be paid for damages under the two bonds:

On April 6, 2022, Travelers filed its response to the Petition (the "Travelers Response"). The Travelers Response, inter alia, (i) disputes the authority of the Commissioner to determine Travelers's liability under the Warehouse Bond, (ii) asserts that, upon information and belief, farmers sold grain to Express Grain and did not store grain with Express Grain, which means any losses suffered by the farmers are not assured by the Warehouse Bond, and (iii) suggests a stay of any determination related to the Bonds until this Court has held the 557 Proceedings. Travelers reserves all rights regarding the Petition, any associated proceeding, and any claims against the Bonds.

As to the effect of the Settlement Agreement, Travelers further argues:

Travelers is cognizant of the hurdles that the parties in these bankruptcy cases have faced and the herculean efforts of the parties that have resulted in the Settlement Agreement and the filing of the 9019 Motion. That being said, elections have consequences and the elections by the Consenting Farmers and the Disclaiming Farmers to compromise or release claims to the Net Disputed Grain Asset Pool impair Travelers's equitable subrogation rights to the Net Disputed Grain Asset Pool and release, in whole or in part, Express Grain as principal under the Bonds. These elections establish another defense to any claim by the Consenting Farmers and Disclaiming Farmers against the Bonds.

Mississippi law recognizes the fundamental principal "that a creditor cannot increase the secondarily liable entity's risk by actions that release the primarily responsible entity in whole or in part."

In other words, if by settling, the farmers release EG from further liability, that will make them ineligible to then seek money under the bond to reclaim any of their loss that resulted from EG's failure or misconduct.

Travelers harkens back to a case decided in 1876:

Put another way, the release of the primarily liable party (the principal) establishes a release of the secondarily liable party (the surety). Anthony v. Capel, 1876 WL 7383 (Miss. 1876).

Travelers does not consent to any release being given by the farmers to EG under the settlement agreement:

For the avoidance of doubt, Travelers does not consent to the release, in whole or in part, of Express Grain or any release by potential bond claimants of their rights to the Net Disputed Grain Asset Pool.

Finally, Travelers explains the reason it has filed this Comment and Notice:

Travelers files this Comment and Reservation of Rights to provide clarity and transparency regarding its position concerning the Consenting Farmers and the Disclaiming Farmers. Travelers has not laid in the weeds waiting to spring a trap on the farmers. Indeed, Travelers has previously apprised counsel for the various Farm Groups of the consequences of releasing Express Grain. In the end, the farmers must decide whether to prioritize the potential certainty of being a Consenting Farmer or Disclaiming Farmer but that choice also means that such farmers have released the principal under the Bonds and established a defense to a claim under the Bonds.

If the bond is worth only $100,000, a drop in the bucket compared to the settlement fund of $9.25 million for the farmers, it's hard to understand why any farmer should care whether he is eligible to receive only a sliver of that $100,000 bond.


To read all our coverage of the Express Grain bankruptcy case, see here: Index of Express Grain articles


John Pittman Hey
The Taxpayers Channel

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