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3 Strikes Sink Miller Act Surety's Reimbursement Claims

Saturday, October 01, 2011 08:49 am


A recent case examined three issues concerning the jurisdiction of the United States Court of Federal Claims (Claims Court) over actions that a Miller Act surety might bring against the federal government.

The claims involved: (1) equitable subrogation, (2) discharge and (3) a takeover agreement. In Claims Court, the surety sought redress from the government via these three avenues, but all were closed.

Equitable subrogation: Reclaim money wrongfully paid

When a surety steps in for a defaulted contractor, it can end up playing monkey in the middle, trying to catch the payments flowing from one contract party (the government) to the other (the contractor).

Normally, the Tucker Act (28 U.S.C. 1491(a)(1)) limits claims against the government to those founded upon an "express or implied contract with the United States"-- and Miller Act sureties don't have direct agreements with the government. But under equitable subrogation,a surety "step[s] into the shoes of [the] government contractor" and may bring suit based on the contractor's privity with the government. Insurance Company of the West v. U.S, 243 F.3d 1369, 1374-75 (Fed. Cir. 2001); see also Nat'l Am. Ins. Co. v. U.S., 498 F.3d 1301, 1304 (Fed. Cir. 2007). Thus, a surety can use the doctrine of "equitable subrogation" to recapture any payments the government improperly made to the contractor instead of the surety.

In Insurance Company of the West, the surety was allowed to bring a Claims Court suit against the government for continuing to make payments to a defaulted contractor after the surety notified the government that it was to receive all future payments.

However, an equitable subrogation doctrine claim w [...]

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