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Construction Law: Verdict against Surety Exceeds $1 Million in Favor of Property Owner

In December 2011, the Circuit Court of Maryland for Howard County awarded a Columbia, Maryland-based church an award of $1.165 million after its surety breached its contractual obligations to complete the project when the general contractor walked off the job. The property owner, First Baptist Church, purchased a surety bond from Fidelity & Deposit Company to ensure that the project, an 80,000 square foot church on Oakland Mills Road in Columbia, would be completed. During the course of construction, the general contractor went out of business and left the jobsite before completion of construction. The Church requested that the project be completed by the surety, who refused, claiming that the Church had breached its contractual obligations to the general contractor and was not entitled to the relief requested.

The primary reason owners purchase or require contractors to purchase surety bonds is to ensure both the payment and performance of work. In varying situations, however, the surety will seek to deny claims brought by any party seeking to enforce the contract. In this situation, the Court rejected Fidelity’s argument that the Church breached its contractual obligations by failing to comply with the general contractor’s demands for financial documents and found that the surety was responsible for completion of the project and any damages arising resulting from the surety’s delay to fulfill its contractual obligations.

From a practical perspective, owners and contractors obtaining surety bonds must ensure that they are in compliance with the terms of the contract to ensure they receive the protection that they have paid for. Conversely, sureties should ensure compliance with contractual obligations when all terms have been met.

For more information on performance or payment bond claims in Maryland, contact Michael W. Siri at siri@bowie-jensen.com.

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