Florida Court Rules on Statute of Limitations for Claims Against Subcontractors Under Performance Bonds
In a case with potential implications for owners, contractors and subcontractors in Florida, the Third District Court of Appeal has issued a ruling that significantly affects the time period during which claims can be brought against subcontractors under performance bonds.
In BDI Construction Company v. Hartford Fire Insurance Co., 995 So. 2d 576 (Fla. 3rd DCA 2008), the School Board of Miami-Dade County contracted with a contractor for the construction of a senior high school. The contractor subcontracted with BDI Construction, which in turn hired a sub-subcontractor named E&F Contractors, Inc. for the stucco and drywall work. As the sub-subcontractor’s surety, Hartford Fire Insurance issued a performance bond for the work naming BDI Construction as the obligee, or beneficiary.
Although there were allegations that E&F Contractors, Inc.’s work was defective, BDI Construction made its final payment to E&F Contractors, Inc. in 2001. In 2006, more than five years after the final payment, BDI Construction filed a third-party complaint against the surety and E&F Contractors, Inc. The parties agreed that the applicable statute of limitations to bring claims under a performance bond is five years. The issue in the case was the timing of when the five-year statute of limitations began.
Statute of Limitations Ruling
The surety prevailed on summary judgment by arguing the statute of limitations accrued when the subcontractor completed its work and was paid in full for that work. BDI Construction relied on Federal Insurance Co. v. Southwest Florida Retirement Center, Inc., 707 So. 2d 1119, 1121 (Fla. 1998) in arguing the statute of limitations accrued when the entire project was completed and accepted by the owner. The Third District Court of Appeal disagreed, however, interpreting the Federal Insurance case differently as to its application to subcontractors: “We thus interpret the language in Federal Insurance to the extent that the cause of action ‘accrues on the date of acceptance of the project as having been completed according to terms and conditions set out in the construction contract’ to mean that the ‘project’ is the sub-contracted work, and the ‘construction contract’ is this context is the sub-contract.” In other words, once BDI Construction accepted E&F Contractors, Inc.’s work as being complete and paid for the work in full, the court ruled, the five-year statute of limitations had begun.
Owners, contractors, and subcontractors who are named obligees on performance bonds should be aware of this statute of limitation application so claims are not lost by being time barred. BDI is also of interest because this application of the statute of limitations starting when the work is complete and paid for in full may arguably be used in other contexts, such as breach of contract actions for deficient work by subcontractors.