Arizona Court Finds That A Public Works Payment Bond Surety Cannot Be Held Liable For Bad Faith Failure To Investigate Because The Surety’s Duties And Obligations Are Limited To Those Which Are Enumerated In Arizona’s Public Works Bonding Act.

On Behalf of | Aug 19, 2016 | Bad Faith

In S&S Paving and Constr., Inc. v. Berkley Regional Ins. Co., 239 Ariz. 512, 372 P.3d 1036 (Ct. App. 2016) , the Arizona Court of Appeals considered whether a surety could be sued by a subcontractor for bad faith failure to investigate when the surety issued a public works payment bond. This case involved a lawsuit brought by an unpaid subcontractor (S&S) for work done on a municipal construction project. S&S filed a claim against the payment bond issued by Berkley Regional Ins. Co. The bond had been issued in conformity with Arizona’s Public Works Bonding Act, A.R.S. §§ 34-222-223. Although Berkley acknowledged receipt of the claim and requested more information, Berkley advised S&S that its initiation of an investigation would not toll the running of any statute of limitations period. After 13 months, S&S sued Berkley for breach of contract and bad faith. In turn, Berkley raised the one year statute of limitations on public payment bonds under A.R.S. § 34-223(B). The trial court dismissed both claims. The Arizona Court of Appeals affirmed the dismissal of the bad faith claim. In doing so, the Arizona Court of Appeals noted that S&S’s attempt “to graft a common law remedy onto a statutory scheme that includes within its ambit both the availability of complete relief and specific conditions precedent to recovery” should be rejected. The Court found Arizona’s Public Works Bonding Act was comprehensive regarding liability, remedies, and conditions for recovery. Therefore, allowing a common law remedy for bad faith conduct would be inconsistent with the express language of the statute which contained a provision stating that “all liabilities on this bond shall be determined in accordance with the provisions, conditions and limitations of [the Act].”

Arizona’s Public Works Bonding Act has been viewed as the “Little Miller Act,” because it is patterned after the Miller Act, 40 U.S.C.A. §§ 3131-3134. Regarding the Miller Act, at least one court has held that the Miller Act does not preempt state law claims against the surety. See, e.g., United States ex. rel. Don Siegel Constr. Co., Inc. v. Atul Constr. Co., 85 F.Supp.2d 414 (D. N.J. 2000).

Steven Plitt is an accomplished author and expert witness, and has been a licensed attorney for 33 years. During his career, he has reviewed and analyzed more than 6,000 claim files from 100 different insurance companies. Based in Phoenix, Arizona, he serves as counselor and expert for insurance coverage and bad faith claims nationwide. For more information or to set up an appointment, please visit his website at