Casey Electric, LLC v. Construction Management Services et al., 2009 WL 3853819, Docket No. 3:09-cv-00469 (PCD) (D. Conn., 11/ 17/09)
Lessons learned: Applying Connecticut law, a recent federal court decision holds that C.G.S. § 49-42 is not the only cause of action that can be brought against a surety who fails to respond timely to a payment bond claim. Allegations that the claimant is a third-party beneficiary under the bond are sufficient to support a claim for breach of the covenant of good faith and fair dealing against the surety, and a surety's failure to respond to the notice of claim within the time period prescribed by C.G.S. § 49-42 can give rise to a CUTPA claim.
Summary: In this case, an electrical subcontractor ("Casey") sued the general contractor ("CMS"), and the payment bond surety ("Selective") on a City of Bridgeport project. Casey filed suit against CMS for breach of contract and against Selective alleging: (1) breach of third-party beneficiary rights, (2) breach of the covenant of good faith and fair dealing and (3) violation of the Connecticut Unfair Trade Practices Act ("CUTPA"). Selective moved to dismiss the third-party beneficiary claim on the ground that C.G.S. § 49-42 provides the exclusive mechanism for enforcing payment against Selective under the bond. The Court agreed and granted Selective's motion.
Selective filed a second motion to dismiss the remaining two counts against it. As to the breach of covenant of good faith and fair dealing count, Selective argued that Casey failed to allege the existence of a contract between it and Selective, which is a necessary component of a breach of covenant of good faith and fair dealing claim. Selective further argued that Casey's allegations that it was a third party beneficiary of the payment bond could not support the breach of covenant of good faith and fair dealing claim because the Court had already dismissed the count of Casey's complaint sounding in breach of third party beneficiary rights. Finally, Selective argued that C.G.S. § 49-42 preempts any contract-based claims against it.
In denying Selective's motion to dismiss the breach of covenant of good faith and fair dealing count, the Court stated that its earlier ruling that Casey could not enforce payment of the bond as a third-party beneficiary is distinct from the question of whether Casey is a third-party beneficiary for purposes of enforcing the covenant of good faith and fair dealing. The Court further held that even though the payment bond did not explicitly name Casey as a third-party beneficiary, it was reasonable to infer that the contracting parties intended Casey to be a third- party beneficiary of the payment bond and Casey sufficiently alleged so in its complaint. Finally, the Court held that C.G.S. § 49-42 does not contain an exclusivity provision which would bar Casey from asserting other causes of action against Selective. While C.G.S. § 49-42 is the exclusive means for Casey to recover the balance of the monies it is owed on the project, the statute does not preclude Casey from pursuing damages from Selective for breach of the covenant of good faith and fair dealing.
The Court also denied Selective's motion to dismiss Casey's CUTPA count. The Court held that Casey's allegations that Selective failed to respond to its payment bond claim within the ninety-day time period required by C.G.S. § 49-42 were sufficient to withstand the motion.
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