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.
Earlier 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 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+.
164 Responses to “Understanding the Surety Bond Claims Process”
Hi Garret –
Recently as of jan 1, 2023 the limit for bonds has increased to 25k (up from 15k).
If I am disputing something from last year (prior to the limit increase), can I claim this new amount of 25k of damages, or am I limited to the 15k since the damages occurred prior to this new limit increase date, when the contractor had just 15k of insurance.
Please let me know
Hi Mikey. Unfortunately, you would be limited to the amount of the bond in place at the time of the event(s) giving rise to the claim.
Are there any “consequences” for contractors who have unsuccessful claims filed? Maybe their rates go up? If multiple claims are filed, are they dropped by the surety company? Maybe they become “high risk”?
Also, one files a CSLB complaint against Construction Company A. The RMO for Company A is also the RMO for construction companies B, C, & D. Companies B, C, & D all have different surety companies. Can one notify B, C & D’s surety companies of the pending complaint / revocation of the RMO? The thinking being that if the RMO’s license is revoked, then B, C, & D will have issues.
( A, B, C, D and several other contractor companies play incestuous musical chairs and the goal is to make any and everyone associated with Company A and Company A’s personnel as uncomfortable as possible.)
Hi HB. Sorry for the delay responding. Good question in which I don’t have an answer. However, if the claims were unsuccessful I don’t think it would impact a contractor’s rates. Similarly, I don’t think that multiple claims alone would cause a surety company to drop a contractor unless those claims result in a payout by the surety company.
Does acceptance of a bond claim precludes seeking other civil remedies?
Thanks for explaining that the principal is the contractor who buys the bond in a construction bond. I am debating on having a new building constructed for the business I want to start up. It’d be nice to get a construction service’s help with the bond so I don’t mess things up.
I suggest talking to your insurance broker. If you don’t have a broker many of the well known insurers, like Travelers, have a surety bond division.
Any input to this ridiculousness is very much appreciated. We contracted 35000 and replaced 3500 sq of a commercial roof. There had been leaks prior and roof was a mess. It took us almost 4 weeks to complete. The claimant (our client) was verbally asked what she wanted upon completed or the replacement etc (as was it in the contract), she just wanted a Rubin layer to reflect uv. I even have my salesman as a witness. There’s been a $7500 surety bond claim against me and no one has any merited claims or justified means to do so! I’ve reported this to the department of insurance as the bonds been paid to the claimant. Here’s some facts that I’ve been accused of doing without any proof of images or truth to the entire matter.
Bond Claim #SNTT000750
Incompetence regarding accusations by Golden State Adjusters and SIS Ins.
•Zero proof showing DC Roofing & Waterproofing Systems “Deliberately and Willfully” misrepresented or misconducted their project intent to the claimant.
•DC Roofing & Waterproofing Systems never contracted to roof Ann Lewald’s house. Clearly, there’s incompetence on behalf of Golden State Adjusters and SiS insure.
•Regarding the thin layer mentioned . Elastomeric acrylics are nota sealing waterproofing sealing membrane. They are put on to reflect UV rays and protect the sealed roofing membranes below the coating. The majority of the project was below the coating layer.
•Referencing Golden States accusation about “lifting and curling” of maintenance roof coatings. A single layer of elastomeric acrylics are not a full coating system. Nor do they seal the roof from Waterproofing. The roofing membrane below seals the building and protects it from water intrusion. We did not find any lifting or curling of anything on our 2+ visits back to the clients project. **Pre-existing leaks inside stains.
•There cannot be any claim nor payout on “a reference” that never happened. I’m copying Jordon Gill, David Boring, and Hector Diaz. None of the related individuals ever sold, applied nor visited Ann Lewald’s home. Please deny any wrong doing on Behalf of DC Roofing & Waterproofing Systems. Thank you in advance.
Any comments or questions are ok. I’m an ethical man and always do things properly. We’ve never walked away or made a willful intent to create any harm and there hasn’t been any! It’s a complete fraud job and im just hoping the dept catches it.
Brian, sorry for the delay responding. It sounds like you need legal counsel as the facts you’ve set forth are quite detailed. Having said that, if all that is at issue is a $7,500 claim you may want to think twice about whether it is worthwhile to retain counsel. I did pick up that it was $7,500 claim. This suggests to me that this is a claim against your license bond although the amount suggests that this is a claim by a vendor or subcontractor since vendors and subcontractors are capped at $7,500. Property owners are capped at $15,000. In any event, if this is a license bond claim, and while your license bond surety has final say so on payout under your license bond, your surety does have an obligation to keep you informed and to allow you to present documents and information in support of your position. Good luck to you.
We contracted with a solar company in Dec. 2018. In 2019 we noticed electric bills higher. Solar Co relocated panels and we had massive leaks in house from 40+ holes drilled in roof. Solar Co used product not supposed to be used on flat roof (Henrys Durabride). Went to bond co to get resolved. After receiving 3d party assessor report from Bond co., Solar Co admitted liability (new roof $17k) and said they would pay (in writing to us, hiding 3d party report to get us to agree) and are now saying they will only pay 25%. Bond co says they rely on 3d party report that says they are responsible for >25%. Bond co now going back to 3d party report guy for his decision which will be most likely no more than 50% (per discussion with 3d party guy).
We also filed a claim with our homeowners ins since the solar co was taking forever to get the inside dealt with and we did not want mold. We want our $2k deductible back and our ins wants their money back.
Any suggestions. would be appreciated.
Tracy, sorry for the delay responding. You would need to file a lawsuit against the contractor and it’s license bond surety.
I have had an open bond claim for 7 months and they are saying they will only rule on my case after a CSLB mandatory arbitration – I thought they were separate entities? Can they force me into arbitration like they did?
Also, they seem to highly favor the contractor’s side. The bond company took private emails I sent to them (not as submitted documents or evidence) and forwarded them to the contractor – is that allowed? They also won’t provide me with the non redacted checks and invoices that the contractor submitted – I understand redacting bank info on checks but they canceled out who the check was written to and even the memo line. Isn’t it the bond’s obligation to provide me with all the docs submitted by the contractor? I feel my case is being handled in bad faith.
Kay, you should look up the California Fair Claims Practices Act on the internet. It sets forth the deadlines sureties must comply with.
Hi, we are a General Construction Co, we got terminated by a letter from owner’s attorney merely just because they changed their mind re flooring of laminate to a tile issue when we asked for extra charge changes, all of the required work has been done with inspection and been signed off, a letter from attorney came saying he will go after our bond trying to collect damages , can he do that since we have passed all inspections, or how the bond company will fight the case,
Sorry to hear Fred.Your license bond surety would be looking to see whether you violated the same code provisions as the Contractors State License Board. For a list of those code sections read here – https://calconstructionlawblog.com/2015/04/13/what-you-need-to-know-about-enforcement-actions-by-the-contractors-state-license-board/
I just won an CSLB arbitration award for $15k. The contractor did not pay and their surety bond said they can pay me $7,500. Would you be able to explain why only $7,500? The contractor worked on my 4 unit apartment building which are rented out to tenants. The award consisted of about $13k of work that I paid for which was not started and the balance was for corrections on work that was done. I am not sure if the Surety company is trying to trick me into accepting a lower amount.
Also, if I accept the $7,500, can I still go after the contractor for the rest of the $7,500 award?
Thanks a lot!
Hi Janice. Except for homeowner’s contracting for home improvements upon the homeowner’s personal family residence, the maximum amount payable under a license bond is $7,500. In terms of whether you can go after the contractor for the remainder of $7,500, the surety will likely require that you sign a release in exchange for receiving a check for the $7,500. You should review the release to make sure that it does not release the contractor from any claims you have.
1. Our little congregation owns a single family home, which is used both a place of worship as a home for the preacher’s family. We are about to file a claim against a contractor’s bond. Is our limit $7500 or 15000?
2. We filed a complaint with the CSLB, but didn’t send it in within the required 10 day period. Can we we refile? Must we refile to have the surety claim proceed?
Thanks so much.
Hi Nathan. Sorry for the delay getting back to you. This is a grey area. I would argue that since it is home where the preacher lives that the $15,000 cap should apply, rather than the $7,500 cap. Not sure what you mean by the 10-day period to file a complaint with the CSLB. You have up to 4 years to file a complaint against contractor with the CSLB. Good luck to you!
Question for Garret,
The regulations on surety bonds state that after a claim has been submitted the surety has so much time to accept or reject the claim. If the surety does neither and allows time to run into months and months which then allows others to file claims long after first claim should have been paid, what recourse does one have in that situation?
Hi Katie. Sorry for the delay responding. There are actually time frames, although they can be a little loose at times, for surgeries to respond. Look up the “Fair Claims Settlement Practices Act.”
I went through the CSLB Arbitration program and was awarded the maximum amount. Shortly after, my bond claim which was first denied, was finally approved with the help from the CA Dept. of Insurance. Are these two awards separate? Can I collect on the Arbitration Award + the surety bond? Or is the insurance surety bond used and applied to pay towards the Arbitration Award balance?
Hi Jonny. Sorry for the delay responding. This is a fairness question of sorts but also a legal question. By law, you’re not supposed to get a double recovery exceeding the total amount of your damages. If that’s not the case, you’re fine. If it is the case, a party can ask that the damage award be reduced.
We submitted a complaint to our contractor’s bond for poor workmanship in August 2018. The Bond company just informed us that there is a 2nd complaint for the same contractor. I know that “If 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.” However, what are the guard rails here? Do we need to wait until they finish the investigation on the 2nd complaint – which could be another 9 months? and during that time another complaint can come in? Or is our 2018 complaint against the 2018 bond and the new complaint against the 2019 bond? I am not sure when the work was done related to complaint #2. Again, I am just trying to find the rules here that the bond company needs to follow when there is more than one complaint against a contractor’s bond.
We are also in CSLB arbitration process which has a capped amount. The capped amount will not cover the full amount of our complaint. Therefore we will ask the CSLB to indicate the full award so we can pursue the additional funds to the Bond.
Chris, what may happen when there are multiple claims against a license bond, is that the surety will require all parties with claims against the bond to determine their proportionate share by filing an “interpleader” action with the superior court. An interpleader action is where the surety deposits the license bond amount with the court, likely $15,000 in your case, and sues all of the parties with claims as well as the bond principal, which is the contractor, as defendants. The parties with claims then fight out what their proportionate share is. It’s not pretty given the economics of litigating over $15,000 and what likely occurs, particularly if the bond principal doesn’t respond, is that the parties will reach an agreement as to what portion of the license bond they will split because engaging in a protracted battle isn’t cost effective.
Hello. The contractor did a lousy job on my patio and roof covering. We signed the contract in August and he didn’t begin until October then again in December. His license was suspended and he didn’t pull the permits. I paid him in full which was dumb but I was told to go after his bond of $12000 here in the state of Washington. The roof doesn’t pass inspection and it all looks terrible. What are my options? Thanks
Hi Byron. The article you read is on the California Construction Law Blog. If the house at issue is in Washington state you’re not going to find helpful information here.
The surety bond validated my claim but is offering low ball amount along with requiring me to sign a conditional release and fill out a W-9 form. If I accept the low ball amount (for example $5,000 vs $9,000) from the surety bond, can I sue the Contractor for the additional amount? Also, does California Department of Insurance require claimants to fill out W-9 form? Can Surety bond withhold paying out on validated claim if I don’t fill out and submit W-9 form? Lastly, I don’t agree with how surety bond is coming up with low ball amount. If I accept the low ball amount, does it mean that I am agreeing to the reason for the amount surety bond wants to pay to settle? Thank you!
John, most sureties will require that you sign a release, releasing both the surety as well as the principal (i.e., the contractor), as a condition of payment. As such, you would not be able to sue the contractor based on the same claims being released. There is no law requiring you to complete a W9, but it is typically requested, because the surety needs to report to the IRS that it has made a settlement payment.
Oh, sorry, one more question: how about suing in small claims court naming both the contractor and its surety company as co-defendants? Thanks.
You can do that too.
Thank you for this very informative blog. My situation is this: I am considering taking action against a duly licensed California heating contractor who, unbeknownst to me at the time, improperly installed a furnace in my home in 2012 (He failed to pitch the furnace properly, allowing condensation to collect inside the furnace, which lead to internal corrosion and the ultimate failure of the unit in October 2017, well within the manufacturer’s 10-year warranty on parts). The contractor replaced the failed furnace in its entirety (again, with the improper pitch) although the warranty covered only “parts.” (When I asked why he intended to replace the entire furnace, he replied that it was “fried” and that it would be impractical to replace the failed parts). He removed the failed furnace and said he would help us in any way he could in our pursuit of a warranty claim against the furnace manufacturer (At that time, I still wasn’t aware that he had improperly installed both furnaces). I requested that he retain possession of the failed furnace in case the manufacturer or its representative needed to inspect it to validate our claim. He has since been totally incommunicado in spite of my numerous attempts to contact him by mail and phone (he “doesn’t do email”). Nonetheless, I filed a claim with the manufacturer, which the manufacturer denied because its warranty only covers parts and not full replacement (the manufacturer says it also tried to reach the contractor by phone on multiple occasions to determine why the contractor had replaced the entire furnace, but had also been unsuccessful). In February 2018, I engaged a licensed third-party heating contractor to inspect the replacement furnace to insure that it had been correctly installed. The third-party contractor found that the furnace had been installed with the wrong pitch and corrected it, so the replacement furnace is now correctly installed.
I paid the original contractor $3,658, which I would now like to recover because he prevented me from recovering from the manufacturer by voiding the warranty, first, by incorrectly installing the first furnace, and, second, by replacing the entire first furnace when it failed, instead of replacing only the failed parts.
I understand that should I decide to pursue an action my options are (1) to file a lawsuit in small claims court, (2) file a complaint with the Contractors State License Board, (3) file a complaint with the contractor’s surety company, and
(4) some combination of these options, either concurrently or consecutively. What course of action is typically most successful in such cases?
You have have the option of pursuing all three options, as to relative success, each has its merits and drawbacks. In a successful claim against a license bond, the surety pays you, but some sureties a reticent about paying claims. Small claims is relatively quick, but even if you win and the defendant has no money, you’re out of luck. CSLB claims have the benefit that the contractor could have his license suspended, or even revoked, which hits his wallet, but the CSLB is sometimes slow to move.
Hi Garrett, I signed a contract with a contractor to build an addition to my condo pending my HOAs approval. I gave him a deposit of $10,750. The HOA denied my request. The contractor won’t return my money. Is this something that I could file with the surety bond?
Yes, and you can also sue the contractor. What the contractor did is illegal. For remodeling contracts, contractors are limited to asking for a deposit equal to the lesser of $1K or 10% of the contract price.
Garret, I have received an arbitration settlement amount of $11,500 against my contractor. Complaint filed with CSLB and industry expert report in my favor. My bid to do the repairs is in excess of $17,000. Can I file a claim against the contractors bond to get the additional funds needed to do the repairs?
It depends on what the settlement says, although it sounds like what you received was an award not a settlement. A settlement is usually a voluntary and mutual agreement between the parties to resolve a case and typically will include a waiver of claims which would include a waiver of your right to pursue, among other things, a license bond claim for a dispute which you settled.
Thank you Garret, Yes it was an award that I received from the contractors board. The contractor has paid the award amount of $11,500 but as stated prior it does not cover the cost of the repairs. Can I now go to the surety bond company to try to get the additional funds required for the repair.
I contacted them and they stated they would only be responsible for the amount of the award (11,500) if it had not been paid.
Does that sound correct to you??
I don’t know of an insurance company that want to do a payout so I am doubtful of their answer.
Thank you in advance.
If it was an award you would be limited to the amount of the award.
I am a 1099 sales rep for a licensed contractor which happens to be an LLC. The contractor has an employee/worker surety bond for $100,000.
The contractor has written me checks in excess of $50,000 that I cant cash because the funds arent available, they keep promising to come current, but the checks are now 8-14 months old.
I have 2 questions
1. after reading California Business and Professionals code, Section 7071.6.5, I am protected although I am not an “employee” rather an independent contractor, 1099. Am I reading this correctly?
2. Are the checks that I have in my possession being more than 6 months old a problem? can I still make a claim? I thought I read somewhere the back pay must be within 6 months to make a claim.
Hi Rocky. I don’t have direct experience with this but it would appear that you might have a claim. Business and Professions Code Section 7071.6.5 provides that the $100,000 employee/worker bond is for the benefit of any employee damaged by his or her employer’s failure to pay wages, interest on wages, or fringe benefits and is intended to serve as an additional safeguard for workers employed by “or contracted to work for” a limited liability company. If you had a written contract you would have four years to make a claim. If you had an oral contract you would have 2 years to bring a claim.
What are the rights of the company whose bond has a complaint filed against it? We would like to see the specifics but have been told that the bonding company cannot oblige us
Hi Maggie. Bonding companies will conduct an investigation to determine if the claim is valid. This investigation usually includes a request to the bond’s principal asking if they agree or disagree with the claim, and if they disagree, to provide information supporting their position. There are no statutes or regulations, however, that set forth how a bonding company is to perform its investigation.
I have suffered damages in excess of the bond $25k. Can I make a claim both in California small claims court and against the surety bond (small claims $10k and bond $15K) to try to recover majority of my damages? If so, do I go to small claims first or file against the bond? Is the bond through arbitration thanks Katy
Hi Katy. You can pursue both the bond and bring a small claims court action simultaneously.
Hi Garrett: I’m dealing with my contractor’s construction surety bond co. since the work he did on some french drains and other drainage pipes were done incorrectly which caused about 20k in damages in our below grade hallway and bedroom. I’ve been dealing with this for about 5 months and now the contractor says that he didn’t do the work. This, of course, is a down right lie – no body else could have done this work. What are my options at this point? The bond company says their hands are tied if the contractor doesn’t admit to doing the work. If this were true, wouldn’t all contractors do this? The contractor admits to have done other work that was contracted for but not the work that was done incorrectly -omg. Please let me know – thank you, Jeff H.
Hi Jeff. I can’t offer you legal advice since I don’t represent you. However, among your options are: (1) filing suit against the contractor; (2) filing a bond claim (you will be limited to recovering a maximum of $15K though); (3) filing a complaint with the Contractors State License Board. As to the argument that “he didn’t do the work,” which I understand to mean that the contractor didn’t do the work himself because he subcontracted the work to someone else, this isn’t a defense because the contractor was hired to do all of the work and cannot avoid liability by subcontracting a portion of that work to others and claiming later “I didn’t do that that work.” This may be a defense to a license bond claim but not in a lawsuit.
hi Garrett: Thank you for your comments
Hi Garret. Will a Bond co pay attorney fees? Mine amount to about $500. Thank you so much.
Hi Kellie. Likely not. License bond sureties have been found liable for attorney’s fees if the underlying contract between the contractor and the license bond claimant includes an attorney’s fees provision. However, most attorney’s fees provision only apply where a lawsuit has been filed and a judgment is entered in your favor, and it doesn’t sound like this is the case in your situation.
Garret, I am so happy. I received payment from the Bond company for the full amount of the bond. The contractors owes me now only $864.00. Thank you for all you words of professional advice.
Wow, you provide great info – thank you! I work for an electrical subcontractor & I have a job which holds a bond. Do I need to include the Surety when I send my Prelim notices? I am assuming yes but since I came across this awesome blog, I decided to go ahead & ask.
Thanks so much for your time!
Hi Pamala. No need to include the surety.
Ok, this surprises me but trust your expertise. Thank you so much for your response. Have a great day! 🙂
You’re welcome Pamala but don’t “trust [my] experience.” As our disclaimer states: “[t]he information contained in this blog is for informational purposes only and does not constitute legal advice or create an attorney-client relationship.” I just don’t walk folks who peruse the comments to think otherwise.
Hi Mr. Murai: Thank you for providing your knowledge. I had a contract with a contractor to dig a below grade 40′ hallway and construct an elevator shaft and elevator. He said job to take 4 1/2 months. Seventeen months later the job was still not completed ( about 7-8K of work still needed to be done) so I had the contractor sign a lien waiver and told him that i would finish the job – he was also about 30K over budjet. During the project, we always had water leakage into our hallway and elevator shaft when it rained. He said he would get to the bottom of it and fix the problem. We live in Southern Calif. so therefore not much rain. I assumed that he fixed the problem. After i finished the project, we had a rain storm that poured water, once again, into the hallway/shaft. To make a long story short – after much investigation, it was determined that an improperly constructorfrench drain along with ill fitting pvc connections were the culprits.All this was done by the contractor. I filed a claim against his surety bond. The first person i talked to at the company said that they would recommend that i use license contractors to do the work but did say that, if i chose to, that i could use non licensed people as long as i documented their work and to take pictures before ,during, and after the work was done. My claims rep. with the company also reiterated the same info. These non licensed people were about 40% less than licensed people. The work has been done, and fortunately, no more leaking. Now my adjuster is telling me that they can not use any info from the non licensed people that i used ( to substantiate the contractor’s poor work ) and that it was actually ” illegal” for me to have used non licensed people to do work that licensed people should have done. What? I took pictures and videos clearly showing the problems prior and pictures of the completed work and now they come back , after i completed the work, and tell me that i should not have done that. I asked for them to send out an investigator before anything was done but they refused to do that – both of these people at the bond company told me this over the phone so i don’t have anything in writing but perhaps they recorded our phone conversations – i doubt it. This was unethical and unfair in my opinion, so would like to hear your opinion as to what I can do next. The work that was done was strictly re-doing french drains and re-doing drainage/pvc connections – really doesn’t require licensed people since the work wasn’t that complicated. They have not responded to me for 2 days now. Would it help if i file a complaint with the CSLB? Thank you for your response. Jeff H.
Hi Jeff. All sounds very shady. The CSLB likely won’t do anything against the surety since they don’t oversee sureties. You would need to file a complaint with the California Insurance Commissioner. You can find a complaint form on their website.
Hi Garret: Thanks for your input – will i get any where if i go after the contractors liability policy? Is it a common practice amongst suretys to say what this surety said ‘ you can use unlicensed contractors IF you document and take pictures ……Thanks for your input. Jeff
Sure, if you suffered property damage, and the contractor has a commercial general liability policy, you can file a claim against the contractor’s commercial general liability policy.
I had a company install doors in our house. Their defective workmanship resulted in water intrusion and mold. They have paid for the repairs and the mold remediation. However, they had refused to release the mold reports to me, even though they had stated in written form, they would be released on the final day of service. I am told I need these reports in order to sell my house in CA. I had to hire an attorney to have these reports released to me and I am asking reimbursement of the legal fees involved. They have refused. Is it better to file a bond claim or take them to court? Bond claim sounds easier, but from reading your blog, it sounds as though they are not unbiased and may often side with the contractor. BTW, it specifically says in their contract, attorney fees are recoverable in breach of contract.
Hi Sarah. You’re probably out of luck. It sounds like attorney’s fees would be recoverable if you file suit for breach of contract, but from what you explained, the company you hired is no longer in breach because they provided you the reports.
Thanks Garret for the reply. But I had to hire an attorney to receive these reports. They had refused to release them to me and without the reports, I am told I could not sell my house. This is something even small claims would not see a reason to reimburse? Thanks.
Likely not. But you could, of course, roll the dice and try.
Hello Garret. I filed a claim with a contractor’s Bond company. The Bond co told me they needed the final determination from the Contractor’s State License Board because they knew there was an investigation happening. The CSLB will be mailing me the final next week, and it is in my favor. They are enforcing the citations and court is over. I will write a demand letter to the Bond co along with the letter from the cslb final determination, but can you tell me how many days the Bond co has to pay me? What should I state in the letter, 15 days or 30 days to receive payment. I want to be reasonable, even tho this has been going on for 1.5 years. But finally, the contractor has been found guilty after his appeal. Thank you so much for being here for the people who need some extra help.
Hi Kellie. You should be aware that a surety bond company is not bound by a decision by the CSLB, just as the CSLB is not bound by a decision by a surety. While they will take decisions by the other into consideration, the decision of one does not dictate the decision of he other.
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?
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.
Thank you. As an update, the Surety Company came through with the full payment of the $12,500. Now we will need to sue in small claims for the remaining $6500. This plumbing contractor had it in small print in the invoice/contract I signed after the work was done, that should they be sued by me, I would be responsible for their court costs. I gather this means IF they do not lose (although that is conveniently not mentioned). So if I do sue can they still make me pay their court costs even with their bad CSLB history of claims and the fact that the bond co. found them liable?
Hi Janet. By statute, court costs are awarded to the prevailing party. It doesn’t matter what the contract says.
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.
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.
Thank you so much Mr. Murai,
Your blog is so helpful to homeowners.
You’re very welcome.
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?
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.
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?
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.
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!
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.
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?
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.”
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!
Hi Mr. Murai –
It turns out I did file the bond claim instead of dealing directly with the bond principal who was dragging his feet, and the Surety company is awarding me a decent amount. However, it is still about $9,000 short of what I need to rectify my plumbing problem. They also request that I sign a release. It is a lot of legalese I am not quite sure of, but I was wondering, if I do sign the surety company release does this mean I cannot continue to go after the Principal through small claims court and/or CSLB to try to recover the rest? Thanks for reading this.
It depends on the language of the release.
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.
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.
Thanks, Garret. I really appreciate your maintaining this blog, very helpful.
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 ?
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.
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.
Hi Christy. You may want to read our blog post on mechanics liens – https://calconstructionlawblog.com/2013/04/22/the-mechanics-of-mechanics-liens/. Good luck to you.
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?
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.
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.
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.
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?
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.
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.
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.
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?
Hi George, Did you get a response to your question about the Bond money and a separate settlement? was there an offset? I am in the same situation. thanks
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.
Hi Helen. Not necessarily. A CSLB finding is not binding on a surety and vice versa. Each has independent investigative authority.
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.
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).
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.
Grace, you can find information on mechanics liens and stop payment notices under the “Blueprints” menu of our blog.
You’re very welcome.
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.
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.
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?
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.
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?
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.
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.
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.”
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?
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.
+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!
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.
[…] laws applicable in the state, county or city. If they do violate those laws, consumers can file a claim against the bond for reparation. The surety company will pay out proven claims up to the full […]
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?
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.”
Is there a statue of limitations on a bond when a project was done back in 2012?
Hi Dale. I assume you are referring to a payment bond. If so, it depends on whether it is a payment bond a public or private works project. Here’s the info. you need to know – https://calconstructionlawblog.com/2013/07/22/payment-bonds-bonds-for-the-not-so-criminally-inclined/
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
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.
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.
Thank you in advance for your help.
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.
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.
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.
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! 🙂
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.
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……
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.
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
Thank you for sharing this article, I agree that we should understand surety bond, claiming process to avoid any problems or errors.
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.
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.
Can an employee file a claim On a contractors surety bond for unpaid wages owed to him over the past 2 1/2 years.?
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.
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?
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.
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)?
Your claim with the license bond surety is a claim against the license bond and not the contractor. I would send a letter.
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
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
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.
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?
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.
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?
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.
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
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.
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.
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.
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.
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.
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?
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.
When is a surety bond released, say, for money remittance centers in California?
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.