Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 1999

Academic journal article Defense Counsel Journal

Annual Survey of Fidelity and Surety Law, 1999

Article excerpt

This roundup of recent cases covers public and private construction bonds, fidelity and financial institution bonds, and sureties' remedies

Edited by Charles W. Linder Jr.

I. PUBLIC CONSTRUCTION BONDS

A. Bonds under Federal Laws

1. Substantive

Federal Prompt Payment Act permits recovery of penalties and attorney's fees in Miller Act claims.

In a Miller Act claim before a federal district court in Louisiana, the plaintiff has sought penalties and attorney's fees. The defendant prime contractor and its surety filed a motion for partial summary judgment on that claim. The motion was denied, the court holding that the 1998 amendments to the Prompt Payment Act (31 U.S.C. [sections] 3905(j)) effectively terminated previous holdings that penalties and attorney's fees were not covered by the Miller Act.

The succinct opinion goes on to say: "Congress may have indeed `entrenched' itself into the field of federal project contracting and subcontracting to the extent that all state law regarding the matter is now preempted. That being said, Congress may `taketh' from litigants, but it may also `giveth.'" Cal's A/C & Electric v. Famous Construction Group.(1)

Full recovery of delay damages allowed even though prime contractor only party responsible for delays.

In another Miller Act case related to the construction and remodeling of Air National Guard buildings in St. Louis, the prime contractor failed properly to issue revised construction schedules, causing substantial delay damages to its electrical subcontractor. A federal district court in Missouri found that the government and the prime contractor shared responsibility for the delays but awarded the subcontractor damages compensating it in full for the delays.

On appeal, the prime contractors and its surety argued that they were only partially at fault for the damages and that their responsibility should be limited. The Eighth Circuit found that other circuits had allowed full recovery and followed the reasoning of those cases. As a side issue, the court refused to allow recovery of damages for lost profits, holding that a separate breach of contract claim under state law would be necessary to apply for such relief. Consolidated Electrical & Mechanicals v. Biggs General Contracting.(2)

2. Procedural

Non-arbitrable Miller Act claims stayed pending arbitration of separate equitable claims.

In Tanner v. Daco Construction Inc.,(3) the subcontract sued on provided for arbitration but specifically excluded from arbitration any claim under the Miller Act. When a controversy arose, the federal district court for Oklahoma found that separate equitable claims asserted by the subcontractor were subject to arbitration but held that it would be "grossly inefficient" to have the parties arbitrate and litigate at the same time. Consequently, it stayed the Miller Act case until the arbitration had been concluded.

B. STATE AND LOCAL BONDS

1. Substantive

Interest on claim under bond due from date of default to date of notice of default.

In a claim under the Massachusetts payment bond statute, the surety filed an answer admitting liability and tendered the amount of the claim. The subcontractor-claimant argued that he was entitled to interest from the date of default. The surety said that it should have to pay only from the date it was notified of the default.

The Massachusetts Appeals Court stated that it had been long settled in that state that in the absence of a provision in the bond to the contrary, it was up to a compensated surety to keep itself informed of any defaults. Interest was awarded from the date of the default. The court went on to affirm judgment for attorney's fees in addition to interest. John W. Egan Co. v. Major Construction Management Co.(4)

Obligation of bond does not cover claim for extra interest rate, late penalties and attorney's fees. …

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