The critical importance of providing a performance bond surety with notice of a principal’s default was the basis of a recent decision by the Rhode Island Supreme Court.
Most bond forms in use today, including the standard form AIA A312-2010, contain express condition precedents that trigger a surety’s obligations under the bond. Under a performance bond, the bond obligee is required to provide formal notice to the surety that the principal has materially defaulted and that the surety must begin to perform under the terms of the bond. This principle is grounded in the idea that the surety should have an opportunity to address the default and investigate the claim so as to mitigate its own liability. Failure to provide sufficient notice will discharge the surety of its obligations under the bond.
Reprinted courtesy of Dennis Cavanaugh, Robinson & Cole LLP and Tasnuva Islam, Robinson & Cole LLP
Mr. Cavanaugh may be contacted at dcavanaugh@rc.com
Ms. Islam may be contacted at tislam@rc.com
