Little Debbie's parent company is taking Liberty Mutual to court, saying the insurer hasn't fully met its obligations on bonds tied to a stalled $79 million plant expansion.
That's the gist of a lawsuit filed on April 28, 2026, in the US District Court for the Eastern District of Tennessee in Chattanooga. McKee Foods Corporation - the family-owned Tennessee company behind Little Debbie, Sunbelt Bakery, and Drake's Cakes - is suing Liberty Mutual Insurance Company over performance and payment bonds the insurer issued for a construction project at McKee's Plant 5 in Collegedale.
According to the filing, McKee hired O'Neal Constructors, LLC back in December 2020 to handle the Phase C expansion of the plant. A modification covering Phase 2 followed in April 2021. To back O'Neal's work on Phase 2, Liberty Mutual issued a performance bond and a payment bond, each in the amount of $79,285,356, in May 2021.
Things didn't go to plan, McKee says. The lawsuit alleges that O'Neal missed contractual deadlines, then walked off the job with the last ten work items still unfinished. McKee says it sent default notices to O'Neal in late 2024 and put Liberty on written notice on November 8, 2024, asking the surety to step in and finish the work. By February 2025, O'Neal had filed for Chapter 7 bankruptcy in South Carolina. McKee formally terminated the contractor in August 2025.
The complaint says Liberty Mutual has done some of what was asked - paying certain subcontractor claims and bringing in another contractor to wrap up parts of O'Neal's leftover scope. But, McKee claims, the insurer has stopped short of meeting the rest of its obligations.
A December 10, 2025 meeting between the two sides did not resolve things. According to the filing, Liberty's representatives took the position that the company "had satisfied all its obligations to McKee under the Bonds and would do nothing further," aside from a few minor concessions. McKee disagrees, arguing in the filing that when a construction contract is incorporated into a performance bond by reference, the surety has to honor the contractor's duties to defend and indemnify the owner.
The numbers McKee is putting on the table are sizeable. The filing lists damages totaling $19,013,983.24 - covering design and bid costs, an uninstalled bridge crane, warehousing, labor overage, liquidated damages, and pre-petition attorneys' fees - along with an estimated $10,094,218.18 in subcontractor claims spread across cases in Hamilton County Chancery Court and federal court in Tennessee.
McKee is asking the court for a declaratory judgment confirming Liberty's obligations, plus damages, attorneys' fees, and costs.
The allegations have not been tested in court. Liberty Mutual has not yet filed a response, and no court has ruled on any of the claims.
