[RPPTL-constructionlaw] FW: Performance bond liability question

[Bruce Partington]

From: Sakwa, Stuart H. [mailto:Shsakwa at arnstein.com] 
Sent: Wednesday, April 18, 2012 4:48 PM
To: Bruce Partington
Subject: RE: [RPPTL-constructionlaw] Performance bond liability question

 

While the sub may be in default, the problem in going against the surety may be failure to timely notify the surety of the default and give it an opportunity to cure.  If the sub failed to provide the required insurance, the GC should have stopped the sub from performing the work until the insurance was provided and/or given the surety notice that the insurance hadn't been provided. 

 

If notice was not given until after the event giving rise to the claim that required insurance coverage, the surety was not given an opportunity to cure the default.

 

I believe under the A312, you may have a notice issue because the bond gives the surety the right to step in and cure the defect.  If it was a performance bond that just required the surety to indemnify the gc, then the claim may be okay.

 

There are some cases in Bruner & O'Connor which distinguish between the two types of performance bonds. 

 

Stuart H Sakwa 
Attorney at Law
ARNSTEIN & LEHR LLP 

www.arnstein.com <http://www.arnstein.com/> 

 

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________________________________

From: constructionlaw-bounces at lists.flabarrpptl.org [mailto:constructionlaw-bounces at lists.flabarrpptl.org] On Behalf Of Bruce Partington
Sent: Wednesday, April 18, 2012 5:34 PM
To: RPPTL constructionlaw
Subject: [RPPTL-constructionlaw] Performance bond liability question

Please reply directly to bpartington at cphlaw.com

 

Subcontractor provides performance bond on AIA A312 form listing the GC as the "Owner" and the sub as the "Contractor."  The bond defines "Contractor Default" as "failure of the Contractor . . . to perform or otherwise to comply with the terms of the Construction Contract." "Construction Contract is a defined term broadly covering the "Agreement between the Owner and the Contractor [so, here, the subcontract], . . . including all Contract Documents and changes thereto."  

 

One of the obligations under the subcontract was to provide certain liability insurance coverages.  Apparently, those coverages were not provided, and the absence of one or more of those coverages is going to result in substantial liability to the GC.  GC has made a claim on Sub's liability policy but the liability carrier has denied coverage and said go away.

 

So, here's the question - would the performance bond surety be liable to GC for damages incurred because of the sub's failure to provide the contractually required insurance coverage?  It would seem clearly to be a "default" under the contract which is the subject of the bond, which would trigger surety liability.

 

Bruner and O'Connor (§ 12.35, n. 6) point out this issue but don't indicate any resolution or settled (or unsettled) principles.  They cite two old cases (1965, 1941) which on review don't actually even address the question (I don't know why they were even cited, frankly).  I've found no other cases in Florida or elsewhere on this point yet, but have been looking for a while.

 

Any thoughts?

 

Thanks.

 

Bruce D. Partington

Clark Partington

bpartington at cphlaw.com <mailto:bpartington at cphlaw.com> 

Direct: 850-432-1399

Fax: 850-432-7340

*Board Certified in Construction Law

 

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