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Doubts Of Payment Bond Coverage Construed Against The Bonding Company

Tuesday, September 04, 2007 12:42 pm

Doubts Of Payment Bond Coverage Construed Against The Bonding Company

A federal district court in Michigan denied a bond issuer's motion for summary judgment, concluding that one of the bonds issued was a payment bond for the benefit of suppliers.

Walbridge Aldinger Co. (Walbridge) was either the general contractor or construction manager (the record was unclear on which) for a project it contracted out to CBN Steel Construction, Inc. (CBN). CBN was to, among other things, furnish and install the project's structural steel. CBN further subcontracted the fabrication of the steel to Prospect Steel (Prospect).

The project's bid specifications required the contractors to provide "performance and payment bonds covering the faithful performance of the contract and the payment of all obligations arising thereunder." Further, Walbridge instructed that these bonds "be equal to one hundred (100%) percent of the total amount payable by the terms of the contract." However, CBN was unable to obtain a bond for the full amount of the contract. It suggested to Walbridge that it could obtain a bond for the erection of the steel if Prospect was required to bond the fab [...]

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