New AIA Bond Form More Favorable to Claimants
Construction Law Newsletter June 1, 2016
Many bond forms are utilized in the construction industry, but one of the most frequently encountered is the AIA A312 bond form.
Bonding companies have enjoyed protection by virtue of requirements in the A312 bond form as it contains a number of conditions that must be satisfied by an owner-claimant before a performance bond claim can be properly perfected. These conditions include timely notice, request for a meeting and other requirements that can prevent a recovery if not satisfied.
For example, in Granger Const. v. TJ, LLC, 21 N.Y.S. 3d 491 (2015) an owner forced to close a hotel because of a malfunctioning fire alarm system was barred from recovery because it failed to give prior notice and hired others to fix the work before properly notifying the contractor and surety. Arguments by the hotel owner that its failure to comply should be excused by the exigent circumstances did not prevail.
But the most recent A312 form – 2010 version – contains a new Section 4 which says that the surety cannot be released for a failure to satisfy such conditions “except to the extent the Surety demonstrates actual prejudice.” This means that in the future sureties should not expect relief from technicalities unless the failure(s) by the claimant caused actual prejudice to the surety’s rights.