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PITTSBURGH – A surety bond issuer alleges it was damaged by several contractors/subcontractors because of a breach of indemnity agreements. Developers Surety and Indemnity Co. (Amtrust) filed a complaint on Oct. 19 in the U.S. District Court for the Western District of Pennsylvania against Iron City Constructors Inc., Iron City Constructors Inc. as general partner of MV Holdings, Chrisellie Corp., et al. alleging breach of contract, breach of indemnity agreement and other counts. According to the complaint, the defendants were either general contractors or subcontractors for projects in Pennsylvania. The suit states the defendants applied for surety credit from the plaintiff in 2009 and 2011. The plaintiff holds Iron City Constructors Inc., Iron City Constructors Inc. as general partner of MV Holdings, Chrisellie Corp., et al. responsible because the defendants allegedly breached their contractual agreement with the plaintiff by failing to indemnify, exonerate and save the plaintiff from loss and reimburse it as demanded. The plaintiff seeks damages, court costs, interest and any further relief the court grants. It is represented by W. Alan Torrance Jr. of Dickie, McCamey & Chilcote P.C. in Pittsburgh. https://pennrecord.com/stories/511254202-developers-surety-and-indemnity-co-seeks-damages-over-alleged-breach-of-indemnity-agreements

A construction subcontractor that was not fully paid and whose claim on a surety bond was denied had its case heard Tuesday before the Supreme Court of Canada. In 2009, Langford Electric Ltd. subcontracted directional drilling work to Valard Construction Ltd. on a Suncor Energy oil sands project near Fort McMurray, Alta. Langford was a subcontractor for Bird Construction Company, Suncor’s general contractor. Langford’s contract with Bird required Langford to obtain a bond. Langford’s surety was the Guarantee Company of North America, which in 2008 issued a $659,671 surety bond with Langford as principal and Bird as obligee. “Generally labour and material payment bonds are a form of risk management directed at mitigating the financial risks associated with non-payment,” Bird Construction wrote in a factum to the Supreme Court of Canada. “Labour and material payment bonds require the Surety who issued the bond, to pay unpaid suppliers of labour and material in the event of the Principal’s default, thereby keeping the construction project free from liens and minimizing delay.” Bird had been sued by Valard, which claims that Bird “had a fiduciary duty” to inform Valard of the existence of the bond. Valard had not been paid in full by Langford and tried to make a claim on Langford’s surety bond. In 2010, Valard obtained a default judgement of $660,000.17 against Langford. The Guarantee denied Valard’s claim because it had not provided timely notice. In a ruling released Feb. 27, 2016, Justice Gerald Verville of the Alberta Court of Queen’s Bench ruled that Bird was not obliged to provide notice to Valard of the existence of the bond, which “expressly states that the obligee is not obliged to do or take any act, action or proceeding against the surety on behalf of any of the claimants to enforce the provisions of the bond.” The bond does provide that “claimants may use the name of the obligee to sue on and enforce the provisions of the bond.” Justice Verville’s ruling in favour of Bird Construction was upheld in 2016 in a divided ruling. Valard appealed to the Supreme Court of Canada, which heard the case Nov. 7, 2017. “On April 19, 2010, Valard made an inquiry of Bird as to whether there was a Bond,” Justice Verville wrote in 2015. “Bird responded in the affirmative and provided contact information for GCNA. Valard submitted its claim to GCNA on April 19, 2010, which claim was denied on June 14, 2010.” Valard commenced an action against The Guarantee in 2010 but filed for discontinuance in 2013. The Alberta Court of Appeal ruling in favour of Bird “requires a finding that the legislature determined that trustees under labour and material payment bonds (which are usually the owner or the general contractor) should be free of any obligation to try to notify those below them of the existence of the Bond except on Public Works projects,” Valard wrote in its factum to the Supreme Court of Canada. “This is a fallacy. The legislature’s decision to provide lien claimants with rights to information and to mandate posting of bonds on government projects in no way shows a ‘legislative intent’ to free owners and general contractors from duties that arise from the law of trusts.” Two of the three Alberta appeal court judges ruled that Valard “had the means,” under the Alberta Builders’ Lien Act, to “legally compel” Bird to provide information about a bond. Valard “remained ignorant of the existence of its entitlement to claim under this specific labour and material payment bond” because it “elected not to make inquiries, all the while knowing that such inquiries would definitively confirm or refute the existence of a bond,” Justice Frederica Schutz of the Alberta Court of Appeal wrote on behalf of herself and Justice Patricia Rowbotham, in their 2016 ruling. Dissenting was Justice Thomas Wakeling. “As a general rule, if a beneficiary or a potential beneficiary would derive a benefit from knowing that a trust exists and the criteria identifying a beneficiary, a trustee must undertake reasonable measures to make available to a sufficiently large segment of the class of beneficiaries or potential beneficiaries information about the trust’s existence and the criteria identifying a beneficiary,” Justice Wakeling wrote, adding “the costs of a communications strategy designed to bring the bond’s existence to the attention of all undertakings that did business with Langford Electric was relatively low.” Bird argued that the surety bond “has certain unique characteristics which distinguish it from a business or reliance based fiduciary trust.” Under a surety bond, a claimant “has no absolute entitlement to be paid under a labour and material payment bond as any claim is subject to compliance with the notice requirements in the labour and material payment bond and the claim is subject to investigation and analysis by the surety,” Bird wrote. “It is an important and prudent practice, in the construction industry, for potential claimants to make a request as to the existence of a labour and material payment bond.” https://www.canadianunderwriter.ca/construction/supreme-court-canada-hears-surety-bond-dispute-1004123404/

United States of America vs Walsh Construction Company II, LLC, Walsh Global, LLC and Travelers Casualty & Surety Company 1:2017cv04460 A Chicago-based contracting firm on Tuesday sued an insurance company and a surety bond provider for at least $6 million in D.C. federal court, alleging they failed to cover a subcontractor’s shoddy work on a hotel construction project in the Adams Morgan neighborhood of Washington. https://www.law360.com/insurance/articles/980455/contractor-files-6m-surety-bond-suit-over-dc-hotel-work

A United States District Court ruled that there are instances where a surety and its broker could face liability for its principal’s violation of the Federal Government’s False Claim Act. In United States ex rel. Scollick v. Narula, 2017 WL 3268857 (July 31, 2017), an individual whistleblower brought an action under the False Claims Act alleging that construction companies, their principals, sureties, and others participated in fraudulent schemes to obtain set-aside government contracts. The principals had obtained the government contracts in question by submitting performance and payment bonds issued by various sureties. At least in part, the whistleblower relied on a theory of “indirect presentment” and alleged that the sureties’ and broker’s actions led to the submission of false claims, and continued to do so upon becoming aware of the principals’ fraudulent activity. The principals’ sureties and their broker sought to dismiss the case at an early stage, but the Court found that there were sufficient allegations that the sureties and broker knew or should have known the principals were fraudulently asserting their status as a service-disable veteran-owned small business. Whether the allegations against the sureties and the broker are ultimately proven remains to be seen, as the case is still ongoing in the United States District Court of Columbia. However, the sureties and the broker continue to face significant exposure in the form of three times the damages sustained, which could include the economic benefit obtained by the allegedly fraudulent conduct. It should also be pointed out that the individual whistleblower is seeking to recover anywhere between 15% – 30% of the proceeds awarded to the government. This case serves as another example of the increasing scrutiny and exposure on those who stretch the requirements to obtain contracts under set-aside government programs, thereby negating the program’s fundamental purpose – which is to assist those targeted groups to increase their share in the marketplace. https://www.lexology.com/library/detail.aspx?g=06560f5b-9d5f-4bef-ba4f-44b387aa3049

Liberty Mutual has agreed to pay all cost overruns associated with delays in the completion of Clearfield Municipal Authority’s new waste water treatment plant, announced CMA Engineer Jim Balliet of Gwin. Dobson & Foreman. In May 2014 CMA began a $35 million project to construct its waste water treatment plant. But in early 2015, the original contractor, NVP of Jeanette, defaulted on the project. Liberty Mutual, who was the bonding company for NVP, took over the project and hired a new general contractor, Lobar Construction Services of Dillsburg, to complete the job. However, the default delayed the completion of the project by about a year causing cost overruns among several of the subcontractors. For example electrical contractor Church & Murdock incurred additional costs of $123,216 due to the delay. However, initially Liberty Mutual refused to pay the bill, and Church & Murdock threatened to walk off the job last year if they weren’t paid. CMA decided in June 2016 to pay the electrical contractor and litigate the matter with Liberty Mutual once the project was completed to avoid any more delays in the completion of the plant. Now that the project is done, Balliet said Tuesday that Liberty Mutual has agreed to pay all the costs associated with the delays as a result of NVP’s default. “It’s good news,” Solicitor John Ryan said. The final closeout from Liberty Mutual was $1.378 million, according to CMA Chairman Russell Triponey. Balliet also reported that Lobar is essentially done with all of its contract work and any work after this point would be under the two-year warranty. The CMA voted to make its final payments of $124,915.42 and $1,378,138 to Lobar and $93,817 to Church and Murdock to closeout the project. In other business, CMA Manager John Williams reported that the state Department of Environmental Protection has asked to have a training seminar for its water plant evaluators at the Moose Creek Reservoir. Williams said they agreed to host the training and in return the CMA will have both the Moose Creek Reservoir and the Montgomery Run Reservoir plant evaluations completed early this year by the DEP. http://www.theprogressnews.com/progress_news/liberty-mutual-settles-dispute-with-clearfield-municipal-authority/article_59d59eb6-de3b-5287-8aed-d693079e503a.html