Surety Bond Claims: Communication Is Key

The surety bond industry is a quirky one. Should you already have bonds or foresee needing bonding in the future, it’s important to have good communication with your surety company. Poor communication can bring about avoidable lawsuits just like it did for a couple of condominium complexes in New York City.

Two privately owned condominiums, East 49th St. Dev. II, LLC, located at East 49th Street, NYC and 250 East Borrower, LLC, located at 250 East Borrower, NYC hired a contractor by the name of Prestige Air & Design, LLC to perform HVAC work in the buildings. Prestige Air & Design was required to obtain a payment bond and a performance bond coming to a sum of $2,085,000 in order to guarantee the project. East 49th Street claims that Prestige Air & Design did not satisfy the contract due to negligently installed drains, joints, and pipes. A letter was sent by 250 East Borrower to Prestige Air & Design, LLC and stated that they had not fulfilled the construction contract and if, not corrected, measures would be taken to complete the work another way; but the letter was addressed to Prestige and was not sent to First Sealord Surety, Inc., the surety who wrote the bonds.

Once the condominium complexes and the surety were on the same page, First Sealord requested that East 49th Street send the “Proof of Claim Bond Obligee Affidavit” and all documentation supporting their claim. First Sealord stated that failure to provide documentation for the claim investigation may result in the claim being denied. The claim was indeed denied as a result of East 49th Street failing to include the contact information, project name, bond number or any documentation supporting its claim for completion. In the end, the case was dismissed against First Sealord.

Dealing with construction contracts and especially bonds of this size, it’s important to keep open communication with the surety company who wrote the bonds. There is a very specific process for the investigation of bond claims and if that process is not followed, it can result in a claim denial and cause unnecessary and costly litigation.