Originally posted 2013-01-01 10:00:19.
In this economy, even the companies that provide bonding for construction companies may have financial difficulties, and even go into receivership. Recently, the U. S. District Court in Norfolk, VA decided an interesting case relating to an interestingly named project. In U.S. v. Western Ins. Co., the court considered the default of one such company, Western Ins. Co..
In that case the general contractor performing improvements to the Sea Mist RV Park at Dam Neck Annex (don’t you love the name of the Annex?) at the Oceana Naval Air Station, could not pay its subcontractors. Of course, the subcontractors made a Miller Act claim against the bond on the project and the surety, Western. Unfortunately for Western, it was in receivership. While the liquidator, the Utah insurance commissioner, attempted to intervene, Western failed to respond. Additionally the liquidator admitted to the amounts owed.
This last was a deadly combination. The U. S. District Court held the surety in default and set damages at the admitted amounts. In short, the fact of receivership did nothing to preclude the subcontractors from pursuing their claim.
The take away from this case is that the economy and news of sureties having issues should not, by itself, keep you from pursuing payment. That information is only one piece of the puzzle. While such news is not good, and it could affect collectability of the entire claim, don’t dismiss a claim out of hand. As this case shows, make sure that you contact and experienced construction attorney who can help you assess the risks and rewards of such actions.
What are your thoughts on this? I would love to hear from you.
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