A source of recovery for someone damaged by a contractor’s work may be the contractor’s license bond, especially when a contractor is missing, unlicensed or insolvent. California contractors are required to have a $25,000 bond issued by a licensed surety to maintain their contractor’s license. License bond sureties typically underwrite the bonds in exchange for a signed indemnity agreement and an annual premium.
A contracting homeowner damaged as a result of the contractor’s violation of the Contractors’ State License Law may recover up to the entire amount of the $25,000 bond. Third parties or those who have not contracted for their personal family residence damaged by a contractor’s willful and deliberate violation of the Contractor’s State License Law, or from the fraud of the contractor in the execution or performance of a construction contract may recover up to $7,500 from the bond. The statute of limitations on a bond claim is two years after the expiration of the license period during which the act or omission occurred.
Typical bond claims include the contractor’s willful departure in any material respect from accepted trade standards for good and workmanlike construction, the contractor’s willful or deliberate disregard and violation of the building laws of the state or of any political subdivision, and any willful or fraudulent act by the contractor substantially injuring someone.
Typical bond claims include a written demand to the contractor’s bond surety, the surety’s acknowledgment of the claim, and the surety or its third-party administrator’s investigation of the claim for forty (40) days. The surety also may seek additional time to investigate the bond claim when it specifies any additional information required to make a determination and any continuing reasons for the inability to make a determination. The surety is required to accept or deny the claim, in whole or in part.
At least one court has found that attorney’s fees are recoverable from the bond as a cost of litigation when an unlicensed contractor provides goods or performs services that damage or cause injury to another person. The bond may reduce its exposure to attorney’s fees by negotiating a settlement of its own liability or use interpleader procedures to deposit the amount of its bond in court.
Bond claims represent an additional potential source of recovery and leverage for someone damaged by a contractor’s work. Experienced attorneys know when and how to present contractor’s bond claims to maximize the chances of successful claims. If you or your business have suffered a loss, attorneys at Tropea McMillan can help with contractor’s bond claims.