HCBA Lawyer Magazine Vol. 29, No. 2 | Page 24

aCCrual reality – When a ClaiM arises under a surety Bond
construction law Section
Chairs: J. Derek Kantaskas – TMD Companies, LLC & Gregg E. Hutt – Trenam Law
While surety bonds are
a type of insurance
contract, the unique and
distinct nature of the
surety contract bases the
D
surety’s liability on the
istinguishing suretyship
from insurance takes
a herculean effort —
even more so when
trying to determine when a surety’s
obligation is triggered. In Lexon
Insurance Company v. City of Cape
Coral, the Second District Court
of Appeal differentiated surety
contracts from insurance contracts
by explaining that a surety bond is
breached when the bond principal
breaches its obligation — not
when the surety denies a claim.
238 So. 3d 356 (Fla. 2d DCA
2017), review denied, 2018 WL
3282013 (Fla. 2018).
liability of the principal.
© Can Stock Photo / johnnychaos
The Lexon case involved bonds
governing a 400-plus acre
development. In June 2006,
Lexon, as surety, issued two
subdivision bonds totaling $7.7
million that named the developer
as principal and the City as the
obligee. In March 2007, the
contractor for the project stopped
work because the developer
stopped paying on the parties’
contract. By June 2007, the
City had stopped performing
inspections at the property.
But the City waited until October
2012 to sue Lexon for breach of
contract and for declaratory relief.
Lexon moved to dismiss the City’s
claim as untimely. The trial court,
however, characterized the bonds as
an insurance contract and ruled that
the bonds were not breached until
Lexon denied the claim. In doing
so, the trial court rejected Lexon’s
argument that because the surety
bonds are a contract, the principal
Continued on page 23
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