{"id":901522,"date":"2023-08-21T14:25:58","date_gmt":"2023-08-21T20:25:58","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=901522"},"modified":"2023-08-21T14:26:02","modified_gmt":"2023-08-21T20:26:02","slug":"subcontract-performance-bond-how-bad-is-it","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/subcontract-performance-bond-how-bad-is-it\/","title":{"rendered":"Construction Litigation\u00a0Roundup: \u201cHow Bad Is It?\u201d"},"content":{"rendered":"\n

Daniel Lund III | Phelps Dunbar<\/a><\/p>\n\n\n\n

How bad is it? <\/p>\n\n\n\n

\u201cNot that bad,\u201d said an Illinois federal court to a surety which was complaining that its subcontract performance bond<\/a> terms had not been satisfied by the obligees on the bonds (the general contractor and the building owner).<\/p>\n\n\n\n

In response to $3.6 million demand by the obligees on the performance bond, the surety filed an action in federal court in Illinois seeking to have the court declare that the surety had no further obligation on its performance bond. The surety urged that the obligees had not fulfilled the prerequisite requirements in the bond to make a claim on the bond (which, although the court never identified the bond form, was a bond form that closely resembled the AIA A312-2010 performance bond).<\/p>\n\n\n\n

According to the surety, the obligees, after making their claim and upon demand of the surety, refused to \u201cprovide information or additional information required, which is integral to determine the validity of the claim.\u201d Additionally, the surety asserted that the obligees neither officially declared in writing a default of the subcontractor, nor terminated the construction contract \u2013 both requirements under section 3.2 of the bond. <\/p>\n\n\n\n

The court, however, struggled with the surety\u2019s arguments \u2013 not because the literal shortcomings alleged by the surety had not occurred, but because, under Illinois law, the court was concerned that the alleged failures of the obligees may not be \u201cmaterial\u201d defaults by the obligees. According to the court, it needed to examine both the \u201cintent of the parties\u201d with respect to the provisions with which the obligees did not comply, as well as \u201cequitable factors and circumstances surrounding the breach of the provision.\u201d <\/p>\n\n\n\n

The court went further: <\/p>\n\n\n\n

\u201cThe determination of whether a breach is material \u2018is a complicated question of fact involving an inquiry into such matters as whether the breach worked to defeat the bargained-for objective of the parties or caused disproportionate prejudice to the nonbreaching party, whether custom and usage considers such a breach to be material, and whether the allowance of reciprocal non-performance by the non-breaching party will result in his accrual of an unreasonable or unfair advantage.\u2019” <\/p>\n\n\n\n

In denying summary judgment sought by the surety, the court \u2013 disregarding arguments by the surety that other courts \u201cstrictly construe notice requirements in surety bonds\u201d \u2013 held that there were material facts in dispute concerning whether the defaults by the obligees were material: \u201c\u2026Defendants here presented evidence that they contend shows [that the surety] had actual or constructive notice of [subcontractor\u2019s] default and [the] replacement of [the subcontractor] on the Project 11 months before Defendants sought payment under the Performance Bond, such that any breach of the notice provisions in the Performance Bond was not material.\u201d In connection therewith, the court noted that, ordinarily: \u201c\u2026whether a breach is material generally should not be resolved at summary judgment.”<\/p>\n\n\n\n

Talisman Cas. Ins. Co., LLC v. Jenkins Env’t, Inc., 2023 U.S. Dist. LEXIS 102543 (N.D. Ill. June 13, 2023)<\/em><\/a><\/p>\n\n\n\n

\n\n\n\n

When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net<\/a>.<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Daniel Lund III | Phelps Dunbar How bad is it?  \u201cNot that bad,\u201d said an Illinois federal court to a surety which was complaining that its subcontract performance bond terms had not been satisfied by the obligees on the bonds (the general contractor and the building owner). In response to $3.6 million demand by the… Continue reading Construction Litigation\u00a0Roundup: \u201cHow Bad Is It?\u201d<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","enabled":false},"version":2}},"categories":[14],"tags":[9895,224,11939],"class_list":["post-901522","post","type-post","status-publish","format-standard","hentry","category-construction-2","tag-advise-consult","tag-construction-contract","tag-subcontract-performance-bond","entry"],"jetpack_publicize_connections":[],"yoast_head":"\nConstruction Litigation\u00a0Roundup: \u201cHow Bad Is It?\u201d - 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