Tag Archives: surety

Can Surety Enforce Venue Selection Provision From Construction Contract

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Can Surety Enforce Venue Selection Provision From Construction Contract

Can a surety on a public project enforce a venue selection provision from the construction contract?

No, in disputes over a payment bond, a surety cannot enforce a venue selection provision from a construction contract.  A viable forum selection clause is strongly controlling in all but exceptional circumstances. Dane Constr. & Co., Inc. v. Travelers Cas. & Sur. Co. of Am., 2016 WL 5724280, at *2 (S.D. Fla. Sept. 19, 2016).  Section 255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond seeking to restrict the venue of any proceeding thereupon.

In Dane Construction , Tutor Perini, the general contractor, entered into a subcontract with Dane Construction for a public construction project in Broward County, Florida.  Tutor Perini posted a payment bond for the project.  This bond contained no provisions governing venue for any action under the bond.  The subcontract between Tutor Perini and Dane Construction had a venue provision naming the State court of the 17th Judicial Circuit of Broward County, Florida as exclusive venue for all disputes.

The general contractor failed to remit payment and Dane filed a complaint in the United States District Court, Southern District of Florida against the surety for breach of payment bond.  The surety then filed a motion to dismiss on grounds of forum non conveniens, asserting that the venue  provisions contained in the Owner’s agreement and subcontract require venue in the Seventeenth Judicial Circuit Court in and for Broward County, Florida.  When moving for motion to dismiss on grounds of forum non conveniens, the moving party must demonstrate that (1) an adequate alternative forum is available, (2) the public and private factors weigh in favor of dismissal, and (3) the plaintiff can reinstate his suit in the alternative forum without undue inconvenience or prejudice.

The United States District Court denied the surety’s motion to dismiss.  The Court reasoned that this suit is a dispute between the Subcontractor and the surety for a claim against the bond — not a claim under the contracts that contained a venue selection provision.  The bond itself has no provisions regarding venue and only incorporated the Owner’s agreement, not the subcontract.

Even if the court was to incorporate the Owner’s agreement into the bond, §255.05(1)(a), Florida Statues, prohibits the inclusion of language in any bond restricting venue. Thus, no legally enforceable venue provision existed in the bond.  Accordingly, the court denied the motion to dismiss based on forum non conveniens.

 

Indemnification Between Contractor and Surety

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Indemnification Between Contractor and Surety

Does Florida’s limitation on Indemnification in Construction Contracts apply to the general agreement of indemnity between a surety and principal on a bond?

No, Florida’s limitation on Indemnification in Construction Contracts (section 725.06, Florida Statutes) does not apply to the general agreement of indemnity between a surety and a principal on a bond.

This question was recently answered in the case of Great Am. Ins. Co. v. Brewer, No. 6:16-CV-63-ORL-37KRS, 2016 WL 3640395, at 2 (M.D. Fla. July 8, 2016).  The court held that section 725.06 does not apply to this relationship because a surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or material supplier.  Accordingly Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.

The Court in Brewer analyzed this question as follows:  Florida statue §725.06 renders contracts void and unenforceable under the following circumstances: (1) the contract concerns or guarantees “any construction, alteration, repair, or demolition of a building, structure, appurtenance, or appliance, including moving and excavating associated therewith” (“Construction Contract”); (2) the parties to the Construction Contract include “an owner of real property and an architect, engineer, general contractor, subcontractor, sub-subcontractor, or materialman or any combination thereof” (“Contracting Party Requirement”); (3) one of the parties to the Construction Contract promises “to indemnify or hold harmless” the other party “for damages to persons or property caused in whole or in part by any act, omission, or default of the indemnitee arising from” the Construction Contract or performance of the Construction Contract; and (4) the Construction Contract does not contain “a monetary limitation on the extent of the indemnification that bears a reasonable commercial relationship to the contract and is part of the project specifications or bid documents, if any.”

In Great Am. Ins. Co. v. Brewer, Brewer argued that, because Brewer Paving & Development, Inc. (principal) is a contractor, Florida statue §725.06 applies to the agreement, making it void. Great American Insurance Company (surety) argued that BPD being a contractor is irrelevant, and Florida statue §725.06 does not apply to the agreement.

The United States District Court agreed with the surety, ruling that, as long as the surety is not an owner of real property, or an architect, engineer, general contractor, subcontractor or materialman, then Florida statue §725.06 does not apply to indemnity agreements between a surety and a principal on a bond.