ILNews

Court answers question on subcontractors' ability to recover

Michael W. Hoskins
January 1, 2007
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The Indiana Supreme Court today delved into the meaning of "subcontractor" and determined that performance bond coverage for third parties only goes so far.

Stemming from a certified question from the U.S. District Court for the Northern District of Indiana, justices considered: "Does a performance bond required by and issued in accordance with Ind. Code §8-23-9-9 afford coverage to a third-tier claimant?"

Chief Justice Randall T. Shepard wrote the opinion saying the statute does not afford that coverage, noting that a subcontractor is "any person or organization entering into a contract with a contractor to furnish labor and materials used in the actual construction of a state highway project."

Further in the decision, he wrote: "Accordingly, a claimant who does not share privity of contract with the contractor or a subcontractor is not entitled to the coverage of a performance bond issued under §8-23-9-9."

Justice Brent Dickson dissented without a separate opinion. The 4-1 decision came down in Alberici Constructors, Inc. v. Ohio Farmers Insurance Co. http://www.in.gov/judiciary/opinions/pdf/05220701rts.pdf, 94S00-0612-CQ-488, which involved a federal contract dispute relating to an Indiana Department of Transportation bridge project near Bluffton.

Contractor Primco secured a performance bond with defendant Ohio Farmers Insurance Co. and later entered purchase agreements with three other companies for needed materials. The third, Hillsdale Fabricators or Alberici Constructors, delivered bridge pieces but was not paid by the second company, Gateway Bridge. The insurance company rejected a claim by Alberici, saying it was "too far removed to have standing." Alberici ultimately sued the insurance company in federal court, arguing that it could recover under the state's performance bond statute.

"Without a bright line defining where surety coverage extends, contractors would face an incalculable risk of liability for claims made by distantly remote suppliers or laborers on contracts made without contractor approval," the chief justice wrote, later adding that the statute doesn't extend coverage under a performance bond to any entity more remote than a second-tier laborer or material supplier.

However, he added that this holding doesn't mean parties working on state highway projects are left without any way to ensure payment. Advance payments or some other "financial understanding" could be reached, as well as additional contract arrangements to extend that coverage, the chief justice wrote. The General Assembly could also amend the statute, he wrote.
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  1. I just wanted to point out that Congressman Jim Sensenbrenner, Senator Feinstein, former Senate majority leader Bill Frist, and former attorney general John Ashcroft are responsible for this rubbish. We need to keep a eye on these corrupt, arrogant, and incompetent fools.

  2. Well I guess our politicians have decided to give these idiot federal prosecutors unlimited power. Now if I guy bounces a fifty-dollar check, the U.S. attorney can intentionally wait for twenty-five years or so and have the check swabbed for DNA and file charges. These power hungry federal prosecutors now have unlimited power to mess with people. we can thank Wisconsin's Jim Sensenbrenner and Diane Feinstein, John Achcroft and Bill Frist for this one. Way to go, idiots.

  3. I wonder if the USSR had electronic voting machines that changed the ballot after it was cast? Oh well, at least we have a free media serving as vicious watchdog and exposing all of the rot in the system! (Insert rimshot)

  4. Jose, you are assuming those in power do not wish to be totalitarian. My experience has convinced me otherwise. Constitutionalists are nearly as rare as hens teeth among the powerbrokers "managing" us for The Glorious State. Oh, and your point is dead on, el correcta mundo. Keep the Founders’ (1791 & 1851) vision alive, my friend, even if most all others, and especially the ruling junta, chase only power and money (i.e. mammon)

  5. Hypocrisy in high places, absolute immunity handed out like Halloween treats (it is the stuff of which tyranny is made) and the belief that government agents are above the constitutions and cannot be held responsible for mere citizen is killing, perhaps has killed, The Republic. And yet those same power drunk statists just reel on down the hallway toward bureaucratic fascism.

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