Recently,  Guardian’s Surety Group was asked to investigate a claim for a subdivision involving 20 farm estate lots of 12-14 acres each. A common practice utilized on subdivision bonds that guarantee a developer will construct certain improvements can be observed when the municipal authority delays approval of the improvements. The developer, typically a limited liability company, is dissolved upon “completion” of the project and the municipal authority makes a demand upon the bond for what are, truly, deferred maintenance obligations. In many cases, the municipality is looking for the full bond penalty on these demands.

ABOUT THE INVESTIGATION

Because the project was essentially completed five years before the surety received the demand, the improvements had been in use for some time and in need of repair. With respect to water and sewer improvements, Guardian’s surety claim expert noticed that the municipality had collected revenues on the houses for several years, rendering it difficult to suggest that those improvements were not accepted. That left the road as the main issue. To sell the houses, the developer had paved roads that were originally supposed to be only asphalt millings. The municipality took the position that the surety was now responsible for those roads and that they must be constructed per newly adopted design specifications. The homeowners had also substantially encroached into the road set-off with decorative landscaping features. Another issue was that the location of one of the stormwater drainage swales was on a homeowner’s property and the property easement needed to be modified to reflect the current location.

After substantial negotiations, an agreement was reached as to the scope of work that the surety would perform in exchange for the release of the bond. Upon completion of that work, there would be an acceptance walkthrough in which the agreed scope of work would be reviewed and accepted. Unfortunately, at this walkthrough it became apparent that the agreed scope of work had not been communicated clearly to the municipal’s field personnel. This individual subsequently began issuing a new punch list of work for the surety to complete.

ABOUT THE RESOLUTION

Ultimately, litigation was required to enforce the agreement, and the agreement was upheld.  When handling subdivision bond claims it is paramount to get the agreed scope of work as specific as possible. Vague items such as “repair cracked asphalt” provide the municipality the opportunity to extend the project indefinitely. Guardian Group’s experience with these types of claims helped the surety prevail during the litigation as the agreed items were clearly defined and it was obvious that the municipality had negotiated in bad faith. In addition to substantially reducing overall bond losses, Guardian helped recover the developer’s cash collateral in the lawsuit, which helped offset the surety’s legal fees.

ABOUT GUARDIAN GROUP, INC.

For all types of surety bond claims, including all types of contract bonds and virtually every type of commercial bond available, Guardian Group, Inc. has been helping sureties resolves their claims rapidly, reliably, and cost-effectively for over 30 years. Drawing upon both extensive technical construction and engineering experience and deep claim handling and investigation experience, Guardian was engineered from the outset to provide sureties as much or as little support as they may need to supplement their in-house resources. Whether you’re up against a single, small claim, a large, complex claim, or you want to prepare your company for peak periods and hundreds of simultaneous claims, it pays to put seasoned insight on the job. Kindly call on Guardian Group today.