On October 8, 2007, in resolving an issue of first impression in Florida, the United States District Court for the Middle District of Florida granted J.C. Gibson Plastering Company, Inc.’s (“Gibson”) motion for summary judgment on its payment bond claim due to a surety’s failure to respond properly to Gibson’s claim within 45 days after receipt of the claim, as required by the American Institute of Architects (“AIA”) Standard Form A312 payment bond. J.C. Gibson Plastering Co., Inc. v. XL Specialty Ins. Co., Case No. 07-00268, 2007 WL 2916399 (M.D.Fla.); 2007 U.S. Dist LEXIS 74826 (M.D. Fla. Oct. 8, 2007). Sutherland Asbill & Brennan LLP represented Gibson in the case

Gibson was a subcontractor on a condominium project in Jacksonville, Florida. The general contractor on the project had provided a payment bond to the owner ensuring payment to subcontractors and suppliers. The payment bond was issued jointly by XL Specialty Insurance Company and XL Reinsurance America, Inc. (collectively, “XL”) on a Standard Form AIA A312 payment bond.

A dispute arose after the general contractor failed to pay Gibson, and Gibson ultimately made a claim against the payment bond. The bond required a claimant to give notice to the surety and the project owner that a claim was being made under the bond and to state, with substantial accuracy, the amount of the claim. Upon a claimant’s proper notice of claim, the bond then required the surety to respond to the claimant with a statement of the undisputed amounts and the basis for challenging any disputed amounts within 45 days of the surety’s receipt of the notice of claim. The surety also had to pay or arrange for payment of the undisputed amount of the claim within the same time period.

Gibson sent the required notice of claim to XL with a copy to the owner, but XL failed to properly respond to Gibson within the 45-day period mandated by the bond. Gibson then sued XL and immediately moved for summary judgment with respect to its bond claim based on XL’s failure to timely respond to Gibson’s claim as required by the bond.

The court first determined that Gibson had complied with the requirements imposed on claimants under the bond. XL argued that Gibson’s obligation to provide notice of its claim was not met until it provided a proof of loss or other documents requested by XL. The court rejected XL’s argument, holding that a claimant’s obligations were governed by the express language of the bond and that under Gulf Power Co. v. Insurance Co. of North America, 445 So. 2d 1141, 1142 (Fla. 1st DCA 1984), a surety contract should be strictly construed against the surety. The court thus found that Gibson’s notice, which stated that a claim was being made under the bond and the precise amount of the claim, was sufficient to trigger the 45-day response period

The court then addressed the question of whether XL had complied with its response requirement under the bond. The court first found that the bond required XL to send an answer to Gibson “stating the amounts that are undisputed and the basis for challenging any amounts that are disputed” within 45 days of XL’s receipt of Gibson’s claim. The court then determined that none of XL’s boilerplate correspondence with Gibson during the 45-day period fulfilled this requirement. The court further held that a letter sent by XL to Gibson on the 48th day could not satisfy the bond’s obligation, even if it was a proper answer to Gibson’s claim (the court, however, pointed out XL’s letter on the 48th day also failed to satisfy the requirements of the bond). According to the court, “[i]n this case, forty-eight days may as well have been a hundred days.”

Because XL failed to answer Gibson’s claim in a timely fashion, Gibson argued that XL had waived any defenses to Gibson’s claim. Gibson relied upon National Union Fire Insurance Co. v. Bramble, in which the Maryland Court of Appeals held that where a surety failed to answer a bond claim within the requisite 45 days, the entirety of the claim was rendered undisputed. 879 A.2d 101, 111 (Md. 2005). The Bramble court gave three reasons for its conclusion. First, if sureties were allowed to dispute claims that had not been properly answered, the 45-day requirement would be rendered ineffective. Likewise, one of the purposes of the 45-day requirement was to make sure that subcontractors are not forced to absorb the risk of non-payment by the contractor and the owner. According to the court, this purpose was best served by ensuring that sureties either answer a claim or pay it within the specified 45 days. Finally, the court recognized that surety contracts should be construed against sureties and in favor of bond beneficiaries. Id. at 110-11. Thus, the surety would not be permitted to challenge a claim except on the bases stated in the timely response to a claim. Id. at 111; see also Casey Indus. v. Seaboard Sur. Co., Case No. 06-00249, 2006 WL 2850652 at * 4 (E.D. Va. Oct. 2, 2006). The Gibson court endorsed this reading of the bond

While the Gibson court recognized that the cases it relied upon did not arise under Florida law, it held that the Florida Supreme Court would likely follow the Bramble line of cases. Thus, it held that XL waived its right to dispute any part of Gibson’s claim for payment and granted Gibson’s motion for summary judgment on the bond claim.

To view the court’s opinion, pleaseclick here.