CLAIMS AGAINST PAYMENT BONDS: THE ADVANCED COURSE
By Jonathan Sauer
Our office sues sureties on payment and performance bond claims approximately twenty to thirty times per year, each and every year.
Being of advanced years and wont to sit in front of the fire covered with a steamer blanket - at the point in life where a drool cup is a real necessity and not just a Saturday Night Live gag - one ponders the past. For example, I have one client who usually gives us cases with about one day or two remaining before the statute of limitations expires on bond claims. One time, we got a case at 1:30 pm in Norwood and we had a payment bond case prepared and filed in Springfield - 100 miles away - by close of business that day! (That involved getting a superior court clerk to stay late and to accept for filing a faxed complaint, both of which are unusual events.) Another time, a new client called me on a certain date for the first time and in talking about his matter, we determined that a case would have to be filed on that very day or the bond rights would be lost. Other than having the benefit of the very convincing skills of Rocco and Luigi (our two eight foot tall plus ‘collectors’), it is certainly helpful that we also employ a Caped Crusader! Only one of the problems with having a super hero is that he/she tends to leave a lot of doors and windows and, especially, the chimney flue open quite a bit of the time. Frankly, having the ‘super hero experience’ often proves to be quite drafty! Larger than life and explosive in all manner of speaking, candidly, after they use the powder room - for at least an hour? - fuggedaboudit! Once you’ve experienced the super hero thing, you realize that just as often they are flying away from something rather than toward something! (These comments are consistent with this issue’s “South Park” theme!)
Scribbles has had over the last thirteen years a number of articles discussing surety issues. These include the following: “Collecting on that Payment Bond: Part One”; Anatomy of a Payment Bond Suit: the Nuts and Bolts of Getting Paid for your Nuts and Bolts”; “Exposures and Options: What to do When a Claim is Made Against Your payment or Performance Bond”; “Suits Against Payment Bonds in Massachusetts”. Sometimes one seems to get hoisted on one’s own petard by being so prolific. Some years ago, a kitchen and bath subcontractor made an appointment to see me. His business was surfeit with payment and performance bond claims and the surety was threatening to shut him down. He asked for some advice on what to do and I gave it at this, the most unhappy of times for both the contractor and his attorney. After doing so, he waved a xerox copy of the “Exposures and Options” article in front of me with all kinds of lines highlighted in yellow and said ‘that’s not what you said here’!
The purpose of this article is to discuss four specific surety issues which arise and which our readers involved with payment bonds - particularly making claims against them - should know about and be aware of. Keeping in mind that only about one percent of superior court civil cases actually go through a complete trial, the key to earlier resolution of any dispute is to be aware of potential fulcrums and leverage points and how to work the issues in your favor. Often, the way to get your check earlier is to learn the various ways sureties can be motivated. Learn the things that sureties are either afraid of or don’t like. Here’s one tip. As to the latter, sometimes the only thing necessary to get a claim reviewed and paid is to notice the deposition of the surety bond claims manager. As most of the large sureties are generally situated in regional or national offices, that means that someone has to fly somewhere. Speaking for myself, I am kind of old-fashioned and tend to be choosy about whom I take my shoes off in front of! Not only do bond claims managers not like to fly to you - varying their routine - but they don’t want to come to a deposition environment where they think they will be abused. More on this later.
Material suppliers, subcontractors and even general contractors often don’t know as much as might be helpful to their interests and our various bond and lien seminars are among our most popular. Without payment bonds, many, many claims (and creditors) would be doomed. In the last four or five months alone, our office has collected almost one million dollars against these wonderful financial vehicles. As to each of those cases, there were no depositions and no trips to court to try cases. Our approach, developed over thirty plus years in handling thousands of these kinds of claims, of being reasonable, less adversarial and viewing surety companies and their attorneys within the context of a long term relationship usually tends to work better on any particular claim than other less productive ‘hard-ass’ methods.
A. The bonds are at variance with a controlling statute: the issue of bond ‘manuscripting’.
As has been discussed in other articles, there are basically “statutory payment bonds” and “common law payment bonds”. The latter are generally subcontractor bonds on both public and private projects and general contractor bonds on private projects. Under Massachusetts law, claims against them can only be made ‘in accordance with their terms’. This is why it is so important to have the actual executed payment bond before you begin thinking about making a claim, as there are two issues in the actual payment bond that can’t be anticipated and which could ultimately defeat your claim. These issues are: whatever notice that the claimant has to give (to whom and when and how) and how long one has to sue on the bond. On a statutory payment bond claim, generally speaking, on Massachusetts public and federal projects, only ‘second tier’ suppliers and subcontractors - those who contractual relations are with a subcontractor rather than with the general contractor - have to give notice. And, generally, suit is to be filed within one year from the last date the claimant supplied labor and materials for which claim is made.
Things get a bit different and interesting with common law payment bond forms. One common bond form - the AIA A311 - figures the one year period from when the principal on the bond last worked - not from when the claimant last worked. Invariably, that bond form gives the claimant more time to file a claim because of the use of a different trigger date. The AIA A312 bond form – created ostensibly to replace the A311 (which is still in use) - has a number of very specific notice requirements that have to be met in order to have coverage for your claim.
Sureties tend to write surety business from a national perspective on industry wide forms. In other words, they do not generally ‘manuscript’ bonds for a particular state, meaning that they do not generate forms with any particular state in mind. Put another way, they don’t generally have state-specific bond forms, which can mean that there often disconnects between the requirements of a particular statute and the requirements of an applicable statute the bond was given to comply with. Ideally, state-specific forms would be preferable because of the fact that the payment bond and mechanics’ lien statutes vary widely from state to state. (A good book to consult as to general requirements of the different states is the Manual of Commercial Credit, which is published annually by the NACM organization (National Association of Credit Management) for which I review and contribute with regard to the payment bond laws and mechanics’ lien laws for seven states for the last several years.)
So, what happens when there is a state statute which strictly provides for either the form of a payment bond or, more likely, the content of the payment bond and the bond supplied doesn’t comply with the same?
Here’s the Massachusetts answer. Common law bonds given to meet a statutory condition will be construed in accordance with the statute. Martin Fireproofing Corporation v. Aetna Insurance Company, 346 Mass. 498, 194 N.E.2d 101 (1964); Philip Carey Mfg. Co. v. Peerless Cas.Co., 113 N.E.2d 226, 330 Mass. 319 (1953).
What that means is that if there are variations in the content of what is in the bond as actually supplied by the surety as compared with what is supposed to be in the bond, the bond given will be ‘read up’ to the applicable statutory requirement so as to contain the requirements of what the statute says should be there. Thus, if there are notice requirements, for example, which the bond form contains which aren’t contained in the applicable statute - in Massachusetts, C. 149, § 29 of the General Laws - then the terms of the statute will be read as being imported into the bond form and the other provisions can be disregarded.
What does this mean in practical terms? There are two principal things to consider.
First, you may be looking at a payment bond form that has a lot of notice requirements in it which you haven’t complied with. If it is a public job and you are looking at a general contractor’s statutory payment bond, those requirements may not be applicable to your claim if they are in excess of or in variance with the requirements of the statute. Now, C. 149, § 29 does not contain an actual bond form in it. However, it is very detailed about what the bond coverage is with specific reference to a variety of possible potential claims. So, although you have not complied with what that bond form requires, don’t just assume that your claim is necessarily dead because that requirement may not be applicable to your particular situation.
Secondly, other than the procedure by which claims may be submitted, it may be that the bond form supplied doesn’t cover what your claim might be. For example, C. 149, § 29 provides coverage for the following things (using actual language from the statute):
∙ lumber so employed which is not incorporated therein and is not wholly or necessarily consumed or made so worthless as to lose its identity;
∙ any material specially fabricated at the order of the contractor or subcontractor for use as a component part of said public building or other public work so as to be unsuitable for use elsewhere, even though such material has not been delivered and incorporated into the public building or public work;
∙ payment of transportation charges for materials used or employed therein which are consigned to the contractor or to a subcontractor;
∙ payment by such contractor and subcontractors for the rental or hire of vehicles, steam shovels, rollers propelled by steam or other power, concrete mixers, tools and other appliances and equipment employed;
∙ payment by such contractor and subcontractors of any sums due trustees or other persons authorized to collect such payments from the contractor or subcontractors, based upon the labor performed or furnished as aforesaid, for health and welfare plans, supplementary unemployment benefit plans and other fringe benefits which are payable in cash and provided for in collective bargaining agreements between organized labor and the contractor or subcontractors.
And, court cases which have interpreted that statute have done so broadly, perhaps very broadly. Here are what a few court cases have said about that payment bond coverage. Statutes permitting materialman to recover on general contractor's bond are remedial and should be broadly construed to effectuate their self-evident policies. M. Lasden, Inc. v. Decker Elec. Corp. (1977) 360 N.E.2d 1068, 372 Mass. 179. Statute is broadly designed to afford security to those who have contracted to furnish labor, equipment or materials for public work and should be liberally construed. Warren Bros. Roads Co. v. Joseph Rugo, Inc. (1969) 245 N.E.2d 243, 355 Mass. 382. Major purpose of statute requiring payment bonds on government projects is to provide broad protection to subcontractors and suppliers of materials on government jobs, to the end that the price of their labor and materials to the public will be lower. C. C. & T. Const. Co., Inc. v. Coleman Bros. Corp. (1979) 391 N.E.2d 1256, 8 Mass.App.Ct. 133. Statute requiring that claim for labor and material be made "prior to the expiration of ninety days after the claimant ceases to perform labor or furnish labor [or] materials" for which claim is made, was intended to protect laborers, materialmen and subcontractors from nonpayment by general contractors engaged in construction of public buildings, and statute should be given a broad or liberal construction to accomplish its intended purpose. Ross v. Planet Ins. Co. (1972) 279 N.E.2d 690, 361 Mass. 852. Requirement of bond to secure payment to subcontractors and materialmen on public improvement projects is to be construed broadly to effect its purpose of affording security to subcontractors and materialmen. Lawrence Plate & Window Glass Co. v. Varrasso Bros., Inc. (1968) 233 N.E.2d 897, 353 Mass. 631.
This means that there may be coverage for labor and materials and equipment not specifically identified in the statute. One example may be with regard to necessary repairs to a major piece of equipment. There may not be bond coverage for maintenance or capital improvement of the equipment, although there may be coverage for the necessary repair of the equipment reflecting the equipment’s use at the bonded project.
So, this first issue, then, suggests that you don’t count yourself out when you see a bond form that you haven’t complied with or won’t be able to comply with, particularly on a public project.
B. The annoying problem of the tender of defense.
A problem with viable principals - contractors which the bonding company believes are in business and are able to pay their bills - is the issue of tender of defense.
What, you may ask, is a ‘tender of defense’. Well, to explain this, one needs to understand some of the core concepts of suretyship. And, that is that surety bonds are not insurance in two significant ways. Insurance is a product where the premium costs necessarily reflect losses over a period of time. Also, there is typically no recourse to the insured by the insurer, meaning that the insured doesn’t have to reimburse the insurance company for the losses it sustains absent very unusual situations such as, for example, situations where the insurance company has been defrauded by the insured. Anyone reading the last sentence might say: what would be the value to having insurance if you had to pay the insurance company back for any losses? Well, in the suretyship business, that is exactly what the ‘insured’ (referenced as ‘principal’) has to do. Surety bonds are underwritten with a ‘zero loss expectation’ which means - theoretically, at least - that the surety should not incur any non-reimbursed or non-reimbursable losses or costs. A surety underwriting manager whom I like and respect immensely nonetheless has told me with a straight face that the surety earns its premium by simply prequalifying the principal for the job. When one multiplies the general contract price by something between one and one-half percent to five percent, that can become a rather expensive favor!
Both under common law principles - case-made law - and under written agreements of indemnity, the principal has the legal obligation to repay the insurance company (surety) for any costs and losses the surety incurs, even where the claims against the bond in question are baseless. Thus, within a litigation context, since the principal has to reimburse the surety for its counsel fees and where, additionally, a surety’s factual defenses are based on what the principal’s factual defenses are, it makes sense that both the principal and surety are represented by the same lawyer who, more than nine times out of ten times, will be the principal’s own lawyer.
What’s wrong with that? Why do I, as a claimant - or claimant’s attorney - care about that? Well, there are two reasons. First of all, once any bond matter ‘goes to suit’, claim representatives tend to cease looking at the claim file in terms of further investigating the claim and attempting to make a decision on the claim. Keeping in mind that insurance companies get sued each and every day, the act of being sued is a part of what regularly constitutes its ordinary routine. So, a claimant’s thinking “I’ll sue them to get their attention” actually proves to be counter-intuitive, accomplishing the opposite result.
I have found that in many situations not suing the surety proves more fruitful than suing the surety. Because the very act of suing gets the matter off of the bond claims representative’s desk and onto some lawyer’s desk, where he or she might enjoy keeping it for an extended period of time. (At the Law Offices, since we live, more or less, on the golf course, we keep most of our files in golf bags!) And, if I am trying to settle a matter as a claim - i.e. there is too little to sue for - maintaining my ability to advocate to (read, from their perspective ‘annoy’) the bond claim representative often is more productive. Other than in situations where the claimant alleges the insurance company engaged in bad faith - where a separate claims representative may evaluate and monitor that aspect of the case - a matter in suit produces little interest and involvement for the bond claims representative.
I am of the opinion that the mere act of tender of defense by the surety to the principal of its own defense without the surety’s first having conducted its own thorough investigation into the matter is, on its face, an unfair insurance claims settlement practice. (I await the right case to take to the Appeals Court to get that determination.)
Once a tender of defense has been made to the principal’s attorney, the surety has even less interest in the matter. I represent one contractor which has at any given time five to ten cases pending. As infrequently as once per year, the bond claims attorney for the surety will ask me to give him a brief status report on the cases I am representing the surety on the basis of a tender of defense.
So, how do we get and keep the surety’s interest in this situation?
Think three words: admissions, interrogatories and, most especially, depositions. Pithily put, to aid you with your claim, remember the acronym “AID”.
The way to get the surety’s attention is to find ways to get beyond and behind the principal’s lawyer. And, that way is to conduct discovery devices which must be prepared or at least signed by the client - the surety.
Requests for admissions are requests by one party to an another which requires the responding party to admit or deny under oath certain facts. So, let’s say in a particular case, the issue is whether or not a beach ball is round. The party attempting to establish that fact would serve the other party with a request for admission:
“1. All beach balls are round.”
Now, if the responding party doesn’t either admit or deny that fact under oath within thirty-three days of having been served such a request, that fact is established for all purposes for the remainder of the case. Unlike other discovery devices - (ED. If this term isn’t familiar to you, look at the article “The Litigation Process” elsewhere on the website) - which require the attorney to pull the trigger (take some action) before bad things happen, with admissions, bad things happen simply due to the passage of time.
Since the surety has to sign its responses under oath to these requests for admission, this is one opportunity for the surety to at least look at the case. A problem with this, however, is that the surety is likely to answer by saying “we don’t know whether or not this is true or not”, which is an acceptable answer for some purposes, or to simply sign answers that the principal’s attorney has prepared. (A typical answer may be that it doesn’t have enough information to admit or deny and its investigation is ongoing.)
Perhaps less useful than admissions are interrogatories. These are written questions one side can ask the other. Viz:
“1. Please describe the physical characteristics of beach balls.”
Now, these have to be answered by the surety under oath, as well. Typically, however, the same type of response will be made as will be made to the requests for admission.
So, when all else fails, think Deposition. Unlike admissions and interrogatories where the principal’s attorney runs interference for the surety, a deposition is a process by which I can bring the bond claims representative or the bond claims manager to my office and ask him/her questions until I run out of questions. (Not that I am a blowhard or anything but sometimes this can consume a good chunk of time, especially on windy and rainy days not conducive for playing golf or buying new motorcycles!)
I might ask:
“Q. Mr. Witness, I show you Plaintiff’s Exhibit One marked for identification, a certain beach ball.
A. Yeah, that’s, uh, what it appears to be, although I haven’t been to the beach for a few years. You see, I spend most of my time earnestly trying to help bond claimants, especially the ones who don’t, like, uh, know exactly how to submit their claims. Could I have a drink of water . . . or something stronger, if you have it?
Q. In your own words, would you please describe Exhibit One?
A. Uh, it is, like round. Geez, speaking of things that are round, I really need to use the potty.”
You see, here we force the claims manager to say in his/her own words what the defense to the case is. This is how we get behind the principal’s attorney. And, whether claims managers know the reason for it or not, their instincts tell them that saying “I don’t have the foggiest idea” is not the best of answers! And, claims managers hate like hell attending depositions, both because they don’t want to travel to some distant city and they fear getting abused by the claimant’s attorney. This tends to lead to settlements, assuming the case is a good one entitled to be paid.
C. Sureties have no idea that Massachusetts has a very tough unfair insurance claims settlements practice act.
Bond claims departments, by my experience, don’t tend to understand - at least on the go-in for any particular matter - the different components of local law.
In Massachusetts, a fairly liberal and pro-consumer state, there is a fairly strong statute which instructs insurers - and sureties - how claims are to be investigated and handled. Under Massachusetts law, as to insurance practices towards consumers, violations of C. 176D (the statute regulating insurance claims handling practices) are a fortiari (on their face) violations of C. 93A of the General Laws (Consumer Protection Act), under which claimants can get up to triple damages and reasonable attorneys’ fees for unfair and deceptive trade practices committed upon them. As to insurance claims by businesses against insurers, this presumption does not obtain. However, violations of C. 176D may also constitute independent violations of C. 93A affording to businesses the same potential remedies.
As stated by District Court in the case of Kiewit Construction Company v. Westchester Fire Insurance Company, 878 F.Supp. 298, 302 ( United States District Court, D. Massachusetts, 1995):
“ The principle that 176D does not immunize from attack under 93A the practices which 176D declares unlawful was first established in Dodd v. Commercial Union Ins. Co., 373 Mass. 72, 365 N.E.2d 802, 805-06 (1977). In Dodd, the SJC considered the concurrent application of 93A and 176D to the same allegedly unfair practices and expressly rejected the argument that 176D preempts 93A. Thus, the SJC held that " c. 93A, S 2(a), covers insurance practices in its prohibition of unfair or deceptive acts or practices in any trade or commerce." Id. 365 N.E.2d at 805. Significantly for present purposes, the SJC drew no distinction in Dodd between suits brought under Section 9 and Section 11. (ED: Consumers sue under Section 9 while businesses sue under Section 11.) While it might be argued that Dodd is not dispositive because it was decided before Section 9 (but not Section 11) was amended specifically to incorporate 176D, such argument would be without merit. There is no evidence that the Massachusetts legislature, by amending Section 9 specifically to incorporate 176D, intended to overrule the broad holding in Dodd that Section 2 of 93A "covers insurance practices." Since Section 11 permits commercial plaintiffs to sue for injury resulting from violations of Section 2, it follows that plaintiffs such as KAK may assert claims against their insurers under Section 11. Indeed, both Jet Line, 537 N.E.2d 107 (Mass.1989), and Polaroid, 610 N.E.2d 912 (Mass.1993), were decided after 93A was amended in 1979, and, in both those Section 11 cases, the SJC upheld the application of Section 2 to practices by insurance companies that were alleged to be unfair and deceptive. There is thus no merit to Westchester's position that a commercial plaintiff may not bring suit against an insurance company under Sections 2 and 11 of 93A for engaging in conduct that also happens to violate 176D. Westchester's motion to dismiss Count IV of KAK's Second Amended Complaint should therefore be denied.”
In this regard, see also St. Paul Village Condominium Association v. St. Paul Fire and Marine Insurance Company, 1996 WL 384249, 5 Mass.L.Rptr. 376:
“In short, even in a commercial dispute between business organizations, a violation of c. 176D that rises to a level so as to constitute an unfair or deceptive act for purposes of c. 93A, S 2, would seem to support an independent claim for violation of c. 93A, S 11.”
All this legal mumbo jumbo means that in a particularly egregious case, a surety could be looking at a triple damage award against it and an award of the claimant’s attorneys’ fees as well, which could prove to be, as they say in the NFL, a ‘career-ending injury’ for that insurance company employee who allowed this event to happen. The following excerpts from that statute ( C. 176D), along with the writer’s comments in italics, are statutory requirements and practices that sureties have difficulty complying with:
“S 3. Unfair methods of competition and unfair or deceptive acts or practices
. . . . (9) Unfair claim settlement practices: An unfair claim settlement practice shall consist of any of the following acts or omissions:
. . . . (b) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies; This would mean that they need to return phone calls and answer letters promptly. Typically, sureties don’t like to send out correspondence more often than once per month.
(c) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies; This means having a plan on investigating claims. Most sureties, by my subjective experience, don’t have any form of claims handling manual. They may have various sample letters to cover very general situations but no procedure as to how claims are to be investigated and, more importantly, resolved without (and prior to) suit.
(d) Refusing to pay claims without conducting a reasonable investigation based upon all available information; Since the surety has the principal’s defenses, too many times a surety will deny a claim simply because its principal says it’s a bad claim and/or that the principal claims that it has defenses thereto without the surety’s having ever investigated the matter first or making even the most basic (minimal) of independent inquiries.
(e) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed; Because of the zero loss expectation factor and because some sureties wish to see if the claimant will remember to sue in time (usually a year), sureties tend to be quite passive in the handling of claims. The claimant, having submitted its paperwork, is sitting back waiting for (and expecting ) the surety to do something. Often, nothing is done or, in the ordinary course, will be done.
(f) Failing to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; This is a big one.
(l) Delaying the investigation or payment of claims by requiring that an insured or claimant, or the physician of either, submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information; Quite often, the knowledgeable claimant will send in all of its claims materials only to get a form letter back from the surety asking for exactly the same documents and/or requesting the claimant sign a ‘proof of claim’ form when all of the answers to the questions therein contained are in the paperwork submitted. And, by my subjective experience, most sureties don’t have a procedure to either evaluate and/or pay a claim within any specific period of time of its receipt of the claim substantiation including, but not limited to, any ‘proof of claim’ or ‘proof of loss’ documentation.
(m) Failing to settle claims promptly, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;” Sureties hate making partial payments and this is often necessary, particularly where the surety is completing a project and a portion of a claimant’s claim is historical (against the principal, while the principal was still running the job prior to default or abandonment) and a portion reflects working for the surety directly to complete the project.
So, if you have submitted your claim and a few months have gone by and the surety doesn’t seem to be doing anything, you might have your lawyer advise the surety of this law. Indeed, for those of our most intrepid readers, they might advise the sureties of this law themselves, keeping in mind the old saw that the lawyer who defends himself has a fool for a client. (Then again, admit it, sometimes you might even let that same fool shave you in the morning when you are half asleep!)
I have found that in the appropriate case advising the surety of this law can be helpful. Note: I say the appropriate case. While sureties can be annoying and delinquent in the performance of their claims handling duties, they are large, sophisticated companies. Claiming bad faith against a surety can just as easily hurt you as help you, especially where there has been no bad faith or anything remotely resembling it. And, this type of information is best suggested or given for informational purposes rather than threatened. All of God’s children have their problems and issues and since we can’t generally afford to demonstrate our anger against those people in our lives who truly deserve it, giving a surety (and its employees) a chance to make an example of your claim or push you to go all the way is unproductive and fruitless and quite possibly expensive. Remember that one definition of a conservative is that all a conservative is is an experienced liberal! Well, clients who think they want their lawyers to act like pit bulls often find that the bills kill them for more than simple dogged pursuit of the claim!
Quick war story. For one principal that is in the process of going out of business on a variety of projects, I have had several claims by subcontractors against that principal into the serious six figures in the aggregate. I had a small claim - less than thirteen thousand dollars - for which the statute of limitations was going to run shortly. I knew the claim was good and that ultimately I would recover all of it and maybe some interest if I had to file suit. It seemed wasteful to spend a couple of thousand dollars to sue on this matter (prepare a complaint, effect service, prepare some discovery along with all the filing and service fees), although I would have to do this unless the claim could otherwise be handled. Someone familiar with the claims practices of this surety - and it was the bond claims manager himself who was handling this particular principal - advised that the surety was only settling the claims that were in suit, not really bothering with claims that were only, well, claims.
I sent this claims manager, who was also a corporate officer, a short relatively dispassionate primer on bad faith law in Massachusetts, including the above. The matter got quickly settled without our having to file suit first and he even rushed me the check. While this individual may not have realized it at the time, by ‘assisting’ him in the settlement of the claim, we both avoided expenditure of needless attorneys’ fees and costs.
D. Present your claim fully and as early as possible, both while it is a claim and especially when it is a litigation.
Other articles on our website - www.sauerconstructionlaw.com - and in previous issues of Scribbles have suggested why it is imperative to make only one bond claim submission to the Surety with as much of your paperwork as possible. While I would not necessarily include shop drawings - particularly, if they are oversized and expensive to copy - I would send delivery tickets and everything there is to be said about your claim including: your contract, a copy of the payment bond, invoices, accounting reports, payroll reports (especially if suit is close to one year), daily reports, pictures, correspondence and third party verification of your claim (by the Clerk of the Works, the Architect, the Owner, etc.).
Now, what makes sense at the claim level makes just as much sense at the litigation level, keeping in mind that only one percent of all superior court civil cases actually go through a complete trial. Namely, rather than just sending out ‘pattern’ discovery (form interrogatories and document requests) make a complete submission of your claim materials to the surety through its attorney (provided it is not the principal’s attorney on a tender) as quickly as possible, even if he or she doesn’t ask for this. This is especially true in situations where the principal is in extreme financial difficulty and the surety is already involved in its affairs with other payment bond claims and possibly with various performance bond claims. (Remember, the hardest check to get out of any surety is the first! Once the first claim gets paid, the second claimant seems to have an easier time of it.)
Current surety practice by better surety lawyers usually includes a request for this information very early on. Assuming that your information is consistent and integrated and is supportive of your claim, I can think of no reason for not getting this information out to the ‘other side’ as quickly as possible.
One last comment. Lately, we are seeing a number of claimants who are letting the bond statute of limitations expire with regard to retention claims. It is rumored that certain state agencies have a habit of not paying retention “for years”. Whether or not that is true in any particular case, you, as a bond claimant, have to sue on that payment bond within the time required by statute or by bond irrespective of whether or not otherwise people might be content to reluctantly wait for the owner to pay. Put another way, retention claims have to be asserted in a timely fashion and doing so is a claimant’s affirmative legal obligation.
Copyright Claimed 2006