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Construction Law

: The South Carolina Construction Law Blog

A Surety's Potential Liability

By Ryan McCabe

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            RLI Ins. Co. v. Indian River School Dist., 556 F. Supp. 2d 356 (D. Del. 2008).

            A surety was found responsible for a contractor?s financial obligations resulting from overpayment by owner. The owner made payments in reliance on payment applications submitted by the architect that did not reflect the actual construction progress. Upon learning of the nonconformity, the owner terminated the contractor.

            The surety sued the architect, construction manager (CM), and the owner for negligent misrepresentation, seeking to avoid having to pay the owner. The court concluded that the presented facts warranted a judgment in defendants? favor. It found that the surety did not have a claim against the architect and CM because there was neither a contract with them, nor an independent basis for a tort claim. The decision was affirmed on appeal.

            The surety argued that the restatement of torts allowed an action against a defendant who supplies information to plaintiff for use in business transactions with others. The CM pointed out that the provision only applied to administrative, management and related services, which the CM did not provide. Also, the CM?s contract with the owner specified that there was no contract between CM and a third party dealing with the owner. The architect made the same arguments as the CM. The court further noted that the construction of the project, rather than the provision of information, was the purpose for which the architect and the CM were hired. The information was ?incidentally supplied ? as part of the project.?

            In addition, the court noted that the owner was obligated under contract to pay the payment applications. The owner had acted in good faith and the surety had to pay even if the contract terms relating to payments had not been followed.

            This site and any information contained herein is intended for informational purposes only and should not be construed as legal advice. Seek a competent attorney for advice on any legal matter.

Full post as published by The South Carolina Construction Law Blog on March 10, 2009 (boomark / email).