S&S Paving v. Berkley Regional Insurance (CA1 5/12/16)

Holding that the issuer of a public payment bond can’t be sued for bad faith.

S&S was a subcontractor on a street-maintenance job for the City of Prescott. The general had obtained a payment bond, as required by the Little Miller Act (34-222), from Berkley. When S&S didn’t get paid it made a claim against the bond. Berkley asked for information and said it would investigate; its letters contained boilerplate to the effect that it was not waiving any rights. Nineteen months later, having heard nothing more, S&S sent another demand letter. But by this time – guess what? –  the statute of limitations on its claim had expired (34-223 specifically says one year) and so Berkley denied it. S&S sued for breach of contract and bad faith; the trial court dismissed both; S&S appealed the bad-faith issue.

The Court of Appeals affirms, declining to add bad faith to the statutory scheme. 34-222 says that “all liabilities on this bond shall be” determined by statute. “When a corporate surety undertakes an obligation on a bond pursuant to a specific statutory requirement, its liabilities are measured by the terms of that statute.” The statute provides an adequate remedy which S&S, by letting the statute run, failed to take advantage of. S&S had a somewhat analogous case but it involved a private performance bond, not this statute.

(Opinion: S&S v. Berkley)