Unique “No Damages for Delay Clause” Not a Defense for Surety

5/24/2016 | Construction Blog

The United States District Court for the Northern District of Maryland recently considered an argument by Hartford Accident and Indemnity Company that it was exempt from paying a portion of a payment bond claim as a result of a no damages of delay clause. In deciding the issue, the Court determined that the clause was enforceable but did not preclude recovery against the surety.

The case arose out of an agreement between the Army Corps of Engineers and James W. Ancel, Inc., to build an Army reserve center in Baltimore, Maryland. Ancel then subcontracted the HVAC work to a separate contractor named Chasney & Company. After it was not paid, a payment bond claim was brought for change order work and delay damages incurred and for which Chasney alleged Ancel had been paid by the government.

Hartford defended the delay claim by asserting that the “no damages for delay” clause prohibited the recovery of delay damages and it was due the benefit of that clause in the relevant contract. Chasney, in turn, argued that the no damages for delay clause was unenforceable as a matter of law because it contravened the Miller Act. The Court agreed with Hartford and determined that because a no damages for delay clause impacts the measure of a recovery and not the timing, such clauses are enforceable under the Miller Act.

The Court then went on to decide if the “no damages for delay” clause in the contract between Ancel and Chasney provided a defense to Hartford otherwise. It concluded that the clause as written allowed for a recovery in the limited circumstances that Ancel made a claim against the government and obtained payment for those delay damages. Since the Complaint was pled in those terms, the motion to dismiss was denied and Chasney was permitted to pursue its bond claim.