Washington Construction Law Blog : Washington Construction Lawyer & Attorney : Davis Wright Tremaine Law Firm : Serving Seattle, Spokane, Tacoma, Bellevue, Everett & Yakima

Under RCW 39.08.010, owners in public works jobs must require the contractor to purchase and maintain "a good and sufficient bond" from a surety to guarantee payment of labor, materials and services on the project.  If the owner fails to comply with this obligation, it is liable "to the full extent and for the full amount of all such debts so contracted by such contractor."  RCW 39.08.015.

What impact does the current credit crisis have on the operation of this statute?  Is a surety company providing a "good and sufficient bond" when that surety's A.M Best rating is itself potentially unreliable? 

In this current case, the plaintiff filed this opposition to a proposed bond from Western Surety (a subsidiary of CNA Surety) on the ground that nobody really knows if the surety is solvent or if it's "stale" Best's rating still holds water.

 

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Is a contractor's registration bond liable for the premiums the contractor is supposed to pay to maintain its workers compensation insurance?  The Alaska Supreme Court said no in a case that contains an interesting overview of of what's covered and not covered by such bonds. 

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What happens if the size of a surety bond is increased at some point in time, but the increase occurs after the breach which is insured by the bond? Does the increased bond apply to the preexisting breach or not?

Apparently not, according to a new Division 2 case. The contractor originally maintained a $6,000 bond but the amount jumped to $12,000 in July 2001 due to a legislative amendment. By that time, the principal on the bond (the builder) had already breached its contract to build a custom home. The homeowner obtained judgment against the builder in 2005 and argued that the surety bond in effect at the time of the judgment (the $12,000 bond) was liable.

The Court of Appeals rejected this argument:

Thus, the statute links any suit against the bond to the underlying claim when the contractor breaches by abandoning the work or by failing to remedy minor defects. In this statutory scheme, we look to the amount of the bond on the date of the breach.

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Our tour of scheduled Supreme Court cases now stops at this case, which involves some fairly dense issues of surety law - specifically, whether a surety's obligation to a contractor on a subcontractor's performance bond was conditioned on the contractor declaring a default before the subcontractor substantially completed the work. The Court of Appeals said no, holding the surety (ICW) was liable on the subcontractor bond even absent a formal declaration of default. Not exactly your everyday issue since a true default is ordinarily assumed, but interesting nonetheless.

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