Georgia Appellate Court Provides Guidance to Sureties on Recovering Losses
By Neil Wilcove

The Georgia Court of Appeals recently provided guidance for sureties who issue performance and payment bonds on recovering payments and losses resulting from a contractor’s default of the underlying contract.  In Cagle Construction, LLC v. The Travelers Indemnity Company, Travelers, as a successor to Gulf Insurance Company, the surety, issued performance and payment bonds on behalf of Cagle Construction, LLC, the principal, for the benefit of the Georgia Department of Defense with respect to four construction projects.  In consideration for issuing the performance and payment bonds, Gulf required Edgar Cagle, Cagle Construction, LLC’s Chief Manager, to execute a General Agreement of Indemnity (“GAI”) in favor of Gulf.  The GAI required Cagle to indemnify and hold Gulf harmless for all claims and losses that arose from any claims made on the performance or payment bonds issued.

Prior to completing its work, the Georgia DOD declared Cagle Construction, LLC in default and terminated them.  Georgia DOD demanded that Gulf complete the projects pursuant to Gulf’s obligations under the performance bonds.  Additionally, a number of subcontractors and material suppliers made claims on the payment bonds issued by Gulf.  Travelers filed suit under the GAI seeking to recover the amounts it spent.  Cross-motions for summary judgment were filed.  In his motion, Cagle raised two arguments.  First, Cagle argued that the statute of limitations for a surety to bring an action under a GAI was one (1) year, pursuant to the Georgia Little Miller Act, codified at O.C.G.A. §13-10-65.  Second, Cagle argued that Travelers’ damages were unreasonable.  In support of that argument, Cagle relied solely upon his own affidavit, with no other supporting facts.  The trial court granted Travelers motion and denied Cagle’s motion.

In affirming the trial court’s decision, the Court of Appeals relied upon the language contained in the GAI that stated, “in the event of payment by [Travelers], [Cagle] agrees to accept the voucher or other evidence of such payment as prima facie evidence of the proprietary thereof and of [Cagle’s] liability therefore to [Travelers].”  In support of its summary judgment motion, Travelers provided an affidavit from its Recovery Management Unit, stating the amounts it paid on the bonds.  Because the GAI stated that the evidence would be a prima facie showing of what was paid, unless Cagle could show bad faith or had direct evidence that Travelers did not actually pay the amounts contained in the affidavit, Travelers was entitled to summary judgment on damages.

Finally, the Court of Appeals noted that since the GAI was a written contract, the statute of limitations that would normally apply would be six (6) years, not one (1) as suggested by Cagle.  But because the GAI was also under seal, the Court of Appeals ruled that the statute of limitations would have been extended to twenty (20) years.   This case clarifies any ambiguities on how a surety should prove its damages in a recovery case and limitations period involved.

For more information, contact Neil Wilcove at 770.818.1430 or [email protected] within our Construction Law Practice Group.



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