S & S Paving & Construction, Inc. v. Berkley Regional Insurance
239 Ariz. 512
| Ariz. Ct. App. | 2016Background
- S & S Paving performed subcontract paving work on a City of Prescott public project; Berkley issued the required Little Miller Act payment bond for the prime contractor.
- S & S sent a demand and proof of claim to Berkley in 2011; Berkley acknowledged receipt, requested more information, and said its review did not toll limitations.
- After limited communication, Berkley later asserted S & S’s claim was untimely; S & S sued Berkley (breach of contract and bad faith) in November 2013.
- The superior court granted summary judgment to Berkley: breach of contract barred by the Act’s one-year statute of limitations, and bad faith dismissed for lack of a contractual or special relationship.
- S & S appealed only the bad faith ruling; the appellate court considered whether a surety on a Little Miller Act payment bond can be sued in bad faith by an unpaid claimant.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a claimant may bring a common-law bad faith claim against a surety on an Arizona Little Miller Act payment bond | S & S: sureties owe claimants a duty to investigate and act in good faith; the common-law bad faith remedy should be available | Berkley: the Act supplies the exclusive remedies and defines surety liability; no bad faith cause exists against Act sureties | No. A bad faith tort claim is not available against a Little Miller Act surety; statutory remedies are exclusive |
| Whether the statutory scheme implies pre-litigation duties by sureties (investigation/processing obligations) | S & S: surety had duty to undertake an adequate investigation before denying the claim | Berkley: the Act contains no pre-litigation duties; remedies are initiated by suit and measured by statute | No implied pre-litigation investigative duty; Act does not contemplate such obligations |
| Whether precedents allowing bad faith against sureties on private bonds (e.g., Dodge) control here | S & S: relies on Dodge to support bad faith liability for sureties | Berkley: Dodge involved a private contractual bond and different policy considerations; public-bond statutory scheme differs | Dodge is distinguishable; statute-backed public bonds are governed by the Act and its remedies |
| Whether the claimant’s failure to timely sue affects availability of other remedies (and status of claimant) | S & S: (did not contest) | Berkley: statute’s one-year limit creates exclusive remedy; untimely claimants become general creditors | The court treats the Act’s remedial and time limits as exclusive; untimely claimants lose bond remedy and are general creditors |
Key Cases Cited
- Transamerica Mortg. Advisors, Inc. v. Lewis, 444 U.S. 11 (1980) (courts should not read additional remedies into a statutory scheme that provides specific remedies)
- Brown Wholesale Elec. Co. v. Merchants Mut. Bonding Co., 148 Ariz. 90 (1985) (liability of a corporate surety on a statutorily required bond is measured by the statute)
- Dodge v. Fidelity & Deposit Co. of Maryland, 161 Ariz. 344 (1989) (permitting bad faith claim against surety on a private performance bond; distinguished here)
- R.E. Monks Constr. Co. v. Aetna Cas. & Sur. Co., 189 Ariz. 575 (1997) (claimants must comply with statutory procedures to recover on payment bonds)
- SCA Construction Supply Co. v. Aetna Cas. & Sur. Co., 157 Ariz. 64 (1988) (Arizona adopted Little Miller Act framework and purpose)