Surety May Waive Right to Challenge Claim Against Payment Bond by Failing to Answer Notice of Claim, Even Where Claimant Did Not Submit Proof of Loss or Documentary Support

J.C. Gibson Plastering Co. v. XL Specialty Ins. Co., 521 F. Supp. 2d 1326 (M.D. Fla. 2007)

In this case, a subcontractor gave notice of a payment bond claim to a surety using a 14-page letter that set forth the factual and legal bases for the claim.  The subcontractor moved for summary judgment against the surety arguing that the surety waived its right to challenge the subcontractor’s claim because the surety failed to answer that notice of claim within 45 days, as required under the bond.  The surety argued in response that the subcontractor’s notice of claim was insufficient because the subcontractor disregarded the surety’s requests for:  (i) a “proof of loss,” and (ii) documentary support for the claim.  The surety also argued that, to the extent the court may consider the subcontractor’s notice sufficient, the surety’s requests for additional information satisfied the answer requirement under the bond because the requests indicated that the surety disputed the claim.

The court ruled that the subcontractor was entitled to summary judgment because:  (i) despite the surety’s arguments as to industry practice, the bond’s language dictated the subcontractor’s notice obligation, and (ii) surety bonds are construed strictly against the surety and in favor of the obligee.  The bond merely required that a notice state a claim was being made under the bond, and “with substantial accuracy, the amount of the claim.”  The bond did not require a “proof of loss” or that notice be accompanied by evidentiary support.  Therefore, the subcontractor’s notice was sufficient, and the surety was required, under the bond, to answer the notice within 45 days, which the surety did not do.  The surety’s requests for documents and a proof of loss did not satisfy the 45 day answer requirement because the requests did not communicate the two elements necessary for an answer under the bond:  (i) the undisputed claim amounts, and (ii) the bases for disputing any claim amount.  Thus, the surety breached its contractual obligation to answer the notice of claim, and waived its right to challenge the subcontractor’s claim.

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>

Copyright © 2024, K&L Gates LLP. All Rights Reserved.