Builders and Contractors Exchange
Weekly Bulletin: 11 May 2007
How Long do I have to sue under a payment bond?
By: David W. Lannetti
The Virginia Supreme Court very recently clarified the applicable statute of limitations—the time by which a law suit must be brought—for a payment bond claim under the Virginia Public Procurement Act (VPPA). The Virginia Code provides, with respect to the VPPA, that “[a]ny action on a payment bond shall be brought within one year after the day on which the person bringing such action last performed labor or last furnished or supplied materials.” Virginia Code § 2.2-4341(C). In APAC-Atlantic, Inc. v. General Insurance Co. of America, the Virginia Supreme Court dealt with whether payment bonds need to specifically reference the VPPA’s one-year limitations period and, in the absence of such a reference, what limitations period applies.
A payment bond claim not subject to the VPPA arguably is subject to a five-year limitations period, like any other claim stemming from a written contract in Virginia. A previous Virginia Supreme Court decision (Reliance Insurance Co. v. Trane Co.) held that the VPPA’s one-year limitations period could be broadened if specifically addressed in the payment bond. In the APAC decision, the subcontractor argued, among other things, that the five-year limitations period should apply because—although the contract clearly was subject to the VPPA—the payment bond did not reference the VPPA or the one-year VPPA limitations period. The Court held that specific reference to the VPPA is not required; because the one-year limitations period is specifically applicable to VPPA-derived actions, it trumped the limitations period of the statute governing general written contracts. The Court further opined that although parties can agree to a broadened limitations period via language in the payment bond—as was done in the Reliance payment bond—there was no such language in the APAC payment bond. As a result of not filing its law suit within one year, the subcontractor was never paid; the general contractor went bankrupt and the surety was not liable due to the untimely filing.
A contractor’s legal rights pursuant to payment (and performance) bonds certainly can be confusing, especially when dealing with public entities. The wise contractor should always understand what limitations periods apply so that it can properly enforce its legal rights.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.