How to File a Claim
Performance and payment bond claims are initiated by contacting the surety company that issued the bond. If you do not know which surety company wrote the bond, you can request a copy of the bond from the principal or the owner of the project.
A preliminary notice of intent to file a claim must be sent to the surety company. Most companies provide a way to submit notices and claims electronically. If this option is unavailable, the surety will provide a phone number and address for their claims department.
Each state has different regulations regarding deadlines to file claims against bonds. For example, California requires stop notices to be filed. California civil code §3184 lists the time limits for effective stop notices as: thirty days after the recording of a notice of completion (sometimes referred to in public works as a notice of acceptance) or notice of cessation, if such notice is recorded; or 90 days after completion if no notice of completion or notice of cessation is recorded.
The Claims Process
Once a claim has been filed, the claimant and the principal on the bond will be notified of the claim details by the surety. At this point the surety will begin an investigation of the claim, which involves requesting information and documentation from both the claimant and the principal.
It is important that all parties respond to requests for information in a timely manner because the surety is required by law to accept or deny a claim within a certain amount of time. For example, California civil code §2695.10, “as soon as possible, but in no event later than forty (40) calendar days after receipt by the insurer of proof of claim, and provided the claim is not in litigation or arbitration, the insurer shall accept or deny the claim, in whole or in part, and affirm or deny liability.” The surety will deny a claim if a claimant does not provide enough information or waits too long to respond.
How Should a Principal/Contractor Respond to the Claim?
The principal or contractor should also be as quick as possible in their responses due to the same time constraint. Keeping open lines of communication with your bond agent allows them to convey information to the surety. Also, provide any requested documents or any information you can provide to explain the claim. Most claims are settled without the surety paying out a penal sum. However, if the surety pays out, it could negatively impact the principal’s ability to obtain more bonds.
If you have any questions or would like to learn more, please reach out to us. We’re here to help!