From: James Burger, President
I would like to thank the Long Island Chapter of the Construction Financial Management Association (“CFMA”) for hosting “The State of the Surety Industry” on March 16th at the Huntington Hilton. Lou Spina, Sr. Vice President at USI Insurance, once again did an outstanding job moderating this very informative event. The participants and panelist appeared very grateful to have had the opportunity to gather and network with their peers after a two year absence due to COVID-19, and I am personally very grateful to have had that opportunity as well.
I am also honored to have participated with my follow co-panelists Joseph Cieri, Contract Underwriting Officer at Liberty Mutual and Matt Curran, Sr. Vice President at Sompo International, both of whom provided an informative discussion on the state of the surety industry and construction trends.
If you were not able to attend the meeting, some of the interesting matters discussed were loss results, which remained favorable nationwide through the 3rd quarter of 2021. However, pockets of high loss activity exist in certain areas (particularly in New York), which is cause for some concern.
The panelists also discussed the underwriting process and how underwriting and risk evaluation has evolved over time. Many sureties now employ extensive data analytics in their underwriting process and take a much more collaborative approach with their contractor clients. Additionally, the panelists discussed the potential impacts to construction projects resulting from material shortages, delays, and unduly burdensome wording in contracts and bond forms demanded by certain owner obliges and how they can compound potential losses.
On a final note, I wanted to highlight a recent case, Prismatic Development Corp., v International Fidelity Ins Co, Index No. 650402/2013 (Sup Cr, NY County), in which a general contractor attempted to enforce Performance and Payment Bonds issued by the surety for a subcontractor several years after the construction project had been completed. Fortunately, the New York supreme court dismissed the case, finding the surety had no obligation to indemnify the general contractor since the contractor failed to satisfy the conditions precedent in the Performance Bond pertaining to declaring a (sub)-Contractor Default and providing the surety an opportunity to remedy within the appropriate time frame. While the surety was successful in this case, it should serve as a reminder to surety Agents, Underwriters and Contractors of how imperative strong underlying contract wording and good bond forms are in defending potential claims.