From sewer systems to schools and subdivisions, bridges to ballparks, and highways to hospitals, seasoned underwriters and producers operate with the knowledge that no matter how diligent one may be upfront, claims are sometimes an inevitable part of the surety business. When claims do ultimately arise, how expertly and efficiently they are handled is critically important to all concerned. A surety with a solid claims department represents considerable value for principals, obligees, and producers.
While it’s true that in the wake of major claims sometimes sureties and their principals wind up as adversaries, genuine success is found when all parties, including the surety, producer, and principal, work as a team. This combined expertise is a force with which to be reckoned. Frequently, in-house claims departments also seek the expertise of a third-party engineering or claims consultant to augment claim investigations and aid in resolving complex claims. On a recent claim, the surety sought the expertise of Guardian Group, Inc., and the company had an opportunity to work alongside the principal and the in-house claims department against a contentious obligee . . . together in the trenches, so to speak.
Proving Contractor Capabilities by Digging Deep Down
The multimillion-dollar bond covered the principal’s work in converting a municipality from a septic system to a sewer water system. The surety bond producer had a longstanding relationship with and belief not only in his contractor-client’s capabilities but also in his character and drive. In this case, the producer’s knowledge of the account proved indispensable in building a bridge between the principal and surety.
As one can imagine, septic conversion is no small feat. Rather, transitioning an area to modern sewage includes a multitude of coordinated supporting projects encompassing everything from trenching to installing the mainline as well as all the laterals, excavating beneath both residential and main streets, and connecting into the extant city sewer system. Very early on in the construction process, the principal discovered fundamental differences in the site’s soil conditions versus those described in project documents obtained during the bid process. Appropriately, he informed the obligee and filed the requisite claims, but upon denial, the principal simply resolved to make do with the soil type he inherited, exhausting his resources and ultimately being terminated.
Upon arrival at the construction site as part of the claim investigation, Guardian’s engineer could readily determine, even in advance of the subsequent laboratory testing, that the soil type on much of the project site was not as indicated in the soil report issued at the time of the bid. The right compacted sand, with adequate clay in its composition, can stand and be formed into reliable walls. The soil in this location was more like beach sand. As a direct result of this sandy soil, in addition to digging trenches deeper than anticipated, and with his walls collapsing in, the contractor had valiantly attempted to shore up the walls. For every foot of trench his company excavated, his crew was forced to place shoring plates for reinforcement. In terms of time and budget, this rendered the project three times more costly than his bid had anticipated. A demonstration of the contractor’s commitment and character? Absolutely. But he had dug himself into a hole from which he could not emerge. Differing site conditions can be disastrous for all parties involved. Whenever identified, they should be communicated to all involved as soon as possible, with the intent of arriving at a process to address the conditions. Unfortunately, in this case the obligee continued to reject the idea the site was any different than as characterized to the principal in the project documentation.
The Power of Teamwork. The Sweet Smell of Success.
The surety’s in-house claims department decided, together with Guardian Group and outside legal counsel, that the best course of action was to push forward with completion and aggressively pursue a differing site condition claim against the obligee. Up against a hostile obligee, one who continued to take a bullying posture, Guardian provided expert testimony and litigation support to the surety’s counsel. The judge agreed with the claim expert’s analysis, found in favor of the principal, and awarded all damages. Together with the surety, they helped get the principal back on his feet.
Even when claims occur, relationships built upon trust endure. Just as a thriving construction environment depends upon a reliable surety industry, an individual surety often proves its value most clearly when claims manifest and they are handled expertly. From bond producers’ belief in and knowledge of their accounts, to sureties’ underwriting and claims departments, to claim consultants and legal communities’ abilities to complement in-house resources, solve problems, and forge diplomatic, efficient paths forward—a strong surety industry is something on which everybody can build.
Todd M. Bauer is President of Guardian Group, a technical, investigative, and claims administration consultant that assists surety companies in resolving, investigating, and avoiding both small and large surety bond claims across the nation and the world. Guardian Group offers over 30 years’ technical construction and engineering expertise combined with proven claims investigation proficiency. Bauer can be reached at Todd.Bauer@GuardianGroup.com or 310.320.0320.