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Philadelphia Surety Blog

Construction Group Partner Josh Quinter to Speak at MetalCon 2016

We are excited to announce that Josh Quinter, a partner in our construction practice group, will be speaking at MetalCon 2016. He will be presenting his program entitled "Documenting Your Project to Get Paid" on both October 26, 2016, and October 27, 2016, to a national audience of owners, contractors, subcontractors, and suppliers in the metal building industry.

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MetalCon is an annual gathering of professionals in the metal building industry. It includes course and program offerings on a multitude of subjects, floor exhibits to introduce new technologies and ideas in the industry, and networking opportunities to meet some of the most experienced and knowledgeable people in the industry.

Josh has become a regular on the speaking circuit because of his unique ability to explain complex issues in simple terms and then provide practical applications for the information offered in his programs. He has been asked to speak on a wide range of topics from leadership to project management to various construction law issues. We are certain the attendees will find his most recent offering both enlightening and entertaining.

Get Ready For Our Fall Seminar Series!

On the heels of our successful Spring Seminar Series, Kaplin Stewart's Construction Law Group is in the process of planning its next program offering. Our Fall Seminar Series will follow a similar set-up to our Spring Seminar Series and offer some great new topics. We will have another announcement in the near future with more details, but here are some of the particulars.

Week of September 12, 2016

Robert Korn and Kevan Hirsch will provide some valuable information on Mechanic's Lien Claims, including the soon to go into effect changes to that law.

Week of October 3, 2016

Andy Cohn and Sandy Feltes will share their insights on how insurance coverage works for construction defect claims.

Week of October 24, 2016

Bill Auxer and Karin Corbett will walk attendees through the OSHA citation process and how the administrative "court system" works when citations are challenged.

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It should be another great series of programs full of a lot of new and useful information. We hope you will start making plans to come out and join us!

Subcontractor Default Insurance Versus Surety Bonds

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

Although it's hardly a new product at this stage, the introduction of Subcontractor Default Insurance ("SDI") is much more recent than the use of surety bonds. Many of the very large general contractors are now using SDI because it allows them to control the claims process a bit more. These policies, while useful, should not be confused with surety bonds though. There are some important distinctions between the two that are worth noting.

Performance Bond.gifThe first difference between the two is that SDI does not guarantee completion of the work. When bonds are required on a project, the bond package often includes a performance bond. This type of surety bond is, as its name suggests, a promise by the surety to make sure the project work gets completed. An SDI policy will cover the damages caused by a defaulting subcontractor; but there is no component guaranteeing the project will be completed.

A second difference is that SDI usually comes with some sort of deductible. This is because it is, in the end, insurance. As such, it is written like a typical insurance policy with a similar claims structure. These deductibles can vary depending on the size of the policy, but they nonetheless exist. A surety bond has no such deductible.

What is a General Agreement of Indemnity and How Does It Work?

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

For those who work in the world of construction sureties, General Agreements of Indemnity - or GIA's as they are called - are a normal part of the process. For those unaccustomed to how sureties operate and how they differ from insurance companies, they are as foreign as an unfamiliar language. Here's a quick primer on GIA's and how they work.

indemnity.jpgThe first key to understanding General Agreements of Indemnity is to recognize that a surety bond is not insurance. In fact, in many respects it's nothing like it. Insurance is a premium based system that allows a company to prepay for liability risks in the event someone is hurt on a job or there is property damage. A surety bond is a wholly business transaction by which the surety is extending credit and/or vouching for its principal. To put it in perhaps slightly more simple terms, the surety is agreeing to co-sign for the contractor's financial viability.

With this in mind, sureties vet the companies to whom they issue bonds carefully. In essence, they want to know whether that principal has the wherewithal, financially and otherwise, to complete the project which is being bonded. Once they are satisfied that they can "vouch" for the principal/contractor they will typically issue the bond. Before doing so, the sureties typically ask the principal for something too though.

On Memorial Day, We Remember

At Kaplin Stewart, we recognize that America is great because of the people that serve her and its people. Those who work in the military, the police, and as firefighters are among our nation's finest. They put their lives on the line every day to protect us all - asking for very little in return. Some - who we especially remember on Memorial Day - pay the ultimate sacrifice by laying their lives down in the line of duty. For that, we are eternally grateful. We could never repay that debt. Thank you for your service and sacrifice.

Unique "No Damages for Delay Clause" Not a Defense for Surety

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

The United States District Court for the Northern District of Maryland recently considered an argument by Hartford Accident and Indemnity Company that it was exempt from paying a portion of a payment bond claim as a result of a no damages of delay clause. In deciding the issue, the Court determined that the clause was enforceable but did not preclude recovery against the surety.

The case arose out of an agreement between the Army Corps of Engineers and James W. Ancel, Inc., to build an Army reserve center in Baltimore, Maryland. Ancel then subcontracted the HVAC work to a separate contractor named Chasney & Company. After it was not paid, a payment bond claim was brought for change order work and delay damages incurred and for which Chasney alleged Ancel had been paid by the government.

Can a surety be liable for violation of the bad faith statute in Pennsylvania?

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

The issue of whether a surety can be liable for violating Pennsylvania's bad faith statute is one that often comes up in construction cases. Aside from the fact that bonds - and thus sureties - are most commonly found in construction cases, the remedy of treble damages and attorneys' fees (mostly the second part) are attractive to litigants. Although there is very limited case law on the issue in the Pennsylvania courts, the answer to the question is presently no.

For a careful analysis of the matter, you can read the opinion of the United States District Court for the Eastern District of Pennsylvania in Upper Pottsgrove Township v. International Fidelity Insurance Company here. Summarized succinctly though, the Court held that surety bonds and insurance policies are not the same things and are designed to cover different risks (for more on the distinctions, you can check out our previous blog post on the subject). Because the bad faith statute is designed to cover insurance policies and the claims against them, the bad faith statute does not include the very different world of sureties.

Bad faith claims - as opposed to common law claims for breach of the duty of good faith and fair dealing - tend to be statutorily based. While the statutes in other states may have different definitions and therefore broader interpretations available to litigants, Pennsylvania's statute is narrow enough that there is not likely a way to make a bad faith claim against a surety. The only way this could be changed would likely be by amending the current statute or adding a new one. Without that though, claimants will likely not see any success on bad faith claims against a surety in Pennsylvania.

Lexon Surety Group Purchased

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

Lexon Surety Group, a privately held insurance holding company that underwrites approximately $135 million in bond premium annually, is now wholly owned by Ironshore, Inc. Ironshore already held a 20% interest in Lexon before purchasing the remaining 80% in an all cash transaction.

Lexon Logo.pngAccording to Ironshore and its parent company, Fosun International, the purchase is part of a long term plan to broaden Ironshore's product offering by entering the surety market. As part of the acquisition, Ironshore will add Lexon's contract surety bond line, commercial surety bonds, and court and probate surety bonds to its arsenal of services. Ironshore already provided quota share reinsurance and some limited capability to handle commercial and contract surety risks.

While not one of the "big" players in the surety market, Lexon's assets are not insignificant. Its acquisition confirms the ongoing consolidation of the insurance and surety markets.

Villanova Was Philly Strong

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

The City of Philadelphia and its people take a great deal of pride in any number of things - and rightly so. From great food and fantastic culture to a history older than America itself, there is so much to appreciate about the place we call home. But ask any Philadelphian what they are most proud of and they will tell you, perhaps in their own way, it's the City's indomitable spirit.

Villanova logo.pngLast night, the Villanova Wildcats men's basketball team embodied that spirit and showed it to the world. The North Carolina Tarheels were bigger, faster, and more talented according to all the pundits. To be fair, no one claimed Villanova did not belong in the title game; but most thought the coronation of North Carolina was imminent. They were just too good.

But the people that had the most to say about that - the Villanova players - had yet to have their say. And did they ever have their say.

The Berks Products Case Nearly 3 Years Later

Posted by:  Josh Quinter  (jquinter@kaplaw.com)

Almost 3 years ago, we reported on our construction law blog about a Pennsylvania Commonwealth Court decision that changed the landscape of surety law in Pennsylvania. Given the immense amount of discussion the decision created among construction surety professionals at the time, we thought it would be instructive to provide an update on what the Courts have done with the Berks Products decision since it was initially handed down.

By way of brief review, Berks Products was a supplier to a subcontractor on a Pennsylvania public construction project. It made a claim for payment against a bond issued by Arch Insurance Company for the project. The general contractor maintained that it had paid the subcontractor in full, including all amounts claimed by Berks Products. Even Berks Products, as the claimant, agreed that the general contractor had paid the subcontractor. Arch argued that it was protected by the "safe harbor" provision provided for in Pennsylvania's Little Miller Act and mirrored in the bond itself.

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