Surety’s Site Access Limited after Denying Bond Claim

If a performance bond surety denies a claim under the bond, does it still have access to the site to investigate? A federal court judge has determined that there is no automatic right of access under those circumstances, crafting a regimen that allows limited, supervised access on advance notice.

The high-rise project is not yet complete. The mechanical sub was held in default, and demand made on the sub’s surety. The surety conducted an (unfettered) investigation, and then denied any obligation under the performance bond, arguing that the prime contractor may be responsible for the underlying problems. A lawsuit commenced, and the surety sought emergency relief for continued access to the ongoing work.

The US District Court Magistrate Judge noted that there appears to be no case law specific to this point, and only commentary in the Bond Default Manual (published by the TIPS Fidelity and Surety Law Committee of the ABA). The judge then stated: “once [the surety] denied [the GC]'s claim, [the surety]'s rationale for needing access to adjust the claim disappeared.”

However, since litigation had commenced, and the surety could pursue site access via discovery requests, the judge fashioned an order allowing limited and supervised access on advance notice. The case is Hunt Constr. Grp., Inc. v. Cobb Mech. Contrs., Inc., 2017 U.S. Dist. LEXIS 75532 (W.D. Tex., May 18, 2017) (LEXIS subscription required).