A surety company (USF&G) that issued a performance bond tried to avoid paying claims when the contractor defaulted, arguing it never reviewed the underlying construction contract. The Second Circuit Court of Appeals ruled that sureties are responsible for contractor defaults under AIA 312 bonds regardless of whether they reviewed the contract details. However, the court sent the case back to recalculate the liquidated damages and attorney fees awards because those amounts were incorrectly calculated. This matters to subcontractors because it strengthens the enforceability of performance bonds—your payment protection is solid even if the surety claims ignorance.
Performance bonds protect you even if the surety never read your contract—they can't escape liability by claiming lack of knowledge
Make sure liquidated damages clauses in your contract are reasonable and clearly tied to actual damages, as courts will scrutinize these amounts carefully
Document all contractor defaults and damages thoroughly, since attorney fees and penalties must be properly calculated and justified