Wednesday, November 24, 2010

Court rejects late submission of payment bond claim

Pursuant to State Finance Law Section 137:  "a person having a direct contractual relationship with a subcontractor of the contractor furnishing the payment bond but no contractual relationship express or implied with such contractor shall not have a right of action upon the bond unless he [or she] shall [give] written notice to such contractor within one hundred twenty days from the date on which the last of the labor was performed or the last of the material was furnished, for which his [or her] claim is made." In Brer-Four Trans. Corp. v. Zurich America Ins. Co. the general contractor hired a subcontractor to remove excavated materials from a site.  The subcontractor (S1) then hired another contractor to assist it with the removal (S2).  S2 claimed that it was not paid in full and brought a claim against Zurich (the surety that issued the payment bond to the GC pursuant to State Finance Law Section 137).  Zurich moved to dismiss claiming that S2 failed to comply with State Finance Law Section 137 by notifying the GC of the claim within 120 days from the date on which the last of the labor was performed. 

While the trial court originally denied the motion, the Appellate Division revered and found that since S2 did not submit the bond claim to the general contractor within 120 days the claim was barred under State Finance Law Section 137.  The lesson to be learned is to submit your bond claim on time, in writing and not to wait until the last day to do so.  Also, you should keep in mind that some bonds contain provisions requiring notice within less than the 120 days provided by State Finance Law Section 137.  The AIA Payment Bond (AIA A 312) for example, has a provision requiring notice to be submitted within sixty days.  When in doubt, read the bond in full and contact a construction attorney to find out what deadlines apply to your particular claim. 

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or

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