Understanding the Surety Bond Claims Process

The following guest post is from Sara Aisenberg, Director of Educational Outreach at SuretyBonds.com, a nationwide surety bond producer that helps contractors fulfill their bonding requirements.

Case Closed stampEarlier this year, my colleague Danielle Rodabaugh shared a guest post on California Construction Law Blog about how to establish a construction company in California. In her article, Danielle discusses the importance of gaining experience within the construction industry, how to draft a legal team and why construction professionals must plan a budget that includes the cost of performance surety bonds. Today, I’d like to delve further into surety bonds for California construction projects — specifically how claims are filed on bonds and what the repercussions can be.

What is a surety bond?

A surety bond is a legally binding contract between three parties: a principal, an obligee and a surety. When it comes to construction bonds, the principal is the contractor required to purchase the bond, the obligee is the government agency or the construction project owner that requires the bond and the surety is the underwriting company that produces the bond. By posting the surety bond, the contractor pledges to adhere to the agreed-upon contract. By producing the bond, the surety company backs this pledge.

Generally, there are two types of surety bonds that contractors will most often run across: contractor license bonds and contract bonds. Contractor license bonds are a type of license and permit bond, while contract bonds are an umbrella group of bonds that are required by private construction project owners/developers to ensure that contractors have a solid work history and the skills and materials to finish a job on time, on budget and according to the required specifications. Unless otherwise specified, it’s safe to assume that construction professionals are referring to contract bonds when talking about surety bonds.

As Danielle states in her article, “contractors typically file surety bonds because they pay just a fraction of the required protection, but cash or certificates of deposit can also be filed with the state. The California Contractors State License Board (CLSB) requires every contractor to file $12,500 of financial security with the state as a part of the licensing process. Applicants with good credit could pay just $110 for annual license bond protection while those with bad credit could pay as much as $1,350 for annual license bond protection.”

Furthermore, most publicly funded projects in California require performance bonds to be issued for 1/2 of the contract price. And, all public works projects contracted for more than $25,000 require payment bonds issued for full contract price. Surety underwriters typically charge premiums calculated at 1-4% of the bond amount. So, if you need a $50,000 performance bond for a $100,000 project, your premium would likely be between $500 and $2,000.

Without the appropriate surety bond(s) in place, the project developer won’t allow you to begin work on the project. If you plan to work on multiple public projects contracted for more than $25,000 each year, you’ll need to have enough cash on hand to pay for your bond premiums up front and in full. (Also note that while surety bonds aren’t legally required for privately funded projects, the developer can still choose to require them.) If you can’t afford to get bonded, you won’t be approved to work on projects. The costs associated with bonding is one factor that can limit the reach of “small contracting firms.”

When is a claim filed on a bond?

If a contractor fails to uphold the terms set by the project owner and stated in the surety contract — such as failing to pay subcontractors/suppliers, missing the project completion deadline, exceeding the agreed-upon budget for the project or completing the project with structural flaws or other problems — a claim can be filed on the bond. As stated on the CSLB website, “claims against a surety company may be filed by homeowners, any person damaged by a willful and deliberate violation of a construction contract, employees damaged by the contractor’s failure to pay wages, or an express fund damaged as a result of the contractor’s failure to pay fringe benefits for eligible employees. (A court case has held the express trust fund provision superseded by federal law.)” In most cases, the construction project owner/developer or another harmed party would file this claim with the surety underwriting company that produced the bond.

Once a claim is filed, an investigation will ensue. According to the CSLB website, “surety companies will investigate any claim filed against a bond, and the CSLB will investigate any complaint filed against the license.”

What happens when a claim is validated?

If a claim against a contract surety bond is filed and validated, two things will happen. First, the surety company will repay the obligee or harmed party (project owner/developer, government agency, subcontractor, supplier, etc.) up to the full amount of the bond. The contractor must then reimburse the surety company.

Depending on the severity of the situation, a proven claim might call for the revocation of a contractor’s license. If this occurs, it will be nearly impossible for the contractor to legally work on construction projects within the state of California. The ability to obtain a contract surety bond is based almost exclusively on credit score, past work history and previous bonding history. Any blemish on this record — especially that of a validated bond claim — will severely affect the contractor’s ability to be bonded and, therefore, work in the future.

Surety bonds can be confusing, especially when it comes to the claims process. Still, it’s important to remember that the surety industry is one of minimal loss. The goal of surety bond requirements is to ensure that professionals of all types — contractors included — perform their duties ethically and in accordance the laws of the state and industry. Over the years, surety bonds have held countless professionals accountable for their actions while on the job with a relatively low amount of resulting financial loss. California’s surety bond requirement for contractors is just one more way to ensure that these professionals produce quality, lawful work while completing projects on time, on budget and according to other specifications.

Sara AisenbergSara Aisenberg is the director of educational outreach at SuretyBonds.com, which is a leading resource within the surety industry. Through her writing, Sara strives to help professionals of all types understand the intricacies of surety bonds and how they pertain to their specific industries. You can keep up with Sara on Google+.

93 Responses to “Understanding the Surety Bond Claims Process”

  1. Doris Bohun

    When is a surety bond released, say, for money remittance centers in California?

    Reply
    • Garret Murai

      Hi Doris. The surety bonds discussed in the post are construction bonds to guarantee the payment for or performance of construction work. It doesn’t sound like the surety bonds you’re referring to, for money remittance companies, to guarantee that money is transferred, are the same type of surety bonds discussed in the post.

      Reply
  2. Dann Williams

    Hi. I am a homeowner who has filed against a contractors bond. We just wrapped things up in small claims court and I am positive I won a judgment. It will come in the mail. The bond company says when I get a final judgment they will pay me. My question is if I get a judgment for say 4000 dollars from small claims court, am I still entitled to the bond. There is more damage left than that by the contractor. However, not being a contractor myself I miss worded a couple of things that cost me in court. i.e. saying that the chicken wire was backwards while meaning the lath paper. Also , we had no written contract which the licensed contractor was obligated to supply. There is still a pending CSLB investigation, which will soon be sending another independent investigator. Do I need to wait for both my judgment and the CSLB, or round with a smaller than max court judgment?

    Reply
    • Garret Murai

      Hi Dann. If you filed suit against the contractor’s surety which issued the bond then yes you will likely get paid by the surety once you obtain a judgment. However, if you filed suit against the contractor rather than surety and you obtain a judgment against the contractor you will want to file the judgment with the Contractors State License Board (“CSLB”), and if the contractor does not pay the judgment then its license will be suspended by the CSLB.

      Reply
  3. John

    I recently filed a claim with a California based contractor’s license bond company (Surety) regarding a California licensed contractor. In what time frame must the Surety conclude its investigation and make a final judgment? Is there a recommendation to make to ensure the process is completed quickly (my complaint was very comprehensive.)

    Do I need to file a small claims court lawsuit and get a favorable judgment before the Surety is required to pay for my claim?

    Thanks for your assistance. I underwrote or brokered large Perf/Pay bonds for decades. Fortunately, I don’t have much experience with claims, but I have no insight into the Sureties’ time frame compliance laws.

    Reply
    • Garret Murai

      Hi John. There is no statutory deadline, although the surety does need to act in good faith. Also, you do not need to file a claim in small claims in order for the surety to pay you, although if the surety declines your claim, you have the option of suing both the contractor and surety in small claims court.

      Reply
  4. Darla Holguin

    We have started a claim against the Surety Bond for a contractor that is unwilling and unable to make repairs to our pool. We have also file a complaint with the CSLB. My question is, can we also file a claim and be paid to have the repairs done under the contractor’s liability insurance. There are two bonds for $12,500 each but the repairs to our pool are in excess of $50,000. The company has a 4 million dollar liability insurance polity.

    Reply
    • Garret Murai

      Hi Darla. You can make a claim against both the contractor’s license bond and the contractor’s general commercial liability insurance. What you can’t do, though, is get a double recovery. In other words, if the repair costs are $50K, and you get $50K from the insurance company, you can’t also get paid under the license bonds since you would have already been made whole.

      Reply
  5. Melinda

    I recently had some concrete work done in the back of my apartments. I had one of my contractors (who does excellent work and I have known for 10 years) recommend someone for the concrete work. He recommend this contractor company. He claimed that the guy was really good. Anyway. I left the check with my contractor who I knew for 10 years and ask him to oversee the job. I live up North and the work was done in Southern California To make Long story short he did a horrible job. I have all the contractors information. The cement contractor has agreed to fix the problems. However he wants to do a patch job. I spent over 10,000.00. I had an engineer look at the job. He suggested that the License contractor start all over cause it is a mess. What do you suggest

    Reply
    • Garret Murai

      Hi Melinda. There’s not much I can say since I don’t provide legal advice in response to comments and only have the limited information you provided. I will say though, that you if your issue is with the company who did the concrete work, and you have a contact with that company, you have a potential breach of contract claim. You also have a potential claim against the concrete contractor’s license bond. And, if the concrete contractor has a commercial general liability policy you may also have a potential claim against his insurance policy. However, the most cost effective thing to do, is to ask that he correct the problem.

      Reply
  6. Kathy

    We recently had a contractor walk off the job. We tried to negotiate a final settlement to no avail. We hired an attorney to negotiate a final settlement. The contractor is conceeding very little and will not return our initial $1,000 deposit. We are considering filing a claim against the contractor’s bond for job abandonment, shoddy workmanship, and attorneys fees. Can we file on our own or do we really need an attorney?

    Reply
    • Garret Murai

      Hi Kathy. You can likely make a claim on your own. However, it’s not unusual for a bonding company to deny the claim or make a very low ball offer, in which case you’re left with filing suit against the contractor and their license bond.

      Reply
  7. Malcolm

    We hired a contractor whole California license had expired. He went overseas for about 10 days and his (also unlicensed) subcontractors made many costly mistakes for which we had to fire them all. Can we file a claim with his surety company and what would be the process?

    Reply
    • Garret Murai

      Hi Malcolm. I assume when you say “surety” you mean a license bond surety. I also assume the license bond of the contractor was in effect at the time the contractor performed work. You would just need to contact the surety, whose contact information can be found on the CSLB website, and ask if they have a claim form. If they don’t, you would just write a letter to the surety setting forth your claim.

      Reply
  8. Reg Mangone

    Hi there,
    I filed a lawsuit against a contractor in small claims and I was awarded a judgment but never paid. I filed a claim with his bonding company and after 3 unsuccessful appeals by the contractor (5 months later) they are still not paying me. I am going to take them to small claims for “bad faith” but want to know what I should do and what California codes I should know to prove that they are not paying my judgment legitimately? Thanks for info, Reg

    Reply
    • Reg Mangone

      I meant to state that the contractor didn’t do the work by “city code” and abandoned the site forcing me to have to hire another contractor. Reg

      Reply
      • Garret Murai

        Hi Reg. I can’t comment on pending litigation since I’m not your attorney and don’t know the facts. Surety companies often won’t pay though until there is a final judgment, meaning that all appeal rights have been exhausted.

  9. Ngoc

    We opened a claim with the surety company for the full $12,500 bond, but before the claim was finalized, the contractor said he would finish the job. He did a small piece of a job that he contracted and paid with a bad check (now we have a pre lien because of that job). We went back to the surety company to process and finalize the claim, but meanwhile, another claim was filed against the bond. Who has the rights to the bond.? The surety company stated that they are forwarding this to a third party legal team to resolve. Since we filed the claim first, will we get the bond?

    Reply
    • Garret Murai

      Hi Ngoc. Good question and one that I wasn’t able to find a clear answer to. If the amount of the bond is insufficient to pay all claims in full, the sum of the bond will be distributed to all claimants in proportion to the amount of their respective claims.

      Reply
      • Ngoc

        Thanks Garret – sad to hear, wish we would have processed and finalized the claim earlier. At this point, the contractor has abandoned the job and we’ll have to fork out more money to get the job done. Is the bond claim sufficient to show his abandonment or should we send the contractor a notarize letter to terminate him, in case he tries to sue us for breach of contract (since a completion date was not part of the contract)?

      • Garret Murai

        Your claim with the license bond surety is a claim against the license bond and not the contractor. I would send a letter.

  10. Joe

    Can an employee file a claim On a contractors surety bond for unpaid wages owed to him over the past 2 1/2 years.?

    Reply
    • Garret Murai

      Hi Joe. Thanks for reading. It depends on what you mean by “wages owed to him over the past 2 1/2 years.” Business and Professions Code section 7071.11(d) provides that a claim against a license bond to recover wages must be brought within six months from the date the wage delinquency(ies) were discovered but in no event later than two years from the date the wages were due. So, if by “wages owed to him over the past 2 1/2 years,” you mean wages that were due 2 1/2 years ago, then the claim against the license bond would be time barred.

      Reply
  11. Amy

    Hi,

    I filed a bond claim against a contractor for unpaid wages. I was issued a paycheck from my employer however, I was asked to hold off on cashing until the funds were available in the bank account. Another employee deposited his check but it was returned NSF.. I waited several weeks and the funds never became available and wages were never paid to me. I filed a claim with the surety company back in March. They have been dragging their feet and telling me that they have no way to know if my wages were valid. I think that a signed paycheck should be enough to show that my wages were valid. They claim their attempts at contacting the principal have been unsuccessful so they are refusing to pay my claim. I’m so frustrated at the whole process and am not sure how to proceed.

    Thank you,

    Reply
    • Garret Murai

      Hi Amy. If you feel that the license bond surety should make a payment from the license bond, but is refusing to, your remedy would be to file a lawsuit against the surety company.

      Reply
  12. Jenna Sparks

    Thank you for sharing this article, I agree that we should understand surety bond, claiming process to avoid any problems or errors.

    Reply
  13. geri Ondich

    Hi Garrett!
    An unlicensed contractor sued me and my 78 year old mother , in small claims and won a judgment against us. After trying to appeal for over a year, long story short, the con artist decided to walk away and the court sided with him. The court wouldn’t even allow us to sue him for the illegal amount he was awarded and dismissed OUR case.
    The final decision wasn’t even based on any illegality from the contractor or the court. He decided to walk because we had an attorney, and our evidence is so overwhelming against him , that he didn’t want to take the stand and be confronted by our attorney and our expert witnesses. His attorney brought forth a case example to the judge stating that we could not sue for more than the original judgment amount , ( we have over 10,000 dollars in damage. We were denied taking our case to Superior Court, so we had to stay on Small claims and sue for the 10,000 limit) Our attorney countered with her own case example, stating that we certainly could sue for 10,000 , but the Judge said, since there attorneys example, came from a closer district , that it superceded our attorneys argument. The judge dismissed OUR case, and neither party has to pay each other anything. He left our property in complete disarray. Lead poisoning exposure, illegal unsafe electrical work, no permits, nothing to code, painting, tile work, on and on. This crook IS a licensed plumber, and even admitted under oath , that that work was illegal as well! He billed us, with an illegal contract , for all of it , and the court still gave him a judgment against us
    ! The judge even came to the property! Can we still recover damages from the bond company……
    Thanks

    Reply
    • Garret Murai

      Hi Geri. Sounds like a doozy of a case you went through. You said the contractor was “unlicensed.” Although there are many different kind of bonds, the most common is a license bond, which is a bond a contractor is required to have in order to be licensed by the Contractors State License Board. Unfortunately, since your contractor was “unlicensed,” it is not likely that he has a license bond.

      Reply
      • geri

        Hi Garret. You have no idea!!!!! He is not a licensed general contractor, however, he is a licensed plumber. He is bonded with the CLSB. His plumbing work was illegal as well, under his own license

  14. James

    Hi,

    I hired an electrician back in January to upgrade an old circuit panel for my house due to the fact that the circuit breakers and output were outdated. Before he was hired I was explicit in that we needed to get more energy from the circuits without tripping the breakers or causing a fire. He did the work but the problem persisted to which I had him come back and fix the problem. Which it seemed to be the case. Recently I had a contractor in my attic when he noticed that some of the wiring work hadn’t been done to code. My contractor asked me if the electrician had pulled any permits for the job to which I was uncertain to the answer. I did know that no one had ever been to the house for inspection. My question is what should be my next steps? Do I contact the city and get their input first? Should I call the electrician and see what he’s willing to resolve this outside of mediation? Go straight to legal consult? Just trying to pick the best route to best cover our interests. Thanks! 🙂

    Reply
    • Garret Murai

      Hi James. First thing is first, you should check whether a permit was required, and if so, whether a permit was pulled for the work. I would imagine that a permit was required, but this is a local jurisdiction by local jurisdiction requirement. If a permit was required but not pulled, I would contact the electrician and have him pull the required permit. Note, that he may argue that you, as the owner, were required to pull the permit, or alternatively, that you were required to pay for the permit if he pulled one, and therein may lie some disputes. But at the end of the day you’ll want to make sure you have permitted work, for safety reasons one, but also because as the owner you would need to disclose all non-permitted work to a buyer should you decide to sell your house.

      Reply
  15. Tina

    Garrett,

    Im currently dealing with a surety company that I have filed a claim with and there are multiple claims that exceed the amount of the bond. You stated earlier If the amount of the bond is insufficient to pay all claims in full, the sum of the bond will be distributed to all claimants in proportion to the amount of their respective claims. So if the claims total 100k and our claim is for 25k we would get 25% of 12500? Also, can you refer me to where this is written so I have some back up when speaking with them.

    Reply
    • Garret Murai

      Tina, sorry for my delay responding. There are different types of bonds. However, it appears that the type of bond you are referring to is a license bond. Business and Professions Code section 7071.1 provides that “[I]f a bond required by this article is insufficient to pay all claims in full, the sum of the bond shall be distributed to all claimants in proportion to the amount of their respective claims.” I hope this helps.

      Reply
  16. Susana Flores

    Hi,
    We are a subcontractor “steel erector” and we did a project for a general – a public works project. We filed a prelim notice at the beginning of the projected, then we filed a stop notice on 4/7/15. The general contractor is holding the funds on the stop notice plus 25%. Since the stop notice was filed we have been going back and for with customer but still no payment. The owner filed a “Notice of Completion” on 4/16/15. The problem is that nothing has been done since. Since, if I understand everything I read correctly, I missed the deadline to go after their surety bond – does this mean I have lost all my rights or is there still something I can do? Can I still go after their bond? Can I file a lawsuit? Not sure of the next step.

    Please advise.

    Thank you in advance for your help.

    Reply
    • Garret Murai

      Hi Susana. Yes, it appears you are too late to enforce your stop notice, as well as to make a payment bond claim, and are left with filing a lawsuit for breach of contract against the general contractor.

      Reply
  17. Lanny Knight

    Hi, I had a contract with a licensed HVAC contractor to install a furnace in my 100 year old family home. The contractor failed to complete the job after 4 months after estimating the job would take only one week. I determined that my house was at risk from his poor workmanship and told him to stop work. I paid him upfront for labor and materials and even purchased from him Air Conditioning components for future installation that was not part of the furnace contract. When I sought bids from other contractors to finish the furnace installation, I discovered that he failed to take out a building permit. Additionally, I found out that the furnace he provided me was more than 3 years old and the air conditioner was 5 years old and damaged. Because no permit was pulled and the equipment was fraudulently represented as new, no contractor can or will repair the install and must start from scratch. I have filed a complaint with CSLB and they are still investigating. I also filed a claim with the bond company that holds the contractor’s license bond and they have unbelievably issued a denial of payment. They affirm that the contractor and I had a contract. I charged in my claim that the equipment that I purchased from the contractor was fraudulently represented, I provided serial numbers for verification. I charged that the contractor failed to get a permit necessitating removal of all equipment as an extra cost. I charged that the A/C equipment was delivered damaged and provided proof of receipt from the wholesaler that sold the contractor the equipment that it was damaged. I charged that the furnace was a propane furnace and that the building department will not allow installation of the furnace in the basement where he installed it. I supplied the bond company with the phone number of the inspector who told me of the ordinance.

    In their denial letter, the bond company essentially restated my claims and then restated the contractors rebuttal. Which consisted of ridiculous things like “a permit was not necessary since A/C was going to be added later and the furnace was just temporary”. The letter goes on repeating a “he said, she said” dialog and then says it “it is clear that the claimant and the contractor have different opinions of the facts, so we must deny the claim”. They further state “we are not a finder of fact and must leave that to another forum as a court of law”. I submitted a 78 page complaint with transcripts of every text and email I had with the contractor. I submitted photographs of the substandard work and supplied copies of bids for repair from 3 different contractors and the contact information for the building department. My claim is not based on “my subjective opinion”. My complaint against the contractor could be handled in small claims court. But it seems clear to me that the bond company is liable for a “bad faith” lawsuit that I believe can only be addressed in superior court. Do I have 2 claims here?; One against the contractor and another against the bond company for failing to negotiate in bad faith?
    Thank you for your thoughts

    Reply
    • Garret Murai

      Hi Lanny. Not to sound flip given your very detailed description, but it sounds like you need to sue both the contractor and the license bond, and you can do so in a single lawsuit.

      Reply
  18. Dale

    Is there a statue of limitations on a bond when a project was done back in 2012?

    Reply
  19. Josh

    Hello,
    I have filed a claim against my contractors surety bond and also filed with CSLB. Long story short- CSLB cited contractor for several violations. Also turns out I was the 3rd claim against this contractors surety bond in 2015.
    Since the total claim amount was so high (30K) versus the $12,500 bond this was forwarded to the bond companies attorney.
    Now all 3 claimants and contractor is getting sued by bond companies attorney.
    My question- Is the 12,500 now dispersed depending on judgment of this suit, or how does that get collected?
    Thank you!
    Josh~

    Reply
    • Garret Murai

      Hi Josh. Business and Professions Code section 7071.11 provides that “[i]f a bond required by this article is insufficient to pay all claims in full, the sum of the bond shall be distributed to all claimants in proportion to the amount of their respective claims.”

      Reply
  20. Adam

    Hello,

    I filed claim against a contractors license bond. After the 40 day investigation period, the bond company sent me a letter saying that it had completed the investigation and wanted to settle with me in exchange for waiver/release, but that they reserved the right to pull the settlement offer if they received information from the contractor. They did not admit or deny liability in the offer, as they are required to do by the Insurance Code. They sent a copy of the settlement offer to the contractor by email.

    I accepted the settlement. After accepting, over two weeks went by with no word from the bond company – no check and no waiver/release form. 15 days later, I received a letter from the bond company saying that they had heard from the contractor and were pulling the settlement.

    I believe the bond company has violated the California Fair Claims Practices regulations by refusing to admit or deny liability within 40 days. I also believe that they violated the implied covenant of good faith and fair dealing in both the bond contract and the settlement agreement, since they clearly were trying to get the contractor to respond by including him on the settlement agreement.

    I have three questions:

    1. Are my best options to file a complaint with the DOI and file a lawsuit against the bond company?

    2. Is there anything that I’m missing in reviewing the Fair Claims Practices regulations that would allow a surety company to do what they did?

    3. Assuming I’m not missing anything, is my research correct that I cannot include a claim for bad faith against a surety company even though they violated the law?

    Thanks for your help.

    – Adam

    Reply
  21. Joan Madeline

    I am confused about this ‘pro-rating’ of a bond to all claimants – our claim was for $10,090 (we won a judgment in court against a contractor) of the $12,500 bond. On the phone, the bond company said we have a good claim but there is one other claim against the bond. Then we got a letter saying there are two other claims against the bond. What – when they receive a claim, they just doodle around for a year to see if there are other claims? Shouldn’t they be paying off the FIRST claim (ours?) – this makes more sense to me! Wishful thinking I suppose ; (. We actually lost about $18,000 to a con artist of a plumbing outfit so even recovering the $10,090, we are losing almost $10,000. Advice?

    Reply
    • Garret Murai

      Hi Joan. Unfortunately, where there are multiple claims against a license bond the amount of the license bond is distributed pro rata not on a first come, first served basis. However, you have a better option since you have a court judgment: Send a letter to the California Contractors State License Board, identify the name of the contractor and their contractor’s license number, and enclose a copy of the judgment. The contractor’s license will be suspended if the contractor does not pay off the judgment in 90 days.

      Reply
      • Joan Madeline

        +Thank you for your quick response – I spoke with the Surety Co representative, and he informed me that the Defendants/the bond-holders have indicated they will be satisfying the judgment directly with the court. I let them know that the clock was running and that we would be asking for penalties and interest per CCP 7071 (I think that is the applicable code, don’t have my notes in front of me) which states in essence that if they do not satisfy the judgment according to applicable law, the Plaintiff will be entitled to attorney’s fees, interest & can request that Defendant go to jail. I am paraphrasing here, but I think all of these consequences will motivate Defendants to do the right thing and pay off the judgment, so I am hoping this will be resolved quickly. But knowing the time frame as indicated in your response is helpful in case this whole thing falls thru! Thank you for your help – – – not very many things more despicable in life than a crook/con artist contractor taking advantage of one’s elderly folks. This was no honest mistake, this was a con game that this contractor runs on elderly customers. Thank goodness for remedies ; ) and maybe this dishonest crook of a contractor will think twice when he tries to defraud his next customer… one can only hope!

  22. Adam

    Hello,

    I filed a claim against a contractor’s license bond. 40 days after my submission, I received a letter from the bond company saying that they had concluded the investigation and were offering me a settlement. They did not admit or deny liability. They attempted to reserve the right to rescind the offer if they “received a response from the bond principal.” They said that were “processing [me] a check.” They also sent a copy of the settlement proposal to the bond principal.

    I did not hear anything from them for over two weeks. 15 days after I accepted the settlement, they sent me another letter saying that they were “reopening the investigation.”

    This seems like a clear violation of California’s Fair Claims Settlement regulations, which provide that surety companies have 40 days to admit or deny liability. Am I missing something? Is this a permissible way for surety companies to extend the 40 day deadline, even though the regulations say that non-response from the bond principal is not an excuse for delay? I’m relying on California Code of Regulations, Title 10, Chapter 5, Subchapter 7.5, Section 2695.10, which seems to regulate these kinds of matters.

    Thanks for your help.

    Reply
    • Garret Murai

      Hi Adam. I noticed that you had submitted an earlier comment as well. sorry for the delay responding. I believe you are absolutely right. 10 CCR 2695.10 states that “[a]s soon as possible, but in no event later than forty (40) calendar days after receipt by the insurer of proof of claim, and provided the claim is not in litigation or arbitration, the insurer shall accept or deny the claim, in whole or in part, and affirm or deny liability. Moreover, the section further provides that “[a] principal’s absence, non-cooperation, or failure to meet the bonded obligation shall not excuse unreasonable delay by the insurer in determining whether a claim should be accepted or denied.”

      Reply
  23. david Sena

    Hi Garret;
    I am a subcontractor, and was not paid by general contractor. last week filed a claim against GC contractors surety bond, the GC has been paid by owner for my portion of work, but don’t know how to prove it. do you know how i can request this information from owner?

    Reply
    • Garret Murai

      Hi David. Other than the GC or owner voluntarily providing you with this information, the only absolute sure way, is to file a lawsuit against the GC and either request the documents in discovery and/or subpoena the records from the owner.

      Reply
  24. ConcernednAngry

    Hi I would really appreciate any help you guys can give me. In February I have hired a contractor to finish a renovation project that would take 2 1/2 weeks to finish. The contracted amount is $22000 the contractor has delayed again and again til April, I had no choice but to let him go because he couldn’t get anything done. While he was still working for me he would show up one day out of a week and did very little work only to demand more money outside of his schedule. On numerous occasions he would not listen to my instruction which resulted in further delay when getting inspection.

    I have then immediately filed claim with his bond and was told that they will go through process to either have him finish the job or serve them certified letter which would take up to one month to do so. Also today I found out on plumbing which he claimed he did was not even tight into the house. Is there anyway I can speed up this process? Do I need to just start law suit with both the contractor and bonds company? Immediately?

    Reply
    • Garret Murai

      Hi ConcernednAngry. Thanks for reading. You’ve got at least three potential claims here: (1) a claim against the contractor’s license bond; (2) the filing of a complaint against the contractor with the Contractors State License Board (“CSLB”); and (3) a claim against the contractor directly. It’s not unusual for claims against license bonds to take several months to resolve, and even then, it’s not unusual for a license bond surety to deny the claim, leaving it in your court to file a lawsuit against license bond surety. The filing of a complaint against the contractor with the CSLB “may” get you some compensation. The important thing to know here is that the CSLB is an enforcement agency, they’re not your attorney, so even if your contractor did something very, very bad it is just as likely that the CSLB may suspend or revoke the contractor’s license but with no compensation to you. While this might give you a sense of justice it won’t mean you’ll be made whole, economically at least. The third, and most direct way to make your contractor literally “pay,” is to file suit against your contractor. I would consultant an attorney before doing so, however, as you will likely need some analysis of your potential damages, the likelihood of the recoverability of any damages, whether you would be able to recoup your attorney’s fees, and whether the contractor may be judgment-proof. ConcernednAngry, I hope this alleviates a bit of your “concern,” although I realize it will likely do nothing to diminish your current “anger” at the situation.

      Reply
  25. Geoff

    We had a HVAC installed in our home in Feb. 2013. It was incorrectly and unsafely installed, no permit was pulled by the HVAC company, no HERS testing was done, and thus no inspections were done by the city building inspectors. We now know that the unit will need to be uninstalled and reinstalled correctly. Long story short – we no longer have any trust in the work or word of the company that did the original install, and we really do not want to allow them to do the corrections. We have filed a complaint with CSLB, and they have determined a citation is in order, but they said the original company has the right to come fix the errors. We also filed a claim against the contractor’s bond, for the amount we paid him in good faith for work that he did not do or did wrong, so we can pay another company to correct the first company’s errors (and have a safe HVAC sysytem in our home). The insurance company states we have exceeded the 2 year statute of limitations and has denied our claim. Our feeling is, if the contractor did not provide a contract, did not pull a permit, did not have HERS testing done, did not have final inspections done, and did not perform well, shouldn’t the statue of limitations be waived … or start when a permit was actually pulled in January of 2016. We had no idea of all the problems with how our HVAC was installed until 12/2015 when another HVAC company was looking at it. Are we just out of luck now? Are we outside the statute of limitations? Are we limited to having the original company correct the issues for free or paying to have another – more reliable – company do the corrections at our expense? We appreciate any wisdom you can provide. We feel so taken advantaged of and frustrated.

    Reply
    • Garret Murai

      Hi Geoff. Unless your contract specifies otherwise, and I would be surprised if it did, there is no requirement that you allow the HVAC contractor to come back and repair its work. As to whether you have exceeded the statute of limitations on making a claim on the contractor’s license bond, you have two years from the date the bond expired. You can find out when the bond expired by looking up the contractor on the Contractors State License Board’s (“CSLB”) website. And, finally, as to whether you have any other remedies other than filing complaint against the contractor with the CSLB and making a claim against the contractor’s license bond, you do. You can always sue the contractor in the superior court.

      Reply
  26. Grace

    This is a very informational thread. So glad I stumbled upon. I am curious about a situation we have. We were a sub on a commercial/retail project. Currently we are still owed about $50k, comprised primarily of retention and some change orders.

    Can we file a claim on their $15k license bond? If we can, does this prevent us from filing a lien?

    There was no performance and/or payment bond for this project and at this point, the GC is completely unable to pay.

    Reply
    • Garret Murai

      Hi Grace. If this is a private works project you can pursue both a license bond claim, (only up to $7,500 though) as well as record a mechanics lien (provided you have served a preliminary notice and complied with the time requirements for recording a mechanics lien).

      Reply
      • Grace

        Thank you for this. We received the bond claim info today, and now I know what to expect from that, assuming there aren’t multiple claimants.

        This is indeed a private works project. We still find ourselves confused about the deadlines to file a claim. We received a payment a couple of weeks ago, and we had employees on site as of a week ago. How do the deadlines for filing a lien really work? Additionally, do you have any information you can provide as to what a Stop Notice does in comparison to a Lien?

        I do appreciate your feedback.

      • Garret Murai

        Grace, you can find information on mechanics liens and stop payment notices under the “Blueprints” menu of our blog.

  27. Helen

    Hi Garret,

    I filed a claim against a tile contractor for bad workmanship with the CA state contractors board and with the contractor’s bond insurance. I just received notice that the tile inspector that the state sent out confirmed it was a bad install and estimated my damages at $16k plus. I’ve forwarded the state’s report to the bond insurance. In this case, when the state finds the contractor at fault for bad work will the bond insurance pay out on my claim?? The contractor also did a bait and switch on the materials I paid extra for in my contract. This was also noted in the state’s report. Thanks in advance for your thoughts on this matter.

    Reply
    • Garret Murai

      Hi Helen. Not necessarily. A CSLB finding is not binding on a surety and vice versa. Each has independent investigative authority.

      Reply
  28. George Zagurski

    Garrett,

    I filed with both the CSLB and the bond company on a $26,000 job. The bond company sent correspondence and i is paying the maximum claim amount of $12,500. Can I file in small claims court for additional amount o $10,000 (to try to receivei close to the total of $26,000) even though the bond is settling the $12,500?

    Also, I have only a couple of days to respond to the CSLB for mandatory arbitration which if I am granted a judgement would amount to the $12,500 the same as the bond is offering. Is moving forward with mandatory arbitration even worth it?

    Reply
  29. Christie

    I loaned a contractor $15,000 because he was having cash flow issues and now he refuses to pay me back. Is it possible to make a claim against one (or both) of his bonds? To be clear, there was no project and no expectation of work being done.

    Reply
    • Garret Murai

      Hi Christie. A claim on a bond, whether a license bond, payment bond, or payment bond, has to relate to work a contractor performed or did not perform on a project. From your description it sounds like you provided a private loan to a contractor which the contractor has not paid back and is not related to work the contractor performed or did not perform on a project.

      Reply
  30. Hakiim

    I got a judgement against a contractor for $4,900 from court. I presented it to the bond company and they said they will only pay $3,000 because of california civil code section 3358. the deduction of contract retention from claimed damages? is that true? The contract price was 5,000 and I paid him 2,000 but he never started any work. he stole my money and ran, thats why i filed a claim.

    Reply
    • Garret Murai

      Hi Hakim. I’m scratching my head regarding the applicability of Civil Code section 3358 which basically says that you can’t recover more in damages for breach of contract than you would have received if there were full performance of the contract. If the contract price was $5,000, you paid the contractor $2,000 and the contractor bolted, but you received a judgment of $4,900, then that suggests to me that the judgment was for more than just breach of contract. Hence, my confusion as to why Section 3358 would apply.

      Reply
      • Hakiim

        Hi Garret, Thanks for the quick reply. The court awarded an additional 2850 in attorney fees and 50 for court fees. I am confused in section 3358. What is it for? Also aren’t the bond company supposed to pay me back the actual cost of completing the job if i get another estimate from another company?

      • Garret Murai

        Hi Hakim, as I mentioned above, I don’t know why Civil Code section 3358 would apply. As to your other questions, this is a legal blog with general legal information and I can’t provide you with specific legal advice. For specific legal advice you should retain an attorney.

  31. Christy

    Hi recently hired gen contractor to do remodel. He hurried payment schedule demanded money when work not complete. Way behind on scheduled time limit. Don’t think he pulled permit to move toilet or a wall. Shoddy work. Windows/sliders installed incorrectly. Didn’t pay tile sub. Filed complaint w/ CSLB awaiting their response but can I go ahead a file claim on his bond? Have estimates but need to get work completed do I have to wait for responses from CSLB and bond ?

    Reply
    • Garret Murai

      Hi Christy. You can pursue a CSLB complaint simultaneously with a license bond claim and you do not need to wait until either or both are resolved to complete work.

      Reply
      • Christy

        Received a notice of mechanic lien this week for balance on contract. Original contract $37,000 balance due $6000–How can GC feel he is entitled when work was not completed or done correctly? Will the CSLB or bond company address this? Or will I need to get an attorney to fight it? Frustrated with all of this.

      • Christy

        CSLB sent file to investigator now- bond company says two other open claims At this time on this contractor-if he has liability insurance would they pay ? What about my homeowners policy?

      • Garret Murai

        Hi Christy. Insurance claims are very fact specific and depend on the type of insurance involved, what those insurance policies say, and what facts give rise to the claim. In short, I couldn’t answer your question in general blog post. You should consult an attorney.

  32. Nate

    Hi, Garret — I filed a surety bond claim against a licensed contractor for a messed up job on my home, and the bond company has just decided in my favor. I have not signed the release, yet. I did not realize this could prevent the contractor from renewing their bond insurance and getting further work. It is not my wish to ruin the company, I just wanted to be compensated for the damage. If I have the contractor pay me directly, and cancel my claim, will they be able to resume business and get insurance again? Or is this already on their record and too late? Thanks very much for explaining.

    Reply
    • Garret Murai

      Hi Nate. Thanks for reading. You sound pretty kind hearted, but you shouldn’t worry. The way license bonds work, as a condition of the license bond surety issuing a license bond on behalf of the contractor, the contractor contractually agrees to repay the surety if the surety should pay out on a claim. A contractor is only at risk of losing its contractor’s license if it fails to repay the surety.

      Reply
      • Nate

        Thanks, Garret. I really appreciate your maintaining this blog, very helpful.

  33. Janet

    Just wondering, if I have a current claim against a contractor, and the contractor settles with me in cash for less than I wanted and requires me to sign a full release, but then I continue with my CSLB claim, can he sue me since I signed the release or am I protected under AB2570?

    Reply
    • Garret Murai

      Hi Janet. No court that I’m aware of has weighed in on that issue. Which is likely because the statute is clear that a contractor cannot, as a condition of settling a dispute, prohibit the other party in that dispute from “contacting, filing a complaint with, or cooperating with the department, board, bureau, or program within the Department of Consumer Affairs that regulates the licensee or that requires the other party to withdraw a complaint from the department, board, bureau, or program within the Department of Consumer Affairs that regulates the licensee.”

      Reply
      • Janet

        Thanks so much, Mr. Murai. I was thinking I would file a license bond claim to try to get the rest of the money. They would not pay much, but I think it would make up the difference, and since the surety company is on the CSLB site, I guess I am safe to do so under that statue. I just hope the contractor and the bond company will pay, as I really don’t want to file suit — could not afford it!

  34. Ryan Famularo

    Hello,

    I am a homeowner who has filed a civil suit against a contractor and contractor’s bond. The CSLB have ruled in our favor and the contractor himself is more than likely just going to file for bankruptcy but the bond company says it’s still going to do its own investigation. My question is, is if the bond company decides not to settle and take this to court are they responsible for our legal bills OUTSIDE of the bond amount (Pending we win)? Example – bond amount 15K but we could have that much in legal bills. Would they be required to pay our legal bills and the bond amount awarded? Thanks much!

    Reply
    • Garret Murai

      Hi Ryan. Thanks for reading. Unfortunately, the answer is no. The “aggregate liability” of a surety on a license bond to a homeowner is $15,000 including attorney’s fees.

      Reply
  35. Chad Bommer

    Hello Garret, I am a contractor who had a compliant filed against my bond. The judgement was made against my company and I was forced to pay over 7K to the plaintiff. I did not receive any report paperwork from my surety company until after the CSLB threaten to suspend my license. After reading the report, there are numerous inaccuracies. Is there anything I can do to appeal this decision? I have concrete evidence showing the things stated in the report are not true. The plaintiff is known in the area for being a scam artist is what I have found out. I feel I was taken for a ride by the plaintiff and a total lack of communication from my surety company. Can I take retribution on the surety company?

    Reply
    • Garret Murai

      Hi Chad. The Fair Claims Settlement Practices Act (California Insurance Code section 1790.03 et seq.) and implementing regulations govern claims handling obligations by sureties. If you believe the surety company violated its obligations you can file a complaint with the California Insurance Commissioner.

      Reply
  36. Becky

    I paid a deck contractor $3900.00 for work on my deck and fences. The contractor only came by to pick up the check and drop off his crew of 3 men. The project was less than 2 days. When it was completed, it looked terrible. The only thing acceptable was the fence staining. I asked the contractor to come look at it. He agreed but never showed up the day he said he would come. We squabbled on email. Finally, the contractor sent his wife after I emailed a picture of what his crew did. His wife agreed to re-sand my deck and stairs by herself. I agreed and signed a contract. The contractor signed the other half even though he never came out to see the damage. A few days after our agreement, his wife did something deliberately deceiving, and I refused to have her come out to sand my deck and stairs. I filed in small claims court for $3400.00 and posted an honest review on Yelp. I had other contractors give me bids, and they claimed he did shoddy work. This is what his crew did: straightened my deck by stacking scraps of wood on top of old pier blocks-not anchoring wood posts in new blocks; scratched up my stairs, leaving large black and red marks from the old solid stain; and let the new stain to puddle, leaving blotches and blemishes throughout my deck. I have before and after pictures. The contractor countersued me because of my review on Yelp. A judge pro tem (lawyer) heard our cases, but I was rushed when presenting my evidence because we were the last on the docket and criminal cases needed to start. Neither of us won our lawsuit. I painted over my deck and stairs with solid stain because I could not stand looking at it anymore. I contacted the CSLB. The CSLB suspended the contractor’s license for 3 months because of no workman’s compensation. The CSLB representative stated the contractor was willing to refund $1200 of the $3400. During my interview, I told the CSLB rep. that I would consider $1200.00 as the lowest refund. I prefer to get my $3400.00 back. I have not replied to the CSLB rep. yet. What can happen if I file a claim on his bond?

    Reply
    • Garret Murai

      Hi Becky. Contractor’s are required to carry a license bond of $15,000 subject to all claims made against the bond. Thus, if there are other claims against the bond the aggregate amount payable by a license bond surety on all claims is no greater than $15,000. When a license bond surety receives a claim against a bond they will usually conduct an investigation. Sometimes this includes a physical inspection, but often times, not. The claims process against a license bond is separate and apart from a claims investigation conducted by the CSLB, so a determination made by the CSLB is not binding on the surety, nor vice versa.

      Reply
  37. Becky

    Thank you so much Mr. Murai,
    Your blog is so helpful to homeowners.

    Reply
  38. Amanda

    Question, what are the rules on filing over state lines? I live in MA now but want to file a claim on a surety bond from a job in CA.

    Reply
    • Garret Murai

      Irrespective of where you are located or where the project is located, to file a claim against a bond, whether a license bond, payment bond, or performance bond, you will need to file in accordance with the surety company’s claims process. You can likely find this information on the surety company’s website or by calling the surety company. The laws governing how a surety company handles a claim will be determined in accordance with the laws of the state where the project is located. In California we have the Fair Claims Settlement Practices Act.

      Reply
  39. Janet

    Hi Mr. Murai – Janet again. We filed a license bond claim (in California) against our plumbing contractor back in February. We also have a claim against them with the California State Licensing Board. The Surety company is dragging it’s feet settling with us, even though they have all the documents they need. The CSLB investigator thinks it is because they want to see what the CSLB industry expert comes up with when he inspects our sewer this month. However, since then more claimants are piling on to this small bond, potentially diluting any and all settlements. Now there are 3 claimants. We just missed the date when the claim amount increased to $15,000 in California, and our claim is for the full amount, as we have $19,000 worth of damage. I know we will not get even 1/4 from our claim at this point. And the CSLB Investigator says sometimes surety companies will even wait for years if the principal decides to appeal a CSLB judgement! So my question is: Is the surety company within their rights to stall all these claims and heap them together under ONE small $12,500 bond?

    Reply
    • Garret Murai

      The surety is within their rights to ensure that all claims against a license bond are resolved or paid out since the aggregate liability of a surety is the amount of the bond.

      Reply

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