From: Sakwa, Stuart H. [mailto:Shsakwa@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/> 515 North Flagler Drive Sixth Floor West Palm Beach, Florida 33401-4323 Phone: 561.650.8484 Mobile: 954.261.9598 Fax: 561.802.3082 Shsakwa@arnstein.com <mailto:Shsakwa@arnstein.com> Offices in Illinois, Florida, and Wisconsin ________________________________ From: constructionlaw-bounces@lists.flabarrpptl.org [mailto:constructionlaw-bounces@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@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@cphlaw.com <mailto:bpartington@cphlaw.com> Direct: 850-432-1399 Fax: 850-432-7340 *Board Certified in Construction Law NOTICE: This e-mail message and any attachments are private communication sent by the law firm of Clark Partington Hart Larry Bond & Stackhouse, and may contain confidential, legally privileged information meant solely for the intended recipient. If you are not the intended recipient, you are hereby notified that any use, dissemination, distribution or copying of this communication is strictly prohibited. Please notify the sender immediately by replying to this message, and delete the e-mail and any attachments from your system. Thank you. This electronic mail transmission may contain confidential or privileged information. If you believe that you have received this message in error, please notify the sender by reply transmission and delete the message without copying or disclosing it. Pursuant to Internal Revenue Service guidance, be advised that any federal tax advice contained in this written or electronic communication, including any attachments or enclosures, is not intended or written to be used and it cannot be used by any person or entity for the purpose of (i) avoiding any tax penalties that may be imposed by the Internal Revenue Service or any other U.S. Federal taxing authority or agency or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.