S&S Paving and Construction, Inc. v. Berkley Regional Ins. Co. (5/12/2016): Arizona Court of Appeals Division One holds that Arizona’s Little Miller Act does not authorize claims for bad faith against sureties on payment bonds for public work projects.

5/12/2016

A surety issued a payment bond to a contractor for a public works project in the City of Prescott pursuant to the Little Miller Act, A.R.S. § 34-222(A)(2).  A subcontractor who performed paving services on the project subsequently submitted a demand to the surety for payment. The surety acknowledged the demand, but stated that it needed to investigate the claim and noted that it was not waiving any defenses nor tolling any applicable statute of limitations in the interim.  Almost two years later, the subcontractor submitted another demand, which the surety denied as untimely.

The subcontractor sued for breach of contract and bad faith.  The superior court granted summary judgment in favor of the surety, concluding that the breach of contract claim was barred by the statute of limitations and that the bad faith claim could not proceed in the absence of a contractual or special relationship between the parties.

The subcontractor appealed the rejection of its bad faith claim only, arguing that Arizona’s Little Miller Act imposes a duty of good faith on sureties akin to the duty of good faith owed to insured by insurance companies. The Court of Appeals, Division One, rejected the suggestion that the Act imposes on sureties a duty of good faith or duty to investigate claims.  Observing that the Act both defines the scope of a surety’s liability and provides a complete remedy for claimants, the Court concluded that the statutory scheme left no room for an additional common law remedy for bad faith.  

Judge Downie authored the opinion, in which Presiding Judge Gould and Judge Gemmill joined