Phony Surety Bond Costs Church Thousands

Construction work is full of risk being there is so much that can go wrong. A big risk relating to construction work involves the threat of deceitful contractors. Some contractors will go to great lengths just to get their foot in the door for a specific job and then wind up performing negligent work; surety bonds are helpful in these cases because they guarantee that work will be completed properly. Unfortunately for a church in Alabama, a phony bond was used for their renovations and plunged them into a costly lawsuit.

In Shelby County, Alabama a church named the Riverchase United Methodist Church filed a lawsuit against contractors who performed negligent work and provided a counterfeit surety bond for an addition to the church. The bogus bond may have slipped through the cracks if it wasn’t for the faulty work that was done by the contractor causing environmental pollution during the project. The contractor is C.E. Huffstutler and the Riverchase United Methodist Church filed a suit with Shelby County Circuit Court against them claiming that the contractor presented a fake $63,000 performance bond for the job supposedly written by American Southern Insurance Company. While the project was underway in March 2011 the Alabama Department of Environmental Management instructed the church to stop all construction because of water pollution violations by the contractor; this is when the validity of the bond began to be investigated. The Riverchase United Methodist Church tried to avoid a lawsuit but it seemed to be the only viable option since the safeguard that was already in place, the surety bond, was not legitimate.

“The church is really reluctant to file a lawsuit against somebody,” said Mr. Ross, the church’s attorney. “All we’re really looking for is to be made whole. There have been a lot of problems with the construction.”

Surety bonds are in place to guarantee something. In this case, it would guarantee that a construction contract would be completed properly; but if a contractor brings a falsified surety bond to the table, there’s a big risk involved should any problems with a project arise causing claims. Normally a surety company is financially backing the bonds they write. When a claim is filed on a bond for not following rules or in this case a contract, the surety will pay the claim to compensate for any damages. The surety will then go to the company who obtained the bond for reimbursement; since there was no bond written by the surety, this was not possible. It’s very important for the obligee (entity requiring the bond) to check on the validity of bonds once they are presented to them to avoid fraud.American Southern Insurance Company never issued a bond for C.E. Huffstutler so although it looked like there was protection for the project, the contractor just went over the surety’s head and there was nothing in place to shield the church from unprofessional or incomplete work.

With all of the shady businesses out there trying to get away with whatever they can to save a dollar it’s important to research the company you’re doing business with. Make sure they have a sound track record and if surety bonds are involved it’s important to make sure that any bonds claimed to be had are in fact authentic. If the proper steps aren’t taken, an avoidable lawsuit may be on the horizon.

Eric is the Chief Marketing Officer of JW Surety Bonds. With years of experience in the surety industry, he is also a contributing author to the surety bond blog. He has held a range of different roles within the surety industry, from agent assistant to bond issuer, which gives him a unique insider perspective on surety related topics.

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