How about a bit of scary news for sureties who bond in West Virginia? This one is like something out of a horror movie.
The West Virginia Supreme Court ruled today that a claimant can take a default judgment against a bond principal and collect from the surety – without ever naming the surety in the principal action. Scary.
The specifics of the cases (there were two cases with similar facts sent up for review) are detailed in this article by the West Virginia Record. Both cases involved a claimant bringing an action against a mortgage lender that had went belly up. In both cases, the claimants were able to obtain defaults against the lenders. And in both cases, the Hartford had provided a performance bond ensuring that the lenders would fulfill their duties under law.
The Supreme Court’s decision enacts a “strict liability” of sorts against sureties in that state. While the facts here apply to performance bonds on mortgage lenders, it is no stretch to imagine it being argued against construction sureties. States like Washington, where I practice law, have express statutes that require a surety be named in any action against a principal to recover against a private licensing bond or a public performance or payment bond. But private performance bonds? Not always the case. And many states lack such express requirements.
A frightening decision. I think that dissenting Judge Brent Benjamin hits the nail square on the head here:
“….a plain reading of the bonds establishes that they do not guarantee payment unconditionally.”
