Daniel Lund III | Phelps Dunbar
A subcontractor asserting a payment bond claim for “standby” time for its equipment on the Cline Avenue bridge project (over Indiana Harbor and Ship Canal in East Chicago, Indiana) received pushback from the payment bond surety.
In fact, the duration of the standby time occurred after the surety’s principal, the general contractor, had been placed in default and terminated on the general contract. According to the surety: “After termination of the contract… it is impossible for labor, materials, and equipment to have been furnished for use in performing the terminated contract.” The surety filed a motion for summary judgment.
The federal district court in Indiana disagreed with the surety’s position: “This oversimplifies the matter. A party can furnish an item for another party’s particular use even where it is impossible for the item to be actually used in that particular manner. For example, a person can furnish a bag of cat food to another person for use in feeding the recipient’s cat. If, unbeknownst to the furnisher, the cat has sadly died prior to the food being furnished, then the food cannot be actually used for the intended purpose. The fact that the food was furnished for that purpose, however, remains unchanged. Here, the language of the bond does not require that the items provided be ‘furnished and used’ in performing the contract, only ‘furnished for use.’”
In denying the summary judgment motion, the court leaned also on initial findings that the subcontractor “kept its workers and equipment available ‘in good faith’,” actually received a request from the terminated GC to keep equipment and labor available, and otherwise was not timely made aware (in accordance with its subcontract) of the termination of the general contract. “[Subcontractor] had no duty to verify that the [general contract was still in effect before taking on the standby costs. … The impossibility of [the general contractor] actually using what was furnished for the intended purpose is not determinative.”
McLean Contracting Co. v. Great Am. Ins. Co., 2023 U.S. Dist. LEXIS 90699 (N.D. Ind. May 24, 2023)
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