Judge interprets meaning of a performance guarantee bond issued by an insurer
The defendant insurer issued a performance guarantee bond to the claimant employer and a dispute arose when a contractor stopped work on the site. The bond provided that the insurer guaranteed that, in the event of a breach of contract by the contractor, it would discharge any losses sustained by the employer. Clause 2 (which was a "homemade addition") provided that "the damages payable under this Guarantee Bond shall include…any debt or other sum payable to the Employer under the Contract following the insolvency…of the Contractor". The issue in this case was whether a breach of contract was required to trigger liability under clause 2. Coulson J held that it was not: "Under a building contract, the employer does not care about the precise way in which the building contractor has become insolvent, or the nice distinctions between liquidation and administration. All he cares about are the consequences of the insolvency, which almost always include the abrupt halt to the carrying out of the works. The employer's loss in these situations is always the same: the additional cost of completing the works. …. So, in my view, clause 2 of the Bond can have had no purpose whatsoever other than to make it clear that the Bond was to protect the claimant from the non-payment by [the contractor] of the debt following the insolvency".