October 26, 2017 – King of Prussia, PA
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Cohen SegliasMadison Risk Group, McCarthy & Company, and The Shepherd Agency invite you to their 2017 Construction Executive Boot Camp featuring New York Times best-selling author Steve McClatchy. Steve will present his Decision-Making System that will help you manage the pressures and tensions inherent in creating, building, leading, and sustaining a fast changing high-performance company within the construction industry.  Continue Reading Construction Executive Boot Camp 2017

Are you a construction company owner, CFO, controller, or lead estimator involved in the bidding process?

On October 13th, join construction industry leaders, Bill Burke, Jason Copley, David Kane, and Anthony Stagliano, for a hands-on seminar, providing insights into effective strategies to maximize your profitability through innovative insurance, surety, legal, and accounting perspectives.

To register, contact Olivia Kornilowicz at 215.564.1700 or opk@cohenseglias.com.

Continue Reading Construction Executive Boot Camp 2016 – Interactive Panel Discussion and Cocktail Networking Event

As members of the construction industry know, to describe the relationship between a surety and the party to whom it issues a surety bond (the principal) as confusing would be an understatement.  In fact, many believe that the surety-principal relationship is similar, if not identical, to the insurer-insured relationship. In a recent federal court opinion – Reginella Construction Company, Ltd. v. Travelers Casualty and Surety Company of America – a contractor learned the hard way that the principal in a surety-principal relationship is not nearly as protected as the insured in an insurer-insured relationship.

The Case

In Reginella, the United States District Court for the Western District of Pennsylvania granted a surety’s motion to dismiss the claims brought against it by the surety’s principal, Reginella, finding, among other things, that a surety does not owe the kind of heightened duty to its principal that an insurance carrier owes to its insured (this heightened obligation is called a fiduciary duty, and we tend to see it in the insurer-insured, attorney-client, trustee-beneficiary, and guardian-ward contexts).  In Reginella, the surety, Travelers, issued performance and payment bonds on behalf of its principal, Reginella, for a school district project in Pennsylvania and a turnpike project in Ohio.

On the school district project, Reginella’s relationship with the owner broke down, and the project shutdown.  On the turnpike project, Reginella’s relationship with Travelers soured over a disagreement surrounding a lien filed by one of Reginella’s subcontractors.  Reginella alleges that Travelers failed to, among other things, (i) pay Reginella’s subcontractors in accordance with the payment bonds that Travelers issued, (ii) issue a bond to address a subcontractor lien, and (iii) generally act in the best interests of Reginella in a way that would facilitate payment from the project owners to Reginella.

Ultimately, Reginella sued Travelers for damages in excess of $15 million for lost business, goodwill, future earnings and residual value of its enterprise against Travelers for, among other claims, Travelers’ alleged breach of its fiduciary duty owed to Reginella in relation to the bonds issued on the two projects.  Travelers moved to dismiss the entirety of Reginella’s claims.  In applying Pennsylvania law, the Court granted Travelers’ motion and dismissed Reginella’s claims against Travelers, concluding that a Pennsylvania court would not impose fiduciary duties on a surety because a surety is a guarantor issuing a commercial guaranty, not an insurance carrier issuing an insurance policy.

What Does It All Mean?

The Court’s decision makes it clear that in Pennsylvania, a surety’s obligations to its principal are not the same as the heightened obligations that exist in fiduciary relationships.  In a fiduciary relationship, the fiduciary (e.g., an insurer) must act with the utmost fairness and refrain from using his position to the other’s detriment and his own advantage.  As the Court determined, however, surety relationships are ordinary arm’s-length commercial relationships where each party owes the other a less protected duty of good faith and fair dealing.  When entering into surety relationships, contractors need to be mindful of this distinction, especially when a surety begins communicating with project owners on its principal’s behalf.

Principals like Reginella should carefully monitor the surety’s activity and insist on being copied on all communications to and from the surety.

It is important to note that a couple of weeks ago, Reginella asked the Court to reconsider and alter its decision.  Therefore, the Court’s decision is not yet final, and we will continue to monitor the result.

John A. Greenhall is a Partner with the Firm and a member of the Construction Group. He can be reached at 215.564.1700 or jgreenhall@cohenseglias.com.

Lori Wisniewski Azzara is an Associate at Cohen Seglias Pallas Greenhall & Furman PC. Lori practices in the areas of construction and commercial litigation and has experience in contract negotiation, claims for delay and inefficiency, mechanics’ liens, and all types of contractual disputes.

Daniel E. Fierstein is an Associate in the Construction Group of Cohen Seglias and focuses his practice on construction law. Dan counsels clients at all tiers of the construction industry, including general contractors, subcontractors, owners, developers, and design professionals.

Scott T. Earle and Daniella Gordon contributed to this post.

A recent Delaware Supreme Court decision limited the field of bond claimants on a private project. In the case, Berlin Steel proper claimants under bond.pdf the SuprCrane.jpgeme Court overruled the trial court’s interpretation of an earlier decision that stood for the proposition that all subcontractors, regardless of their relationship to the principal under the bond, were third party beneficiaries of the payment bond.

Background of the Case and Key Parties

Berlin Steel Construction Company (Berlin) was a contractor for a private project in Delaware. Under the terms of the contract, Berlin obtained a payment and performance bond for the benefit of the construction manager and the project owner. Berlin subsequently entered into a subcontract with Structural Steel (Structural) to perform certain steel work at the project. Structural then subcontracted with J&J Rigging (J&J) to lease and operate a crane. J&J leased a crane for the project from Salah and Pecci Leasing Co. (S&P). Although Berlin paid Structural, and Structural paid J&J, J&J did not pay S&P. In order to obtain payment, S&P, a third tier subcontractor in relation to Berlin, made a claim against the payment bond held by Berlin.

Continue Reading Delaware Supreme Court Confirms That Sureties May Limit Bond Claimants