It is not uncommon for sureties that issue payment bonds to deny claims brought by subcontractors and suppliers. After an “investigation”, a surety’s typical response is that the claim is denied because the debt is the subject of a good faith dispute between the bond claimant and the surety’s principal. Of course, questions often arise regarding the thoroughness and completeness of the surety’s investigation. For example, no one expects the surety’s bond principal to state that there was no legitimate reason for its nonpayment and that the surety should pay the subcontractor or supplier whatever amount it claims due, which raises the question of whether the surety should have to do more than ask its principal why the bill was not paid. Moreover, sureties – like everyone else – do not want to part with money unless they are forced to do so.
I recently handled a matter where a general contractor did not pay a subcontractor more than half a million dollars. There was no justification for the nonpayment. The surety, however, still failed to pay or deny the claim within 90 days as required by Conn. Gen. Stat. Sec. 49-42. Instead, the surety took no action.