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Surety Law & Construction Law

Landmark Cases

Surety Law Experts 

When it comes to construction and surety law, we are one of the nation’s leading experts. Here are some of the landmark cases we’ve had the privilege to be part of. 

Balboa Insurance Company V. United States, 775 F.2d 1158 (Fed. Cir. 1985).

The Court of Appeals for the Federal Circuit was created to hear appeals from patent cases tried in the various district courts, as well as all appeals from certain specialized federal courts such as the Claims Court. Accordingly, for all practical purposes, the Federal Circuit is the final word on federal contract law, which is accepted as a benchmark for many other jurisdictions. The Balboa case presented the Court’s first opportunity to consider the Government’s duty, as owner on a construction contract, to protect the surety’s interest in contract funds if reasonably possible. The trend in pre-Federal Circuit appellate decisions had been to increasingly limit the Government’s obligation to the point of extinguishing it. However, the Federal Circuit was persuaded to reverse this trend, rendering one of the most-cited decisions in surety law today. The case firmly re-established the surety as an intrinsic but distinct party in the web of contractual relationships created by contract and bond and reaffirms a duty on the part of the Government to the surety to consider and protect the surety’s right to contract funds.

A. J. Kellos Construction Co. V. Balboa Insurance Company, 661 F.2d 402 (5th Cir. 1981).

The defendant surety exercised rights giving rise to a discharge sometime after a declaration of default, but before all of the obligee’s damages were known. The Court of Appeals held that the surety’s rights accrued as of the date of the default, and sustained the surety’s discharge. This case held for the first time that compensated sureties are entitled to certain statutory protection formerly only accorded uncompensated sureties.

Morrison Assurance Company, Inc. V. United States, 3 Cl.Ct. 626 (1983).

The plaintiff surety claimed that, although there was no formal default of its principal, it was a de facto completing surety by virtue of its financing arrangement with the principal. The Claims Court held that the fact that the surety left on-site supervision to the contractor, which had defaulted under its indemnity agreement, did not preclude a determination that the surety had taken over completion of the project so as to preclude the government from setting off the contractor’s tax deficiency from contract proceeds payable to the surety. Accordingly, a surety involved in financing its principal was held to have, nevertheless, incurred such costs as a completing surety and was entitled to the equitable subrogated rights of a completing surety.

Allstate Ins. Co. v. Hamler, 247 Ga.App. 574 (2001): 

Insurer suspected fraud regarding homeowner’s insurance claim based upon initial investigation.  Insurer asked the insured to submit to an examination under oath and to provide documentation regarding the claim and regarding her financial status, in order to investigate a motive for fraud.  Insured refused to submit certain financial information.  Court held the insured’s failure to provide material financial information was a breach of the contract of insurance and relieved insurer of obligation to pay homeowner’s insurance claim.

Giardello, et al. v. Balboa Insurance Company, 837 F. 2d 1556 (11th Cir. 1988).

The plaintiffs, in this case, were trustees of labor union fringe benefit trust funds. Amongst the plaintiffs’ contentions was that a bonding company was automatically an “employer” of its principal’s employees, as that term is defined by federal statute, for purposes of determining direct liability for unpaid trust fund contributions. The Court of Appeals was persuaded that a surety on a contract bond would not be considered a statutory employer of its principal’s employees, solely because of its status as surety.

Commercial Casualty Insurance Company v. Carothers Construction Company, Civil Action No. 91-227-2-MAC(DF) (M.D. Ga., January 21, 1992).

Obligee initiated arbitration with the principal on contract bond but did not make surety a party. Obligee did, however, notify surety of proceedings and that obligee would consider surety bound by result. Surety filed declaratory judgment action seeking determination that adverse award against principal would not be conclusive as to surety. District Court agreed that, under Georgia law, a judgment against a principal on a contract bond would not be conclusive as to the surety’s liability.

Amwest Surety Insurance Company v. Republic National Bank, 977 F.2d 122, 18 UCC Rep. Serv.2d 843 (4th Cir. 1992).

Surety was secured by a letter of credit. Surety drew down the entire amount of letter of credit, but, at the urging of the principal, returned part of the funds to issuing bank to be “put back into” letter of credit. Bank later refused to pay, arguing that it had fully performed. District Court granted summary judgment to Bank, but Court of Appeals reversed, holding that Bank had been unjustly enriched.

Amwest Surety Insurance Company v. Ernst & Young, 677 So.2d 409 (Fla. Dist. Ct. App. 1996).

The firm obtained reversal on appeal of a summary judgment that had been granted the defendant accounting firm. The case established that an accountant may be liable to a surety for negligence in preparing an audited financial statement if the accountant knows that the statement will be used to obtain bonds and if the surety does in fact issue bonds in reliance upon the statement. This case is the first reported case in Florida holding that an accountant may be held liable to a surety for negligence in connection with the preparation of audited financial statements for the surety’s principal.

Gulf Insurance Company v. GFA Group, Inc., 554 S.E. 2d 746 (Ga. App. 2001).

On appeal from a grant of summary judgment against the surety, the surety asserted that a payroll services company, which advanced money for payroll to a contractor on a public project, was not a proper claimant on a payment bond. The claimant payroll services company was granted summary judgment at the trial court level claiming that it had provided “labor” to the project. The Court of Appeals agreed with the surety, holding that the provision of administrative services and lending funds do not amount to the provision of labor under the bond and applicable Little Miller Act statute. This was a case of first impression under the Georgia statute.

Kvaerner Construction, Inc. v. American Safety Casualty Insurance Co., 847 So.2d 534, (Fla. App. 2003).

A Florida appellate court considered for the first time whether the general contractor could recover from the surety of a subcontractor for breach of its obligations under the performance bond, when the subcontractor was not licensed, as required by Florida law, to perform the work, and the general contractor knew the subcontractor was not licensed, but allowed it to perform the work contracted for anyway. Under the Florida statute requiring certain subcontractors to obtain licenses for work, any contract with an unlicensed contractor was deemed void and unenforceable. The Fifth District Court of Appeals for the State of Florida held that because (1) the general contractor knew the subcontractor was unlicensed, (2) a license was required for the work covered by the performance bond, and (3) any contract with an unlicensed contractor and/or subcontractor is void and unenforceable as a matter of public policy, the general contractor could not indirectly recover on a void contract under the performance bond generally guaranteeing the contract.

Experience

Why Choose Thompson Law Group?

Choosing the right lawyer can be an anxiety-provoking experience, but when it comes to our practice areas, you can rest assured your case is in excellent hands. Here are the best reasons for calling the attorneys at The Thompson Group.

Experience– With more than 40 years of negotiations and litigation experience, you won’t find many lawyers in the country with more experience in construction law and surety law. Our attorneys have participated in landmark decisions.

Expertise– Whether you are dealing with a construction law case, a medical malpractice claim, a case against an insurance company, or a personal injury case, you want attorneys with the legal expertise to handle your case. We have the legal minds that your case needs.

We’ve helped clients from all around the country. Right now, we’re working with clients on cases involving surety law as far away as California, Texas, New York, Florida, Washington, Illinois, Ohio, Pennsylvania, South Carolina, and North Carolina as well as all around Georgia. When you need attorneys who are experts at surety law, call the Thompson Law Group. We’re here to help.

 

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