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Thursday, February 22, 2007

Texas: Surety Not Liable for Counsel Fees in Excess of Bond

In the recent case of Colonial American Casualty and Surety Co. v. Scherer, -- S.W.3d --, 2007 WL 135969 (2007), a Texas appellate court ruled that a surety issuing an administrator's bond was not liable for attorney's fees in excess of the stated penal amount on the face of the bond. In that case, the stated penal sum was $30,000.

This case has some significance to California because while the Texas appellate court was applying Texas law, and was interpreting the language of the specific bond, the court cited numerous California cases in reaching its decision.

But yet a California court would probably still use a somewhat different approach given that the Bond and Undertaking Law [Cal. Code of Civil Procedure § 995.010] establishes a regime for asserting claims against bonds given in a proceeding, which would include probate matters. No matter what the bond provides there are avenues for seeking counsel fees from a surety on a "proceeding bond" if the surety fails to honor a claim in a timely manner [see Cal. Code of Civil Procedure § 996.480].


bruce said...

Can anyone fill me in on the details of things like performance bonds here in the UK? As a new start-up building contractor (we actually make patio's and driveways) we've never had to handle things like surety bonds before and no one is quite sure exactly what is involved. Before spending £100's on a consultation with a solicitor I just thought I'd try getting some answers off the net first.

Larry D. Stratton said...

I do not know if surety bonds in the UK are the same as in the United States, but private homeowners all too often do not require the posting of bonds as a part of the contract. If the homeowner expects you to post your own bond on a project, the premium should be factored in. Bond underwriting is based upon risk, but in most (if not all) U.S. jurisdictions, the contractor is required to sign indemnity agreements. The surety contract is not insurance, but a credit relationship, which must be paid back by the contractor/indemnitors should the bonding company pay a claim. Most sureties in the United States also include an attorney's fee agreement in the indemnity agreement, so even the act of submitting a claim could create liability for the contractor/indemnitors, which must be paid back. I suggest that you contact a solicitor before signing any agreement with a bonding company, so that you understand your rights and obligations. Larry Stratton.