Bonding Company Pays for Its Inaction

Kegler Brown Construction Newsletter

A recent case out of Maryland, called National Fire Ins. Co. v. Wadsworth Golf Constr. Co., gives subcontractors and suppliers greater leverage in getting paid under payment bonds. Most states, including Ohio, has a statutory waiting period (Ohio is 60 days) where a bond claimant can take no action on the claim. This period was created to give the bonding company time to investigate the claim but often is used by the bonding company to do virtually nothing but delay the ultimate recovery.

In this Maryland case, the Court granted summary judgment on the sub's $720,000 payment bond claim ruling that the bonding company waived its defenses to the claim because it failed to respond timely (within the 45 day period under the AIA A312 bond form). The Court expressly found that the bonding company had a duty to act reasonably and timely and recognized that "as a practical matter, the suppliers and small contractors on large construction projects need reasonably prompt payment for their work and materials in order for them to remain solvent and stay in business."

This case may be used by payment bond claimants to encourage bonding companies to timely deal with their claims or face dire legal consequences.