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Sub's Breach Of Payment Bond Claim Stands The Bedrock Test

Tuesday, March 01, 2011 03:54 am


Surety -- Payment Bond

EBI Directional Drilling, Inc. v. Fidelity & Deposit Co. of Maryland and Zurich American Insurance Co., 2010 U.S. Dist. Lexis 133112 (D. Ill. Dec. 16, 2010)

A sub was a third-party beneficiary of a payment bond supplied by the prime contractor to the project owner.

Merryman Excavation (Merryman) was the prime contractor on a City of Pittsfield, Illinois water transmission line project. Merryman hired subcontractor EBI Directional Drilling, Inc. (EBI) to do the horizontal drilling, but Merryman refused to pay EBI $300,000 in payment for the work once it was completed. EBI then sought payment from Fidelity & Deposit Company of Maryland (Fidelity), the surety that had issued Merryman's payment bond. After Fidelity also refused to pay EBI, the sub sued for breach of contractual duties under the payment bond. Fidelity moved to dismiss.

The payment bond stipulated that Fidelity was financially responsible for "work" performed in relation to the project. It specifically cited work performed by "subcontractors" and therefore made Fidelity liable to a third-party sub such as EBI as long as EBI had a breach o [...]

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