How Does A Bond Work

indyonline

Hello everyone. I got a quick question. I have a customer that had a roof done by somebody and they did a horrible job. The roof has leaked since it was done, a year ago, and the persons roof, ceiling and floors are trashed. The company that did it is licensed insured and bonded. The company came out a few times to try and fix it but never got it fixed and quit taking her calls about 6 months ago. She is asking me if she can go after his bond to get the job fixed. If she can what would be the process for doing this? Who does she need to contact?

Any advice would be appreciated. Thanks.

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Magnettica

The company is bonded by their insurance holder. Not sure how it works in other places, but around here the customer would have to complain to the board of electrical examiners and they would decide if the bond should be paid out. Once that decision is made the insurer pays it out and then comes knocking on the contractors door for the money.

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TxElectrician

Maybe a lawyer

indyonline

Thanks for your input. I hink I will just talk to a lawyer and go throught her contract and maybe get ahold of the bond company. Thanks guy's

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Kgmz

You don't really need a lawyer, unless the insurance and bonding companies won't do anything and you have to sue them.

Who in your state is in charge of contractor licensing, and making sure they are insured and bonded.

In Washington it is L & I (Labor & Industries)

In Oregon it is CCB (Construction Contractors Board)

You first file a complaint with these guys and see what they will do, and they will tell you who holds their insurance and bond.



Edit:

Just did a search for Indiana contractors licensing.

I see this is one of those states that does not have any type of juridiction over contractors, it is handled by each city and county, etc. So I don't know if these jurisdictions really have any clout over a contractor like they do here.

How can you guys stand it having to get a license in every city, county, etc. And not having a state wide agency to control this and weed out any bad ones, and enforcing the licensing issues. Around here you get a complaint the board steps in and sees if the complaint is justified, and if it is you fix it, or insurance or bond pays, or you lose your license. And around here you get to many justified complaints, you could still lose your license even if you took care of them. This is why you never want to have any complaints filed, take care of the problem before they file one.

ChrWright

They'll have more luck going after their liability insurance. I had a similar project last year that went south (the basement project you did the framing for me on). The previous contractor did everything wrong you could think of and they had zero luck with the bond--and are only just now coming close to getting money out of the GL policy (and still won't get close to what they lost).

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KennMacMoragh

As I recall from a construction contract course I took a few months ago. A bond is for when someone doesn't follow through with their contract, and insurance is for when they make a mistake or damage something.

This doesn't sound like a breach of contract situation. The roof leaks so they probably just messed up with the flashing or left nails exposed, so I would contact his insurance company.

Kgmz

You are confusing a Contract Bond with a Commercial Surety Bond.


Commercial Surety Bonds Commercial Surety Bonds guarantee performance by the principal of the obligation or undertaking described in the bond.




Commercial surety includes:

• License and permit bonds, which are required by state law or local regulations in order to obtain a license or permit to engage in a particular business, e.g. contractors,

Edit:

I see you are in Seattle, you should know what the bond you posted with L & I is for.

Kgmz

Looked up the RCW for you.
18.27 RCW

Highlighted portion pertains to this thread.

If the Principal, in compliance with the provisions of chapter 18.27 RCW, pays all (1) wages and benefits to persons furnishing
labor to the Principal, (2) amounts that may be adjudged against the Principal by reason of breach of contract including negligent or
improper work in the conduct of the contracting business, (3) persons who furnish labor and materials or rent or supply equipment
to the Principal, and (4) taxes and contributions due to the State of Washington, the obligation of the Principal and the Surety shall
be null and void. If the Principal does not pay the above claims, the bond shall remain in full force and effect. In no case shall the
Surety be liable for any claim not included in RCW 18.27.040.

Any person that has a claim against the Principal, arising from the failure of the Principal to pay any of the four items referred to in
paragraph 3, may bring suit upon this bond in the superior court of the county in which the work was done, or of any county in
which the court has jurisdiction over the Principal. The suit must be brought within the time and the manner required by RCW

18.27.040.

Magnettica

Glad I could help. I'm learning all about this stuff at this time myself.

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Astrix

KennMacMoragh is correct; this isn't a situation where you would call on the bond. It is a liability insurance issue.

Bonding is a financial guarantee that the job will get finished, and that it will be finished on-time and on-budget.

In the case of property damage (and bodily injury) caused by the roofer's work, then the roofer's liability insurance policy would be the place to go. Unfortunately though, poor workmanship is not usually an insured peril under liability insurance. If that were the case, then every idiot who did a lousy job would just get their insurance company to pay the extra costs for fixing their mistakes.

If, however, the poor workmanship caused secondary damage, then the insurance company will pay for that. They won't, however, pay for any damage to the part of the building that had been directly worked upon.

For example, the cost for replacing the shoddy roof would not be covered, but the ceilings, floors, furniture, etc. that were subsequently water-damaged because rain got in would be covered. Mould is a whole different issue and won't be covered unless there was extra insurance for that. Odds are if the roofer didn't care about doing quality work, then he probably didn't care about getting fully insured either.

My advice would be for the homeowner to go to their own home insurance company, who may likely pay for part if not all of the damage. They will then try to subrogate against the roofer to recoup what they paid out. Even if the home insurer only ends up paying for part of the damage, if they then proceed with subrogation, they will also include the homeowner's expenses along with their own when they go after the roofer. So, potentially, the homeowner will have their insurance company's lawyers working to get the unpaid part of the claim paid by the roofer. This would include the deductible that the homeowner had to pay on the house insurance claim that started the subrogation.

Another plus is that the legal costs are included as part of the insured home claim if they go about it this way. It would be cheaper than having to pay a lawyer's fees on one's own.

Kgmz

In every state that I know of that requires insurance and a bond for a contractor, the bond is not a "Contract Bond".

When a company is licensed and bonded, that does not have anything to do with a "Contract Bond". The bond is for something else like I posted before with the Washington state requirements.

Here are the facts for a California Contractors Bond.

A Contractor's Bond is a requirement for the issuance of an active license, reactivation of a license, and for the maintanance of an actively renewed license (Business and Professions Code Section 7071.6). The bond is filed for the benefit of consumers who may be damaged as a result of defective construction or other license law violations, and for the benefit of employees who have not been paid wages that are due to them.



Here are the facts for Oregon Contractors Bond.

CCB Surety Bonds
“Bonded” means that the contractor has posted a surety bond with the Construction Contractors Board (CCB) as required by law.

A CCB surety bond provides a limited amount of financial security for property owners. Bonds can only be accessed in the event that the contractor is ordered by the CCB to pay damages as the result of a CCB final order, and the contractor fails to pay the order within 30 days. CCB surety bonds are very small compared to the volume of business performed by most construction businesses and are designed to provide an incentive for contractors to pay CCB orders, as opposed to being a comprehensive safety net for consumers.






And yes you would still go after their insurance, as well as the bond. The bond which is required by most states just guarantees that something will get done or the contractor will lose their license. And of course the Bonding company is not going to want to pay as long as there is a active insurance policy, so they are going to push the contractor or the insurance to pay. A good thing and it is tool you use to get the contractor to fix it or pay up if they want to stay in business.

KennMacMoragh

I am constantly learning about this stuff too, but I hate legal talk. You shouldn't assume you know how it works though, you should get an attorney and let him deal with it in a dispute.

Kgmz, you're going over the definitions of a contract bond. And you're right, the bond that's required by all contractors isn't a contract bond, it's a license bond which doesn't fall in the category of contract bonds, according to this http://www.sio.org/faq/questions.html. But even if the bond isn't a contract bond, there's got to be a breach of contract in order to file a suit against the bond. If the homeowner wanted a tile roof and he put on 3-tab, then the owner could file suit against his bond. That's the way I understand based off what I've heard from attorneys, that's how L & I explains it too:
"If a contracting business is registered with L&I, it will be bonded. Currently, the law requires the bond to be $12,000 for general contractors and $6,000 for specialty contractors (contractors who specialize in a particular trade, such as drywall or painting).

This bond is a three-party agreement between a surety (such as a bank), the contractor and the project/property owner. The agreement binds the contractor to the terms and conditions of a contract. If the contractor has not performed to the contract's specifications, the surety assumes the contractor's responsibilities and ensures that the project is completed up to the amount of the bond."

Kgmz

Alaska has the same contractors bonding terminology as Washington.

(2) amounts that may be adjudged against the Principal by reason of breach of contract including negligent or
improper work in the conduct of the contracting business,




Now go to this link below and read this court case about a Contractors Licensing Bond, and then go to the bottom and look up all the other court cases that were relevant to this and were about contractors licensing bonds.

The bond did pay for negligent or improper work. But it is also a last resort when it is not covered by insurance, and the contractor is broke or bankrupt. And like I said before it is a tool to use to get some action from the State or whoever licensing board. Most contractors don't want to lose their license.

http://touchngo.com/sp/html/sp-5765.htm

Kgmz

A little reading material for you courtesy of Washington State L & I and DOL. I was at the main office in Olympia yesterday and asked about the bonds, and they gave me this link to a study that was done in October of 2008.

Check the section of actions against Bonds, line item:


Faulty/defective

KennMacMoragh

Ahh, yeah that does suck. If you had a $100,000 mistake then a lot of good a $12,000 bond will do ya. But they'll never raise it high enough to completely cover the larger jobs.