SuretyScience - Blog #ClaimsSuretyScience - Blog #Claimshttps://www.suretyscience.ai/blogs/tag/claimsWed, 08 Apr 2026 18:03:18 -0700http://zoho.com/sites/<![CDATA[Lexington wins unprecedented $3.9 million fee fight against Great American surety]]>https://www.suretyscience.ai/blogs/post/lexington-wins-unprecedented-3.9-million-fee-fight-against-great-american-surety

It all traces back to a bridge, a termination, and $92 million in claims

An insurer has prevailed over a surety in a first-of-its-kind $3.9 million fight over arbitration defense costs.

The ruling, handed down on March 24, 2026, by Judge Theresa L. Springmann of the United States District Court for the Northern District of Indiana, resolved a question that neither party - nor the court - could find any precedent for: when a liability insurer pays for its insured's defense in an arbitration, and the arbitration panel then awards those same defense costs back to the insured, does the money belong to the insurer or to the surety that also has a claim on the insured's assets?

The answer, at least in this case, is the insurer.

The dispute grew out of the construction of the Cline Avenue Bridge in Lake County, Indiana. Figg Bridge Builders, LLC (FBB) had contracted with Cline Avenue Bridge, LLC (CAB) to design and build the bridge. Great American Insurance Company (GAIC) served as surety on the project, issuing performance and payment bonds on FBB's behalf. Lexington Insurance Company, meanwhile, issued professional liability and general liability policies to FBB covering the same project.

An insurer has prevailed over a surety in a first-of-its-kind $3.9 million fight over arbitration defense costs.

Things went sideways in April 2020 when CAB terminated FBB before the bridge was finished. Over the same period, GAIC had been advancing funds to FBB totaling $14.775 million to support its performance on the project. CAB then filed for arbitration, seeking over $92 million in damages from FBB.

FBB asked Lexington for a defense, and Lexington obliged – retaining two law firms and spending over $4 million defending FBB in the arbitration under a reservation of rights. Lexington drew the line, however, at funding FBB's offensive claims against CAB, taking the position that its policies only covered defense costs. FBB hired its own lawyers for that piece.

The arbitration panel issued its award in July 2022. It found that while FBB had defaulted under the contract, the default did not amount to a material breach – and that CAB's decision to terminate FBB was wrongful. The panel awarded FBB roughly $4.94 million in contract damages and $4.73 million in attorneys' fees. CAB received $3.71 million for defective work and $1.56 million in liquidated damages. After offsetting the two sides, FBB came out ahead with a net award of about $4.4 million.

Here is where it gets interesting for insurance professionals. Of the $4.73 million fee award, $3.91 million represented money Lexington had already spent defending FBB. Both Lexington and GAIC claimed that money was theirs.

GAIC's argument was straightforward: it had a perfected security interest in FBB's rights under the construction contract and in any claims or proceeds arising from it, backed by a UCC filing. It also argued it was entitled to the funds through equitable subrogation as a surety that had advanced millions to its principal. In GAIC's view, its interest came first.

Lexington took a different approach. It argued that the transfer-of-rights provisions in its insurance policies meant that FBB never actually had any right to the $3.91 million in the first place. The policies provided that if Lexington made a payment, it would be subrogated to FBB's rights of recovery. Since Lexington paid the defense costs and the arbitration panel awarded those exact costs back, Lexington was the real party in interest – and FBB was simply the nominal party through which the award flowed.

The court agreed with Lexington. Under both Indiana and Florida law, the entity that actually pays the attorneys' fees for a party to litigation is the real party in interest to any fee award. FBB did not pay the $3.91 million – Lexington did. That meant FBB never had rights in those funds, which in turn meant GAIC's security interest never attached to them. A security interest under the UCC requires that the debtor have rights in the collateral, and FBB simply did not.

The court also found that GAIC's equitable subrogation argument fell short. Every case GAIC cited involved a surety's right to remaining contract funds or retained contract balances – money owed under the construction contract itself. The attorneys' fee award was a different animal. It was not contract funds retained by the project owner; it was a reimbursement of defense costs that Lexington had paid.

GAIC raised several counterarguments on the insurance side. It pointed to the general principle that an insurer cannot subrogate against its own insured, but the court found that inapplicable because Lexington was not seeking recovery from FBB - it was seeking recovery of the arbitration award that FBB had obtained for fees Lexington had paid.

GAIC also argued that Lexington had waived its subrogation rights. The general liability policy did contain a blanket waiver of subrogation endorsement, but it only kicked in where the insured had waived the liability of the party against whom subrogation was sought as part of a written agreement. FBB had not waived CAB's liability - it had, in fact, recovered millions from CAB in the arbitration. The construction contract did require that all insurance policies contain a waiver of subrogation provision, but the actual insurance policies did not contain such a provision, and CAB never enforced that contractual requirement. The court applied the plain language of the policies as written.

On the question of whether FBB had been made whole - a prerequisite for an insurer to exercise subrogation rights under the equitable made-whole doctrine - the court found that FBB had been made whole through the contract damages and the roughly $820,000 portion of the fee award representing fees FBB had paid out of its own pocket. The $3.91 million that Lexington paid was not part of FBB's own recovery.

The court imposed a constructive trust on the $3.91 million held by GAIC, ordering it to convey those funds to Lexington. Allowing GAIC to keep the money, the court reasoned, would amount to unjust enrichment.

Both sides had also accused each other of tortious interference with contract. Neither claim survived. The court found that Lexington was justified in asserting its claim to the fee award given its contractual and legal rights. It also found that GAIC was justified in asserting its own rights given the genuine complexity of the legal questions involved - a tacit acknowledgment that this was a legitimately difficult case, not a frivolous power grab by either side.

Lexington had also asked for prejudgment interest, but the court deferred that question for further briefing, with a schedule running through mid-May 2026. Final judgment has not yet been entered.

The case is worth watching for anyone in the surety or liability insurance space. The core takeaway is that when an insurer pays for a defense and those costs are later awarded back in litigation or arbitration, the insurer - not the insured, and not the insured's surety - may be treated as the real party in interest to those funds, regardless of any competing security interests. That has practical implications for how sureties and insurers structure their agreements and for how they approach recovery when their interests overlap on the same project.

A separate dispute between FBB and Lexington over whether the $1.56 million in liquidated damages is covered by the insurance policies remains pending in federal litigation in Florida, currently stayed for arbitration.

]]>Fri, 27 Mar 2026 14:25:00 -0400<![CDATA[Subcontractor hits Liberty Mutual with bond claim over VA hospital flood]]>https://www.suretyscience.ai/blogs/post/subcontractor-hits-liberty-mutual-with-bond-claim-over-va-hospital-flood

A defective sensor, $414k in damage, and a $7.37 million federal subcontract gone sideways

Liberty Mutual Insurance Company has been named as a defendant in a federal lawsuit tied to unpaid work and flood damage at a San Diego VA hospital.

The case, filed on March 23, 2026, in the United States District Court for the Southern District of California, was brought by ZLM Mechanical, Inc., a Vista, California-based plumbing and HVAC subcontractor. The filing names Liberty Mutual alongside general contractor Shore Herman JV - a joint venture of Herman Construction Group, Inc. and Shore Solutions, Inc. - and Wisconsin-based product manufacturer Badger Meter, Inc.

At the center of the dispute is a $7.37 million subcontract for the Veterans Affairs Hospital Upgrade of Domestic Water project at 3350 La Jolla Village Drive in San Diego. ZLM says it performed the work but was never fully paid, claiming it is still owed $226,685.

Liberty Mutual enters the picture as the surety on a Miller Act payment bond that secured payment to subcontractors and suppliers on the federal project. According to the filing, Liberty Mutual and Shore Herman executed the bond as required under the Miller Act - the federal statute that protects subcontractors on government construction jobs by requiring payment bonds. ZLM alleges the surety has not honored its obligations under that bond.

But the unpaid work is only part of the story.

The filing also describes a product failure that allegedly triggered a flood at the hospital. ZLM purchased an ORP M-Node Sensor manufactured by Badger Meter for use in a water monitoring station at the project. According to the filing, the sensor was properly installed and operating within its intended specifications when it structurally fell apart during normal use. The cause, ZLM alleges, was a manufacturing defect - specifically, a lack of glue and primer in the sensor's joints, which left the device structurally unsound.

The resulting water leak caused $414,863.94 in property damage at the project, according to the filing. Shore Herman has since sought to hold ZLM responsible for that damage under the subcontract, and ZLM in turn is pursuing Badger Meter on theories of strict products liability, negligent products liability, and equitable indemnity. ZLM contends that if it is found liable for the flood damage, Badger Meter should bear 100 percent of the fault.

ZLM is also seeking attorneys' fees from Badger Meter under what is known as the "Tort of Another" doctrine, arguing that the manufacturer's defective product forced ZLM into litigation it would not otherwise have faced.

The case, docketed as No. 3:26-cv-01827, includes six causes of action and a demand for a jury trial. No responsive pleadings or rulings have been entered, and no final determination has been made on any of the claims.

]]>Wed, 25 Mar 2026 14:33:00 -0400<![CDATA[Pennsylvania Supreme Court blocks bad faith lawsuits against surety bond issuers]]>https://www.suretyscience.ai/blogs/post/pennsylvania-supreme-court-blocks-bad-faith-lawsuits-against-surety-bond-issuers

Court shields sureties from punitive damages but issues stark warning on arbitration participation

Pennsylvania's Supreme Court handed surety companies a major legal win on bad faith claims this week, but warned they must show up to arbitration proceedings.

The state's Supreme Court ruled that Pennsylvania's insurance bad faith statute does not apply to surety bonds, sparing the industry from potential punitive damages and enhanced penalties that insurers can face when they handle claims in bad faith. But in the same decision, the justices made clear that sureties can be held to arbitration awards entered against their principals, even when they choose to sit on the sidelines.

The February 18 decision settles a dispute that has dragged on for 15 years, stemming from a construction project at Penn State University that went sideways when the contractor ran out of money.

Back in 2008, Penn State hired Ionadi Corporation to erect steel for its Millennium Science Center Complex. International Fidelity issued a $10.125 million payment bond to guarantee the project. Ionadi brought in Eastern Steel Constructors to handle the steel reinforcing work. The subcontract spelled out payment terms, including 1.5 percent monthly interest on late payments, attorneys' fees recovery rights, and required arbitration through the American Arbitration Association for any disputes.

Eastern worked on the project from February 2009 through September 2010. Ionadi paid the first five months but then defaulted. By April 2010, Eastern notified Fidelity it was making a claim under the payment bond for $622,182.90. Fidelity paid the undisputed portion, leaving $253,788.08 outstanding.

Eastern filed for arbitration in November 2010, repeatedly notifying Fidelity and inviting its participation. Fidelity declined every time. When Ionadi filed for bankruptcy in October 2011, Eastern got the bankruptcy court to lift the automatic stay. The arbitration proceeded with neither Ionadi nor Fidelity defending. The arbitrator awarded Eastern $433,489.42, including the unpaid work, $68,299.08 in interest and penalties, and $111,404.62 in attorneys' fees. Neither party tried to vacate the award, and the Allegheny County Court of Common Pleas confirmed it in July 2012.

When Fidelity refused to pay, Eastern sued in Centre County, including a claim under Pennsylvania's insurance bad faith statute, Section 8371. After contradictory trial court rulings and appeals, the Superior Court in September 2022 ruled the arbitration award was binding on Fidelity but the bad faith statute did not apply to surety bonds.

Justice Wecht, writing for the Pennsylvania Supreme Court majority, examined Section 8371's text, which refers to insurance policies and actions by insurers toward the insured. It says nothing about surety bonds, sureties, or principals. The court emphasized the fundamental differences: insurance protects the party buying the policy, while suretyship protects third parties from that person's default. An insurer takes on risk and expects to absorb losses, while a surety steps into a debt temporarily with the right to get paid back by the principal.

The court concluded Section 8371 clearly and unambiguously applies only to insurance policies. If lawmakers wanted to include surety bonds, they knew how to do it, as other Pennsylvania statutes explicitly define insurance to include suretyship. The absence of similar language in Section 8371 was telling.

But the court had no sympathy for Fidelity on the arbitration issue. The payment bond obligated Fidelity and Ionadi jointly and severally to pay all sums due to subcontractors. The court said that phrase was key. What was due to Eastern came from the subcontract, which required arbitration to settle disputes.

The court pointed to a 1909 Pennsylvania case establishing that an arbitration award binds a surety that gets notice and opportunity to participate but does not appear. Fidelity was notified, had the opportunity to defend itself, and declined. It cannot complain now about the results.

Fidelity argued Eastern imposed unreasonable conditions on its participation, but the court found that later communications directly invited Fidelity to join with no conditions attached.

On what all sums due includes, the court relied on a 1968 case holding that interest was an integral part of the debt for material furnished, even when the bond did not specifically mention interest. The same logic applies here: every penny Eastern spent recovering damages from Ionadi's breach is a sum due under the payment bond. The subcontract's interest rate and attorneys' fees were integral to the debt.

However, the court drew a line. Fidelity was liable for fees and interest in the arbitration award for pursuing Ionadi, but not for additional attorneys' fees Eastern incurred suing Fidelity itself in court. Similarly, while the arbitration award properly included the 1.5 percent monthly contractual interest rate, interest on Fidelity's debt under the payment bond was the statutory 6 percent annually.

Chief Justice Todd and Justices Dougherty, Mundy, and McCaffery joined the majority. Justices Brobson and Donohue dissented in part.

For surety professionals, the decision offers a mixed bag. The industry dodged a bullet on bad faith liability, but the ruling on arbitration serves as a warning. Sitting out proceedings can mean getting stuck with whatever award comes down. In this case, Eastern's claim for unpaid work was around $254,000, but the final arbitration award reached over $433,000 once interest, penalties, and attorneys' fees were added.

The decision clarifies that all sums due language in payment bonds is not limited to the strict cost of labor and materials. Companies writing payment bonds may want to review their forms and consider whether more specific language is needed to limit exposure. When arbitration looms, showing up matters.

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]]>Fri, 20 Feb 2026 21:25:20 -0500<![CDATA[Surety sues contractor for allegedly diverting $1 million from bonded project escrow]]>https://www.suretyscience.ai/blogs/post/surety-sues-contractor-for-allegedly-diverting-1-million-from-bonded-project-escrow

The surety put escrow controls in place - so how did the money slip through?


A surety's playbook for managing a troubled contractor worked — until it allegedly didn't.

Frankenmuth Insurance Company filed suit on February 12, 2026, in the US District Court for the District of Maryland, accusing contractor Oakmont Contracting LLC and two individual indemnitors of breaching an indemnity agreement connected to more than $25 million in surety bonds across multiple construction projects, most of them for federal government agencies including the US Navy and the General Services Administration.

The case traces a familiar arc for surety professionals, but with a twist that makes it worth watching.

Frankenmuth says it first spotted trouble in the summer of 2024, when Oakmont began showing signs of financial strain - performance issues, cash flow shortfalls, and mounting unpaid bills to subcontractors and suppliers. Payment bond claims soon followed. To date, Frankenmuth says it has paid out $450,996.89 to claimants on one bond, with another $2,313,218.71 in claims still under review across several others.
What happened next is where the case gets interesting. Frankenmuth did what many sureties do in this situation: it brought in a funds control company - Great Horn Financial Services, LLC - to hold contract proceeds in escrow and manage payments. The arrangement was designed to keep bonded project funds flowing to the right places.

But according to the suit, Oakmont sidestepped the safeguard. Frankenmuth alleges the contractor received at least $1,084,289.08 in bonded contract proceeds directly from project obligees and never deposited the money into the escrow account - despite having signed a formal assignment of those proceeds to Frankenmuth in April 2025.

The filing also alleges that during one of several meetings held throughout 2025, Oakmont admitted to commingling funds across bonded projects - taking money earned on one job and using it to pay bills on another. Under the indemnity agreement the parties signed in May 2019, that kind of fund diversion qualifies as a default.

When Frankenmuth demanded repayment of its losses in March 2025, Oakmont reportedly acknowledged it lacked the assets to pay and promised a repayment plan. That plan never materialized. Frankenmuth says the contractor also failed to turn over financial books and records it was contractually required to provide - hampering the surety's ability to evaluate and process claims against the bonds.

Frankenmuth is now seeking $700,320.92 in indemnity losses from Oakmont and the individual indemnitors, William S. Tose, Jr. and Stacy P. Tose, along with $1,084,289.08 for the allegedly retained contract funds, and a court order compelling access to the contractor's financial records.

Meanwhile, the surety is also defending a separate payment bond claim brought by Allspec Construction, Inc. in the Eastern District of Pennsylvania - meaning it is fighting on two fronts at once.

No determination on the merits has been made. The case remains in its earliest stage.


https://www.insurancebusinessmag.com/us/news/risk-compliance-legal/surety-sues-contractor-for-allegedly-diverting-1-million-from-bonded-project-escrow-565486.aspx

]]>Mon, 16 Feb 2026 23:44:04 -0500<![CDATA[Travelers sues Erie over who pays first in construction injury case]]>https://www.suretyscience.ai/blogs/post/travelers-sues-erie-over-who-pays-first-in-construction-injury-case

Erie denied the tender - now Travelers wants answers and its defense costs back

Two established insurers are now squaring off in federal court over a question as old as the industry itself: who pays first?

The Travelers Indemnity Company filed suit against Erie Insurance Company on January 29, 2026, in the US District Court for the Western District of New York. At the heart of the dispute is a construction site injury in Buffalo and a disagreement over which insurer should be covering the defense.

The underlying claim traces back to on or about April 1, 2021, when a worker named Thomas G. Sellitto was allegedly injured at a housing development project at 19 Doat Street in Buffalo. According to the court filing, Sellitto was attempting to maneuver a bin filled with reclaimed hardwood when he sustained multi-level lumbar spine disc bulges/herniations with radiculopathy.

The project involved The Crossroads at Genesee Housing Development Fund Co. Inc. as owner and The Pike Company, Inc. as contractor. Pike had hired Fairway Floor Covering Inc. to handle flooring work, including demolition of the existing hardwood floor and installation of a new floor.

Here is where it gets interesting for insurance professionals.

Fairway, as the subcontractor, was required under its contract with Pike to carry commercial general liability insurance naming both Pike and Crossroads as additional insureds—on a primary and non-contributory basis. Erie issued that policy to Fairway, and it included an endorsement listing Pike and others "as per written contract" for the Buffalo project.

The endorsement specifies that coverage applies to bodily injury "caused, in whole or in part, by" Fairway's acts or omissions in the performance of ongoing operations for the additional insureds. The policy also contains language stating that coverage "is primary to and will not seek contribution from any other insurance available to an additional insured," provided certain conditions are met.

Travelers, which insures Pike directly, tendered the defense of Pike and Crossroads to Erie in February 2024. Erie acknowledged the request but denied coverage two months later, stating there was not enough evidence that the alleged loss arose out of the acts or omissions of its insured.
Travelers has since been covering the defense costs and is now asking the court to declare that Erie's policy should have responded first. The insurer is also seeking reimbursement for all sums it has paid and continues to pay in defending Pike and Crossroads.

No determination has been made on the merits. The case remains in its early stages, with the court yet to weigh in on the coverage questions at play.

For insurers and risk managers, this case touches on familiar territory—the fine print of additional insured endorsements, the meaning of "primary and non-contributory," and the recurring question of whose policy responds when a subcontractor's work allegedly leads to injury.

]]>Mon, 02 Feb 2026 23:47:00 -0500<![CDATA[Southland Holdings secures $15 million surety funding support]]>https://www.suretyscience.ai/blogs/post/southland-holdings-secures-15-million-surety-funding-support

Southland Holdings, Inc. disclosed that Zurich Insurance Company Ltd, one of its surety providers, has advanced approximately $15 million under a general indemnity agreement to fund bonded construction contract obligations and maintain progress on those projects, creating an obligation for Southland to indemnify and reimburse the surety for the amounts advanced. The company is working with its term loan agent, Callodine Commercial Finance, LLC, and other lenders to assess how the surety funding affects its existing credit agreement, while also negotiating with its sureties and lenders for additional surety funds and a longer-term financing solution, with no assurance that such additional funding or arrangements will ultimately be secured.


https://www.tipranks.com/news/company-announcements/southland-holdings-secures-15-million-surety-funding-support

]]>Fri, 16 Jan 2026 10:51:00 -0500<![CDATA[Lexon alleges $2.6 million surety breach by Oregon contractor group over bond]]>https://www.suretyscience.ai/blogs/post/lexon-alleges-2.6-million-surety-breach-by-oregon-contractor-group-over-bond

Lexon moves to enforce indemnity, collateral and access rights on bond dispute


Lexon Insurance is chasing not less than $2.6 million from an Oregon contractor group after a fire district construction project dispute. 

On January 6, 2026, Lexon Insurance Company filed a verified action in the United States District Court for the District of Oregon against Ben Fackler Construction, Inc. and a cluster of related companies and family members tied to the Fackler name. At the center of the dispute is a performance bond backing work for the SW Polk County Rural Fire Protection District on a construction contract. 

Lexon, a corporation organized under the laws of Texas with its principal place of business in Mount Juliet, Tennessee, says it issued the bond on behalf of Ben Fackler Construction as principal, with the fire district as obligee, in a penal sum of $3,493,243.00. According to the filing, the fire district has made a claim on the bond and has alleged that Fackler Construction failed to fulfill its contractual obligations and performed defective work, leaving the district with damages of not less than $2,600,000.00, plus attorney’s fees, costs, and interest. 

The federal case turns on core surety tools: indemnity, collateral, trust funds, and access to books and records. Lexon says it agreed to issue the bond in reliance on a series of General Agreements of Indemnity signed over several years by Fackler-related businesses and individuals. 


n 2016, Ben Fackler Construction, Inc., S. Benjamin Fackler, and Jennifer R. Fackler signed a General Agreement of Indemnity in favor of Lexon. A second agreement, in 2018, was executed by S. Benjamin Fackler, Jennifer R. Fackler, Pro Handyman Services of McMinnville, LLC, and Pro Handyman Services of Spokane, LLC. In 2020, another agreement was signed by S. Benjamin Fackler, Jennifer R. Fackler, Fackler Holding Company, Northwest Security & Automation, LLC d/b/a Innova NW, and James E. Fackler, and in 2021 Fackler Properties, LLC was added by amendment. 

Across these agreements, Lexon alleges that the indemnitors jointly and severally agreed to indemnify, exonerate, reimburse and hold the surety harmless from “any and all liability, loss and expense of whatsoever kind and nature,” including claims, damages, court costs, attorneys’ fees, and interest. The 2016 and 2018 agreements state that amounts due to the surety are payable upon demand, “whether or not the Surety shall have made any payment therefor or established a reserve,” and that vouchers or other evidence of payment are prima facie evidence of the indemnitors’ liability. The 2020 agreement similarly allows Lexon to rely on an itemized, sworn statement of loss as prima facie proof of liability. 

Collateral and access provisions are particularly prominent. Under the 2016 and 2018 agreements, the indemnitors agreed to “deposit with the Surety, as collateral security, immediately upon demand, a sum of money” equal to the surety’s liability, asserted liability, reserve, or other exposure, and acknowledged that failing to do so “shall cause irreparable harm to the Surety” and entitles Lexon to injunctive relief and specific performance. The 2020 agreement requires the indemnitors, upon demand, to deposit collateral “in the form and amount as the Surety in its sole discretion deems necessary or appropriate,” and likewise characterizes failure to post collateral as causing irreparable harm and justifying injunctive relief. 

The agreements also contain trust-fund language. They state that funds due or to become due under contracts covered by the bonds, or bonded contracts, are to be held in trust by the indemnitors for the benefit of those to whom the indemnitors incur obligations in performing the contracts and for the benefit of Lexon for any loss, costs, or expenses. Separate clauses give Lexon “unrestricted access to any and all books, records, trust funds, accounts, documents, or other information” relating to the indemnitors’ financial affairs and operations, at least until the surety’s liability under all bonds is terminated. 

Lexon alleges that, on or about September 25, 2024, the SW Polk County Rural Fire Protection District filed a lawsuit in Polk County Circuit Court, Oregon, Case No. 24CV46386, against Fackler Construction and Lexon, asserting its claim under the bond and seeking not less than $2,600,000.00 in damages, plus attorney’s fees, costs, and interest. Lexon says it has retained outside legal counsel to investigate the claim, defend Lexon in that case, and assist in resolving its bonded obligations, and that it has already incurred and will continue to incur attorney fees and expenses in connection with the claim and enforcement of the indemnity agreements. 

According to the federal filing, Lexon sent correspondence dated May 30, 2025, and July 24, 2025, demanding that the indemnitors indemnify Lexon, discharge it from all potential liability on the bond, deposit cash or other collateral satisfactory to Lexon in an amount equal to the anticipated loss of not less than $2,600,000.00, and provide access to their books and records. Lexon alleges that the indemnitors have not indemnified or exonerated Lexon, have not posted any collateral, and have not permitted the requested access. 

Lexon is asking the court for judgment in an amount to be proven at trial but in any event not less than $2,600,000.00, plus attorney fees, costs, and prejudgment interest at 9% per annum. It also seeks an order compelling the indemnitors, jointly and severally, to post collateral of at least $2,600,000.00, along with additional funds as necessary to cover costs and fees, and injunctions restraining the defendants from selling, transferring, disposing of, or encumbering assets until collateral is posted and Lexon is given unrestricted access to their books and records. 

All of these details come from Lexon’s verified court filing. The court has not ruled on the merits, and the defendants have not yet had their allegations tested in any final decision.


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]]>Wed, 14 Jan 2026 12:10:00 -0500<![CDATA[Ontario Court confirms strict enforcement of suit limitation periods in surety bond claims]]>https://www.suretyscience.ai/blogs/post/ontario-court-confirms-strict-enforcement-of-suit-limitation-periods-in-surety-bond-claims

In VanMar Constructors ON 1028 Inc. v Travelers Insurance Company of Canada, 2025 ONSC 6959, the Ontario Superior Court found that a performance bond action by a contractor was commenced after expiry of the bond limitation period, and dismissed the action. While the facts were straightforward, the court's analysis provides important guidance on the interpretation and enforcement of limitation periods under performance bonds.

Background

VanMar Constructors ON 1028 Inc. (VanMar) was a construction manager and general contractor engaged in building a residential complex in Kitchener, Ontario (the Project).

VanMar subcontracted with Global Plumbing & Heating Inc. (Global) for mechanical works for the Project. The subcontract required Global to obtain a performance bond (the Bond) for its scope of work, which was issued by Travelers Insurance Company of Canada (Travelers).

On March 14, 2022, VanMar wrote to Travelers alleging that Global was in default of its obligations to VanMar, was declared to be in default, and that VanMar had performed all of its obligations to Global. However, VanMar did not make a claim on the Bond in this correspondence, and did not make a claim until December, 2022.

On April 1, 2024, VanMar commenced an action against Travelers under the Bond.

Travelers sought summary judgment on the basis that the action was commenced outside the limitation period set out in the Bond, or in the alternative under the Limitations Act. VanMar took the position that such limitation period did not commence until VanMar “formally” made a call on the Bond and required Travelers to take action.

Strict enforcement of bond limitation periods

The Court began by confirming that whether an action is barred by an applicable limitation period is an issue that can be properly resolved on a summary judgment motion.

The Court first noted the express and clear language of the Bond, which provided that:

Travelers’ obligations arose upon three preconditions being met, being:

Global being in default;

VanMar declaring Global in default; and

VanMar not being in default.

“any suit or action must be commenced before the expiration of two years from… the date on which [Global] is declared in default by [VanMar].”

Relying on this express language and the March 14, 2022 correspondence from VanMar setting out the three preconditions to Travelers’ obligations, the Court found that the Bond limitation period begun to run no later than March 14, 2022.

The Court then addressed the positions raised by VanMar, that the Bond should be interpreted to include an implied term delaying the start of the Bond limitation period until “formal notice” of a claim was given to Travelers.

The Court rejected this position, finding that reading in additional language would conflict with the intent of the parties as expressed in the clear and unambiguous language of the Bond. It would also undermine commercial reality, allowing VanMar to extend its claim, potentially indefinitely, by delaying giving a “formal notice” of a claim on the Bond. The Court stressed that the purpose of a contractual limitation period is to provide certainty and finality. Allowing claims to be delayed indefinitely would expose sureties to open-ended liability, impair their ability to assess risk and exposure, and prevent timely investigation of claims, which would not be commercially sensible.

Accordingly, the Court found that VanMar’s action was commenced after expiry of the Bond limitation period and was therefore barred. Given this finding, the Court did not address the limitation period under the Limitations Act.

While the Court’s decision confirms that limitation periods set out in bonds will be strictly enforced, it is important to note different bond forms set out different triggering events for their limitation periods. The Bond at issue in this case (which was a CCDC 221-2002 performance bond) provided that the limitation period began when the Principal was declared to be in default by the Obligee. However, the limitation period in the CCDC 221-2024 performance bond and the Form 32 Construction Act performance bond is tied to the date when the surety receives written notice under the bond, which may be different. Therefore, the specific facts of each case must be addressed to determine when the appropriate limitation period begins to run. This is significant, as such limitation periods will be strictly enforced by the courts.

Conclusion

The express language of a bond remains paramount in determining the rights, obligations, and conditions of the bond, including strict enforcement of limitation periods set out therein. Further, such limitation periods will be interpreted in light of commercial reality and certainty, to allow sureties to properly assess risk and investigate claims, and avoid open-ended and potentially indefinite liabilities.

Travelers was represented in this motion by Borden Ladner Gervais LLP.

]]>Fri, 09 Jan 2026 13:49:00 -0500<![CDATA[Berkley Insurance sues contractor for nearly $7 million after walkout]]>https://www.suretyscience.ai/blogs/post/berkley-insurance-sues-contractor-for-nearly-7-million-after-walkout

The contractor allegedly left defective work and unpaid subcontractors behind

A surety is chasing nearly $7 million from a contractor that allegedly walked off a New Jersey public works job, leaving unpaid subcontractors behind.

Berkley Insurance Company filed suit on December 23, 2025, in the US District Court for the District of New Jersey against Tekcon Construction, Inc. and two individual indemnitors, Eric Dziadyk and Ida Dziadyk. The case offers an example of what can go wrong when a bonded contractor abandons a project mid-stream and the surety is left holding the bag.

At the center of the dispute is a renovation project for the Essex County Parks Department Administration Building in Newark. Tekcon, a general contractor serving commercial, government, and residential markets, secured performance and payment bonds from Berkley for that project and several others. In exchange, Tekcon and the Dziadyks signed a General Indemnity Agreement in February 2022, promising to reimburse Berkley for any losses tied to those bonds.

That agreement gave Berkley sweeping rights. If things went south, Berkley could demand cash collateral on short notice, take a security interest in Tekcon's contracts and equipment, and make the final call on whether to pay, settle, or fight any claims. The indemnitors agreed to cover everything from legal fees to investigation costs.

Things did go south. According to Berkley, Tekcon issued a Notice of Withdrawal from the Essex County project on November 29, 2024. The County promptly declared Tekcon in default and called on Berkley to step in. Berkley investigated, then entered into a takeover agreement with Essex County and hired Tsivico Enterprises, Inc. to finish the work. Along the way, Berkley says the replacement contractor discovered defective work that Tekcon had left behind.

The fallout did not stop there. Berkley claims twenty-seven subcontractors and suppliers have since filed payment bond claims totaling more than $2.2 million. Berkley says it has already paid out roughly $1.09 million to claimants and faces about $5.25 million in exposure on the performance bond side. All told, Berkley pegs its anticipated losses, costs, and expenses at approximately $6,918,417.86.

Berkley is now asking the court to force Tekcon and the Dziadyks to post that amount as collateral, to indemnify Berkley for all its losses, and to hand over their financial books and records. The indemnitors, Berkley says, have ignored its demands and failed to meet their contractual obligations.

No court has ruled on the merits, and the claims remain unproven. But for surety professionals watching the construction space, the case is a reminder of the risks that come with bonding contractors on public projects and the importance of robust indemnity protections when things fall apart.

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]]>Tue, 06 Jan 2026 14:13:00 -0500<![CDATA[Hartford and Capital Credit Union clash over $3 million in bankruptcy battle]]>https://www.suretyscience.ai/blogs/post/hartford-and-capital-credit-union-clash-over-3-million-in-bankruptcy-battle

By Matthew Sellers

A $3 million bankruptcy battle between Hartford Accident and Indemnity and Capital Credit Union is putting surety agreements under the spotlight for insurers nationwide.

When North Dakota-based Pro-Mark Services, Inc. filed for Chapter 7 bankruptcy in April 2024, it set off a contest over more than $3.3 million held in the company’s deposit accounts at Capital Credit Union. Hartford, which had issued payment and performance bonds for Pro-Mark as required by the Miller Act, claimed that its agreements entitled it to the funds – particularly if the money was related to bonded contracts.

The dispute centers on two contracts: the General Indemnity Agreement (GIA) and the Intercreditor Collateral Agreement (ICA). The GIA, signed in July 2020, assigned to Hartford all of Pro-Mark’s rights in or related to the bonds. In December 2021, Pro-Mark entered into two business loan agreements with Capital Credit Union, secured by most of Pro-Mark’s assets, including its deposit accounts. Recognizing potential overlapping interests, Hartford and Capital Credit Union executed the ICA in July 2022. The ICA defined “Bank Priority Collateral” and “Surety Priority Collateral,” and set out how proceeds, including insurance proceeds, would be distributed between the parties.

After Pro-Mark filed for bankruptcy, Capital Credit Union placed an administrative freeze on the deposit accounts and filed a motion in bankruptcy court seeking relief from the automatic stay to set off the funds against Pro-Mark’s debt. Hartford objected, arguing that under the GIA and ICA, it had a superior claim to the funds if they were proceeds from bonded contracts. The bankruptcy court granted the credit union’s motion, focusing on the GIA and the Uniform Commercial Code as adopted in North Dakota. The court determined that Hartford did not have an enforceable interest in the deposited funds because the GIA’s assignment provision did not specifically include the word “proceeds.” As a result, the court allowed the credit union to set off the funds.

On Oct. 20, the United States Bankruptcy Appellate Panel for the Eighth Circuit reversed the bankruptcy court’s decision. The panel held that the bankruptcy court erred by not analyzing the parties’ priority positions according to the ICA, which was expressly intended to govern the priorities between Hartford and Capital Credit Union. The appellate panel emphasized that parties may contract around the provisions of the UCC, and that the ICA’s definitions and priority rules should have been the primary basis for determining rights to the funds. The case was remanded for further proceedings consistent with this opinion.

For insurance professionals, this case highlights the importance of carefully drafted intercreditor agreements and the need for courts to honor the contractual arrangements made between sophisticated parties. The outcome will depend on how the bankruptcy court applies the ICA’s terms to the facts of the case. No specific insurance policy clauses were discussed in the appellate decision, but the case underscores the critical role of indemnity and intercreditor agreements in the surety and commercial insurance context.

With the case now returning to bankruptcy court, insurers and lenders will be watching closely. The final resolution will clarify how such agreements are interpreted in bankruptcy and may influence how future deals are structured when multiple creditors have claims to the same assets. In high-stakes insolvencies, the details of your contracts remain essential.

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