With Payment Bond Claims, Different Rules Apply to the Bond Claimant and the Surety

Construction going on in the city.

As previously discussed in this Blog, Conn. Gen. Stat. § 49-41 requires each general contractor on a public works projects valued over $100,000 to post a payment bond that guarantees payment to the general contractor’s subcontractors and suppliers.  The payment bond also guarantees payment to each subcontractors’ sub-subcontractors and suppliers.

The procedure by which such subcontractors, sub-subcontractors, and/or suppliers may make claim against such payment bonds is described in Conn. Gen. Stat. § 49-42.  With the exception of claims for retainage, the statute requires those making claim on the payment bond to submit their “notice of claim” within 180 calendar days after the last day that it worked and/or supplied materials.  The statute then provides the surety that issued the payment bond with 90 calendar days to pay or deny the claim.  Until recently, both time provisions were mandatory.  See Barreira Landscaping & Masonry v. Frontier Ins. Co., 47 Conn. Supp. 99, 110, 779 A.2d 244, 252 (Super. Ct. 2000)(holding that both the notice of claim and the surety’s response both much be made within the time specified by statute.)

With regard to the 90 day time limit, the court in Barreira Landscaping & Masonry stated that “[t]he surety’s failure to act within the prescribed ninety day period was equally illegal and the plaintiff is entitled to the relief sought in its notice of claim.”  Id. at 111.  That decision was consistent with court decisions which have held that a the failure of a subcontractor or supplier to submit a notice of claim within the required 180 calendar days barred the subcontractor or supplier from being able to recover against the payment bond.  However, a recent decision by the Connecticut Supreme Court, created a disparity in these results in situations where the surety failed to meet the statutory deadline.

In Elec. Contractors, Inc. v. Ins. Co. of State, 314 Conn. 749, 104 A.3d 713 (2014), the Connecticut Supreme Court abrogated the decision in Barreira Landscaping & Masonry with regard the surety’s obligation to pay or deny a claim within 90 days.  According to Elec. Contractors, Inc. , a surety that does not pay or deny the claim within 90 calendar days does not waive its right to assert defenses or contest the merits of the claim being asserted against the payment bond.  In making its decision, the Supreme Court addressed the issue of the disparity it was creating but justified that result on the grounds that a bond claimant and the surety are not similarity situated under the statute.  Specifically, the court stated that the reason that the bond claimant’s notice of claim must be submitted within 180 days is to allow the surety to become aware of the claim before it would no longer be able “to gather facts, evidence, and witnesses necessary to afford a fair defense.”  Id. at 768.  Moreover, the Court noted that the bond claimant merely has to present its own version of the facts within the original 180 days but the surety initially has almost no information and needs to conduct an investigation before it can respond.  Id. at 769-70.  In addition, the statute provides the surety with a potential penalty for its noncompliance because, if the surety failed to pay the claim in bad faith, then the bond claimant may be able to recover its attorneys’ fees and costs.  Id. at 771.

In light of the foregoing, the Court’s rationale for the disparate treatment of sureties and bond claimants makes sense.  However, payment bond claims remain a highly technical area of the law where, in certain instances, exact compliance with a statute is required.

If you have any questions or need assistance with a payment bond claim, please give me a call at (860) 760-3317.

Scott Orenstein