Surety Bond Quarterly - Fall 2014 - 11

"When did you serve the notices?" "How did you serve
them?" "When was your last date of work?" "Was it
contract work or punch-list work?" These questions may
appear intolerably nitpicky, honing in on very specific
and seemingly arcane details. But rest assured that there
may be a very good reason for these questions. When it
comes to bond and lien notices, the details matter. They
really matter. Contractors, subcontractors, and suppliers
that miss the details can pay a severe price.
The Strict Compliance Trap
lien and bond laws vary from state to state and can be
complex and technical. one common characteristic they
all generally share is that they mandate strict compliance
in order to trigger a surety's obligation to pay on
the bond or a lienor's right to foreclose on the property.
Any deviance from the specific statutory requirements
laid out by the state legislatures, however minor, can
be fatal to bond and lien claims. Claimants that are not
careful risk losing their bond and lien rights in their
entirety. Every year, claimants across the country fall
into the strict compliance trap by making simple-and
avoidable-mistakes. The Minnesota Supreme Court's
decision in Safety Signs, LLC v. Niles-Wiese Construction
Co., 840 N.W.2d 34 (Minn. 2013), is a reminder of what
can happen to those who do not strictly follow the bond
and lien laws.
A Cautionary Tale: Safety Signs, LLC v.
Niles-Wiese Construction Co.
The City of owatonna, Minnesota (City) hired Niles-Wiese
Construction Company (Niles-Wiese) to construct a new
runway and taxiway. Niles-Wiese procured a payment
bond from Westfield Insurance Company (Westfield),
which agreed to be liable if Niles-Wiese
failed to pay its suppliers or subcontractors.
The City paid Niles-Wiese, but NilesWiese
defaulted in paying a subcontractor,
Safety Signs. Minnesota law requires an unpaid
subcontractor to give written notice to the general
contractor and its surety before commencing
a lawsuit asserting a payment bond claim, so
Safety Signs served its notice on both Niles-Wiese and
Westfield. When Westfield rejected the claim, Safety
Signs commenced litigation.
Unfortunately, Safety Signs made a crucial mistake
when it served its notices. Its notice to Westfield was
fine, but it mailed the notice to Niles-Wiese's address
listed on the subcontract rather than the address on
the payment bond. The two addresses were not the
same, and the applicable Minnesota statute specifically
required bond claimants to serve their notices on the
surety and general contractor "at their addresses as
stated in the bond." There was no question that Safety
Sign used the incorrect address. Safety Sign argued
that its substantial compliance with the statutory notice
requirement should be sufficient, but the court did not
buy that argument.
After examining the statutory language, the Minnesota
Supreme Court concluded that it left no room for interpretation.
The right to sue on a payment bond was granted
by statute, and the language of the statute required that
the claimant give proper notice to the general contractor.
Minnesota's statutory notice requirements were
unambiguous and required service at the address listed
in the bond as a condition precedent to filing suit. Thus,
allowing anything less than strict compliance with the
statute would thwart the clear scheme for bringing
an action on a public payment bond imposed by the
Minnesota legislature.
The practical outcome of the Safety Signs decision
is harsh. In sending its general contractor notice to
the wrong address, Safety Signs forfeited its entire
bond claim even though it had correctly notified the
surety. Therefore, Safety Signs had no cause of action
against the payment bond to remedy Niles-Wiese's
nonpayment and was left pursuing only Niles-Wiese
for payment.
Don't Become Another Victim
of the Strict Compliance Trap!
Cases like Safety Signs are a reminder of the pitfalls
that await inattentive bond claimants. But they also
serve as a powerful tool for sureties defending against
bond claims. Payment bonds are valuable remedies
for parties on construction projects. Aside from offering
another avenue to claimants looking for payment,
bond statutes often provide for successful parties to
recover their attorneys' fees and costs. The loss of bond
or lien rights can be devastating for a claimant trying
to receive payment. Conversely, sureties that are not
vigilant can end up paying large sums for claims that do
not strictly comply with bond statutes. It pays, therefore,
for both sides to be attentive to the current statutory
bond requirements in all of the jurisdictions in which
they work or issue bonds. Failure to strictly comply
with those statutory requirements-or, in the case of
sureties, failure to demand strict compliance-can be
a costly mistake.
●
Daniel M. Carrico is an associate in the Fort Lauderdale
office of the law firm of Smith, Currie & Hancock LLP,
www.smithcurrie.com. Carrico concentrates his practice
on all aspects of construction law, including the representation
of contractors, construction managers, major
trade contractors, sureties, architects and engineers.
Carrico can be reached at dmcarrico@smithcurrie.com
or 954-769-5324.
NatioNal assoCiatioN of surety BoNd ProduCers | WWW.NASBP.orG 11
http://www.smithcurrie.com http://WWW.NASBP.orG

Surety Bond Quarterly - Fall 2014

Table of Contents for the Digital Edition of Surety Bond Quarterly - Fall 2014

2014-2015 NASBP Executive Committee
NASBP Upcoming Meetings and Workshops
From the CEO: Successful construction relationships require the right relationship
Practical Insights: What you need to know - bond and lien notice pitfalls
SuretyLearn.org: An invaluable resource
Advocacy update
Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Guarantee Program changes for the better
Front Line Underwriting: Choosing a quality construction CPA
Getting in the weeds: Requirements of marijuana surety bonds
Encrypting email
It’s Finally Here: The new revenue recognition standard
CPAs standing in the GAAP
Resource Directory
Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover1
Surety Bond Quarterly - Fall 2014 - cover2
Surety Bond Quarterly - Fall 2014 - 3
Surety Bond Quarterly - Fall 2014 - 4
Surety Bond Quarterly - Fall 2014 - 5
Surety Bond Quarterly - Fall 2014 - 6
Surety Bond Quarterly - Fall 2014 - NASBP Upcoming Meetings and Workshops
Surety Bond Quarterly - Fall 2014 - From the CEO: Successful construction relationships require the right relationship
Surety Bond Quarterly - Fall 2014 - 9
Surety Bond Quarterly - Fall 2014 - Practical Insights: What you need to know - bond and lien notice pitfalls
Surety Bond Quarterly - Fall 2014 - 11
Surety Bond Quarterly - Fall 2014 - SuretyLearn.org: An invaluable resource
Surety Bond Quarterly - Fall 2014 - 13
Surety Bond Quarterly - Fall 2014 - Advocacy update
Surety Bond Quarterly - Fall 2014 - 15
Surety Bond Quarterly - Fall 2014 - Nov. 12-3 Conference addresses the twists and turns of best value selection - and other timely topics
Surety Bond Quarterly - Fall 2014 - 17
Surety Bond Quarterly - Fall 2014 - Surety Bond Guarantee Program changes for the better
Surety Bond Quarterly - Fall 2014 - 19
Surety Bond Quarterly - Fall 2014 - 20
Surety Bond Quarterly - Fall 2014 - 21
Surety Bond Quarterly - Fall 2014 - Front Line Underwriting: Choosing a quality construction CPA
Surety Bond Quarterly - Fall 2014 - 23
Surety Bond Quarterly - Fall 2014 - 24
Surety Bond Quarterly - Fall 2014 - 25
Surety Bond Quarterly - Fall 2014 - Getting in the weeds: Requirements of marijuana surety bonds
Surety Bond Quarterly - Fall 2014 - 27
Surety Bond Quarterly - Fall 2014 - Encrypting email
Surety Bond Quarterly - Fall 2014 - 29
Surety Bond Quarterly - Fall 2014 - 30
Surety Bond Quarterly - Fall 2014 - 31
Surety Bond Quarterly - Fall 2014 - It’s Finally Here: The new revenue recognition standard
Surety Bond Quarterly - Fall 2014 - 33
Surety Bond Quarterly - Fall 2014 - CPAs standing in the GAAP
Surety Bond Quarterly - Fall 2014 - 35
Surety Bond Quarterly - Fall 2014 - 36
Surety Bond Quarterly - Fall 2014 - 37
Surety Bond Quarterly - Fall 2014 - 38
Surety Bond Quarterly - Fall 2014 - Resource Directory
Surety Bond Quarterly - Fall 2014 - 40
Surety Bond Quarterly - Fall 2014 - 41
Surety Bond Quarterly - Fall 2014 - 42
Surety Bond Quarterly - Fall 2014 - 43
Surety Bond Quarterly - Fall 2014 - 44
Surety Bond Quarterly - Fall 2014 - 45
Surety Bond Quarterly - Fall 2014 - 46
Surety Bond Quarterly - Fall 2014 - 47
Surety Bond Quarterly - Fall 2014 - 48
Surety Bond Quarterly - Fall 2014 - 49
Surety Bond Quarterly - Fall 2014 - 50
Surety Bond Quarterly - Fall 2014 - 51
Surety Bond Quarterly - Fall 2014 - 52
Surety Bond Quarterly - Fall 2014 - 53
Surety Bond Quarterly - Fall 2014 - 54
Surety Bond Quarterly - Fall 2014 - 55
Surety Bond Quarterly - Fall 2014 - 56
Surety Bond Quarterly - Fall 2014 - 57
Surety Bond Quarterly - Fall 2014 - Index to Advertisers
Surety Bond Quarterly - Fall 2014 - cover3
Surety Bond Quarterly - Fall 2014 - cover4
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