Surety on Public Works Payment Bond Must Pay Attorney Fees Incurred by Prevailing Claimant Even Though the Principal on the Bond Is Not Liable for Them


May 3, 2004

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(A version of this article will appear in the Construction Law Digests, published by the West Group.)


By James E. Acret

Mechanical subcontractor Scott filed an action against prime contractor Blount, Inc. to recover cost overruns on a City of San Jose redevelopment project. Blount made a Code of Civil Procedure §998 offer of $900,000, and Scott obtained judgment for only $442,054. Blount satisfied the judgment. Scott contended that the surety still was liable for the balance of its claim and also for attorney fees incurred after the §998 offer.

As for the balance of the claim, the surety's liability was held to be commensurate with that of the principal as provided in Civil Code §2809. Scott Co. of California v. United States Fidelity & Guaranty Insurance Co., 107 Cal.App.4th 197, 132 Cal.Rptr.2d 89, 2003 DJDAR 3245 (2003). Blount satisfied the judgment. Therefore, the liability of the principal had been discharged, and the surety was not liable for the balance of the claim.

As to attorney fees, however, the situation is different. Civil Code §3250 provides that in an action on a public works payment bond, the court shall award to the prevailing party a reasonable attorney fee. Scott was the prevailing party, but Blount was relieved of any obligation to pay Scott's attorney fees because Scott rejected Blount's §998 offer and failed to achieve a more favorable outcome. The general suretyship rule that the obligation of the surety is co-extensive with that of the principal must yield to the special mandate of §3250, which furthers the strong policy favoring mechanics, laborers and materialmen by imposing an independent statutory obligation on sureties.

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©2004 Thelen Reid Brown Raysman & Steiner LLP