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The Berks Products Case Nearly 3 Years Later

4/1/2016 | Construction Blog

Almost 3 years ago, we reported on our construction law blog about a Pennsylvania Commonwealth Court decision that changed the landscape of surety law in Pennsylvania. Given the immense amount of discussion the decision created among construction surety professionals at the time, we thought it would be instructive to provide an update on what the Courts have done with the Berks Products decision since it was initially handed down.

By way of brief review, Berks Products was a supplier to a subcontractor on a Pennsylvania public construction project. It made a claim for payment against a bond issued by Arch Insurance Company for the project. The general contractor maintained that it had paid the subcontractor in full, including all amounts claimed by Berks Products. Even Berks Products, as the claimant, agreed that the general contractor had paid the subcontractor. Arch argued that it was protected by the “safe harbor” provision provided for in Pennsylvania’s Little Miller Act and mirrored in the bond itself.

The “safe harbor” provision is a commonly seen clause that excuses the bonding company from the obligations of making payment on a claim where it can be shown that the general contractor, as the principal on the bond, has made payment in full. The Commonwealth Court held in Berks Products, however, that the statutory “safe harbor” provision represented a starting framework for that exemption and that the bonding company could choose to narrow the exemption if it so elected. If the language in the bond, which is to be interpreted against the surety, eliminates some or all of the “safe harbor” exemption by agreeing to do more than the statute requires, the bond will govern and allow a recovery from the surety.

There has only been one reported decision in Pennsylvania since the holding in Berks Products. It is a federal court decision which simply refers to some of the basic tenets of interpreting bonds discussed in Berks Products. There has not been any substantive decision which pulls back from the Commonwealth Court’s holding in Berks Products. Similarly, there are no published decisions seeking to differentiate that matter as a unique situation which can be legally distinguished from others. As a result, the Berks Products case remains the law of the Commonwealth and is likely here to stay.