ELECTRICAL CONTRACTORS, INC. v. INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA, SC 19105

United States District Court for the District of Connecticut

 Sureties; Whether a Surety’s Failure to Provide a Timely Response to a Claim on a Payment Bond Constitutes a Waiver of the Surety’s Defenses to the Claim Pursuant to General Statutes § 49-42.  In 2009, the defendant surety issued a labor and materials payment bond for the Morganti Group (Morganti), which was the general contractor on a public works project in Newtown.  The plaintiff entered into a subcontract with Morganti to provide labor and materials relating to the electrical work for the project.  Thereafter, the plaintiff submitted to Morganti a request for an equitable adjustment to the subcontract price, and after Morganti failed to respond to the request, the plaintiff sent a notice of its claim to the defendant.  The defendant requested additional information from the plaintiff to substantiate the claim.  The plaintiff provided the requested information, and the defendant responded that it intended to contact Morganti to ascertain its position on the claim.  The plaintiff then commenced an action in the United States District Court for the District of Connecticut, alleging that the defendant violated General Statutes § 49-42, which provides that an entity who has performed work on a public works project but who has not received full payment for such work may enforce its right to payment under the payment bond.  Section 49-42 further provides that “[n]ot later than ninety days after service of the notice of claim, the surety shall make payment under the bond and satisfy the claim, or any portion of the claim which is not subject to a good faith dispute, and shall serve a notice on the claimant denying liability for any unpaid portion of the claim.”  The plaintiff filed a motion for summary judgment, arguing that it was entitled to the full amount of its payment bond claim because the defendant failed to either pay the claim, deny the claim or raise a good faith dispute to the claim within ninety days of its receipt of the plaintiff’s notice of claim as required by § 49-42.  The plaintiff maintained that § 49-42 is a waiver provision whereby a surety’s failure to respond appropriately to a claim within the ninety day period constitutes a waiver of the surety’s substantive defenses to the claim.  The defendant filed its own motion for summary judgment, contending that § 49-42 does not impose any penalty for the failure to comply with the ninety day deadline and that it instead permits a claimant to file a lawsuit upon the expiration of the ninety day period to recover payment on the bond plus interest and attorney’s fees.  The District Court determined that the issues that had been raised by the motions for summary judgment should be certified to the Connecticut Supreme Court.  The Supreme Court subsequently accepted the following questions pursuant to General Statutes § 51-199b: “(1) (a) Is a surety’s failure to meet the 90 day deadline under § 49-42 deemed to be an exhaustion of remedies entitling claimants to bring suit for an adjudication of their claim or (b) Does the failure to meet the 90 day deadline operate as a waiver of a surety’s defenses directing the court to enter judgment for the claimant in the full amount of the claim?  (2) Does a surety’s request for further information to substantiate a claim constitute: (a) a ‘denial’ of the claim under § 49-42, or (b) a ‘good faith dispute’ of the claim under § 49-42?”