When a Court Doesn’t Understand Surety Bonds

It was only a $6,000 bond and not a construction case, but the Massachusetts Supreme Judicial Court unfortunately demonstrated its ignorance of surety bonds, showing how a case can be messed up when the court doesn’t understand the principles.

In Massachusetts, medical malpractice cases must be presented to a “malpractice tribunal” before proceeding. If the tribunal finds an inadequate basis for the claim, the plaintiff can continue the case only after “filing bond in the amount of six thousand dollars in the aggregate secured by cash or its equivalent . . .” Mass. Gen. Laws c. 231, § 60B. People familiar with surety bonds will not find anything unusual in that sentence; most bonds are, typically, secured by cash or something the surety believes is suitably equivalent.

Enter the SJC:

we turn to the question before us: whether a surety bond in the amount of $6,000 (which, as best we can tell from the record before us, [the plaintiff] obtained for $120) satisfied the requirement of the statute that a plaintiff wishing to proceed after a tribunal has found in favor of a defendant must file “bond in the amount of [$6,000] in the aggregate secured by cash or its equivalent.” We conclude that it does not.

It would appear that the plaintiff’s error (from the court’s perspective) was in obtaining a bond without posting 100% cash collateral. But that is not what the law requires. Further compounding the issue, the SJC completely read the phrase “secured by” out of the statute, getting into a discussion about whether a $6,000 bond is the equivalent of cash, instead of examining whether it was secured by cash (or its equivalent). The SJC either didn’t understand the nature of surety bonds, or it chose to ignore the plain language of the law.

The outcome? The Massachusetts high court has held that a $6,000 surety bond that may have cost the bond principal much less than $6,000 – which any knowledgeable contractor would expect – doesn’t satisfy the requirement to post a $6,000 bond. Sound crazy? It is.

The case is Polanco v. Sandor, 480 Mass. 1010, 2018 Mass. LEXIS 553 (Aug. 13, 2018) (courtesy of Lexis).