When a surety issues a payment bonds, it often relies on the contractor- subcontractor agreement as a primary source for defenses. Because pay when paid clauses have become more and more common in our industry, a payment bond surety many times seek to avail themselves to the pay-when-paid language as a defense to an otherwise valid payment bond claim. A recent ruling by Florida’s Fourth DCA could change that.  

In Everett Painting v. Padula, 4D02-4221 (Fla. 4 DCA 2003), the court held that in the absence of an express incorporation of the pay-when-paid clause into the bond, the pay when paid clause is not a defense available to a surety.  The reasoning behind this decision is that a payment bond is a separate agreement from the subcontract. However, this ruling does not mean that Sureties can not limit its liability.  Under Florida Statutes 713.245, a surety may limit its liability by including conditional payment language in the bond, if the subcontract includes a similar limitation.  In other words, the surety can issue a “conditional payment bond” but the bond must include the specific language included in 713.245.  Caveat: if the surety uses the 713.245 language, the bond must be a 713.245 bond.  The language will not turn a 255.05 bond into a conditional bond.  That is because the purpose of a 255.05 bond is to protect subcontractors and suppliers by providing them with an alternative remedy to the mechanic’s lien on public projects.  Allowing a surety such a defense runs counter to the purpose of 255.05 payment bonds.

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