Claims Made by an Obligee: Liquidated and Delay Damages, Incidental and Consequential Damages, and Punitive Damages
Where a contract provides for liquidated damages for delays caused by a contractor, and the contractor abandons the work, a surety generally will not be liable to the obligee for the liquidated damages. Courts reason that the contractor did not actually delay but rather abandoned the work. Village of Canton v. Globe Indemnity Co., 201 A.D. 820 (3d Dep’t 1922). The time of completion of the work is delayed when a contractor/principal defaults, whether it is considered a delay or abandonment, and the surety will suffer damages due to a delay, which is a damage that provides a remedy in the contract that the surety secured. However, sureties may be liable for an actual delay if the underlying contract provides for delay damages, Maltin v. Maryland Cas. Co., 24 A.D.2d 419 (1st Dep’t 1965), and if the contract is silent on the issue, then the issue of fact is to be resolved by the trier of fact based on the determination of the parties’ intentions. Babylon Associates v. Suffolk County, 101 A.D.2d 207 (2d Dep’t 1984). If the surety assumes the obligee’s contractual obligations, including prompt completion of the project subject to the performance bond, the surety may be held liable for delay damages regardless of the limitation of the original contract. International Fidelity Ins. Co. v. County of Chautauqua, 24 A.D.2d (4th Dep’t 1997).
Obligees often suffer consequential damages as a result of a principal’s breach of contract. If the surety performs under the bond by completion or payment, it will not be liable for consequential damages. However, if a surety breaches its duties under the contract, the surety may be liable to the obligee for damages that “reasonably and naturally” flow from the breach by either the principal or surety. Hunt v. Bankers and Shippers Ins. Co. of New York, 73 A.D.2d 797 (4th Dep’t 1979).
A surety may be held liable for punitive damages which exceed the performance bond amount where the surety shows “extraordinary bad faith” and refuses to honor a valid and proper claim submitted under the bond. In this instance the standard would be the same as for any other breach of contract claim, that the wrong must be “morally culpable or actuated by evil and reprehensive motives.” Spancrete Northeast, Inc. v. Travelers Indem. Co., 112 A.D.2d 571 (3d Dep’t 1985).