Brendan Carter | The Dispute Resolver | January 14, 2017<\/p>\n
In Arch Insurance Company v. John Moriarty & Associates of Florida, Inc<\/u>., 2016 U.S. Dist. LEXIS 172173, the U.S. District Court for the Southern District of Florida granted Summary Judgment to a surety after finding that a general contractor did not satisfy the procedural requirements of a performance bond before it submitted a bond claim.\u00a0 The Defendant was a general contractor who subcontracted the bond\u2019s principal to furnish labor and materials on a project.\u00a0 The subcontract required the provision of a performance bond which the subcontractor acquired through the Plaintiff.\u00a0 At some point during the course of the project, the Defendant notified the Plaintiff that it was considering to declare the subcontractor in default. Later at the completion of the contract, the Defendant demanded a $995,239.83 payment from the Plaintiff on the bond due to the performance of the subcontractor.<\/p>\n
The terms of the performance bond addressed specific procedures that must have been followed in the event of the subcontractor\u2019s termination for default.\u00a0 The bond required that: 1) Notice be provided to the subcontractor and Plaintiff that Defendant is, \u201cconsidering declaring a Contractor Default\u201d; 2) “Declares a Contractor Default, terminates the Construction Contract and notifies [Plaintiff]”; and 3) “Agree[s] to pay the Balance of the Contract Price\u2026to [Plaintiff] or to a contractor selected to perform the Construction Contract.” Once those three condition precedents had been met, the bond required that the Plaintiff be given the opportunity to mitigate its damages through arranging for the completion of the defaulted work.\u00a0 Finally, seven days\u2019 notice must be provided before Defendant can make a demand on the bond.<\/p>\n
The Court found the first requirement was met by Defendant when it alerted the Plaintiff that it was considering declaring a default.\u00a0 The Court then went on to find that none of the other bond\u2019s default or termination requirements were met.\u00a0 The Defendant never declared the subcontractor to be in default, never terminated the subcontractor, nor paid the contract balance to the Plaintiff to complete the work.\u00a0 In fact, the Defendant admits in its response that it, “did not declare [subcontractor] in default, did not terminate the Subcontract, and continued to administer the Subcontract substantially as it had before the Pre Default meeting, with a few additions.” The Court stated that, \u201cThere can thus be no dispute that [Defendant] never allowed [Plaintiff] to mitigate its damages by arranging for the completion of the subcontract itself. By depriving\u00a0[Plaintiff]\u00a0of its completion options,\u00a0[Defendant]\u00a0materially breached the bond.\u201d<\/p>\n
In its ruling, the Court found that the Defendant failed to comply with the terms of the bond and as a result the Plaintiff was not liable for the nearly $1 million demand.<\/p>\n
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