Great American Insurance Co. v. North Austin Municipal Utility District No. 1
908 S.W.2d 415 | Texas Supreme Court | 1995
What This Case Means for Subcontractors
A municipal utility district hired a contractor to build a wastewater station and required performance and payment bonds from Great American Insurance. When the contractor defaulted, the district sued the surety for breach of good faith and fair dealing. The Texas Supreme Court ruled that commercial sureties have no common law duty of good faith and fair dealing to bond obligees, meaning you cannot sue a surety for bad faith the way you could sue an insurance company. This limits your legal options if a surety refuses to pay a valid claim.
Key Takeaways
- •You cannot sue a commercial surety for bad faith or breach of good faith and fair dealing—only for breach of the bond's actual terms
- •Read your bond documents carefully because the surety's only obligation is what the bond explicitly states, not implied duties of fairness
- •If a surety denies your claim, focus your argument on the bond language itself rather than arguing the surety acted unfairly or unreasonably
There is no common law duty of good faith and fair dealing between surety and bond obligee.
Frequently Asked Question
Can I sue a surety company for bad faith if they wrongfully deny my bond claim?
No, not in Texas. Commercial sureties do not owe a duty of good faith and fair dealing to bond obligees. You can only sue if the surety breaches the specific terms written in the bond itself. Focus your claim on what the bond actually says, not on whether the surety acted fairly.
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