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Pro-Spec Painting, Inc. v. One Beacon Insurance Co.

2005 WL 2446064 (N.J. Super. App. Div. 2005) (Unpublished)

SURETY BONDS; STATUTE OF LIMITATIONS — The one year limitations period within which a beneficiary must sue a surety under a payment and performance bond is not tolled by the bankruptcy of the contractor and is not dependent on the outcome of a suit by the beneficiary against the contractor.

A subcontractor sued an insurance company seeking recovery of its fees on a performance and payment bond. The lower court dismissed the subcontractor’s lawsuit, finding that it failed to comply with N.J.S.A. 2A:44-145. That statute requires a subcontractor seeking payment on a surety bond to: (a) provide notice to the surety; (b) wait ninety days after sending notice to allow the surety to investigate the claim before filing a lawsuit; and (c) file the lawsuit within one year after the work was completed. The subcontractor notified the general contractor and the insurance company. The insurance company acknowledged receipt of the letter and advised the subcontractor that it was reserving its rights and defenses and that it was going to consult with the general contractor as to its position. The subcontractor filed suit against the general contractor, which subsequently filed for bankruptcy. The subcontractor then filed suit against the insurance company to collect on the surety bond. However, the lower court dismissed the subcontractor’s suit against the insurance company since it was filed more than one year after the work had been completed. On appeal, the subcontractor argued that the insurance company’s failure to respond to its initial notice by paying the claim represented willful misconduct that prevented it from raising a statute of limitations defense. The subcontractor relied on a case where a defendant’s fraud prevented a party from filing a complaint timely. In that case, a court ruled that the statute of limitation did not apply because of the fraud. In this case, the Appellate Division noted that there was no fraudulent conduct by the insurance company that prevented the subcontractor from filing a complaint. There was no conduct by the insurance company that led the subcontractor to believe it was being paid or that would cause it to delay filing suit. The insurance company responded to the initial notice by indicating it was investigating the subcontractor’s claim and that it reserved all of its rights. Lastly, the subcontractor argued that since it filed a suit against the general contractor within one year of completion of the work, that tolled the statute of limitations with respect to its suit against the insurance company. The Court disagreed. It found that because a surety has a direct, primary, and absolute obligation to the subcontractor, its liability is not dependent on a subcontractor’s successful suit against the general contractor. Therefore, the subcontractor had an independent claim against the insurance company that needed to be filed no later than one year after the work was completed. Since it failed to do so, its complaint was dismissed.

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