Contractor’s license bonds are required by statute in Nevada (NRS 624.270), and claims against the bond are also governed by statute (NRS 624.274). Therefore familiarity with those statutes is a prerequisite for evaluating a claim. Once a claim is asserted, these basic steps should be taken to assess the validity of that claim.
- IS THE CLAIMANT A PROPER ONE PURSUANT TO NRS 624.274.1?
Nevada law (NRS 624.273.1) restricts the making of bond claims to these four categories of claimants:
- Property owners who enter into construction contracts with the bond principal and who are damaged by the failure of the contractor to complete the project or to remove construction liens;
- Employees of the bond principal who perform labor on the construction project;
- Companies who supply construction material to the principal for the project; and
- Persons who are injured by unlawful acts or omissions of the principal in the performance of a contract.
Additionally, two Nevada cases have expanded that list of potential claimants. In Genix Supply Co. v. Board of Trustees, 84 Nev. 246 (1968), the provisions of subcategory (b) were applied to union trust funds, which assert claims for unpaid worker benefits, and the priority provisions of NRS 524.273.6 were also applied to these trusts. Then in Midland Ins. Co. v. Yanke Plumbing & Heating, Inc., 99 Nev. 66, 657 P.2d 1152 (1983), subcontractors were included in the provisions of subcategory (c).
The most difficult category to assess is subcategory (d) with its reference to unlawful acts or omissions in the performance of a contract. This language is often used to justify claims by creditors of the contractor not related to construction projects or material and by claimants who do not qualify under any of the three other categories. Often they are general contractors. Claimants typically assert that any civil tort or violation of NRS 624 by the principal qualifies as such an ‘unlawful act or omission’. That proposition should be rejected as it would make the other three categories of NRS 624.273.1 meaningless. The Nevada Supreme Court has interpreted this language to apply to claimants who are injured by unlawful acts or omissions of the contractor, declared to be unlawful by NRS 624, the contractor licensing law. Day & Night Mfg. Co. v. Fidelity & Cas. Co., 85 Nev. 227, 452 P.2d 906, 1969 Nev. LEXIS 523 (1969). Specifically, NRS 624 must state that a particular act is unlawful. Examples of such unlawful acts are, for example, engaging in a business in the capacity of a contractor without a license, Nev. Rev. Stat. § 624.700 (2010); unlawful advertising, Nev. Rev. Stat. § 624.720 (2010); taking a contractor’s examination for another person, Nev. Rev. Stat. § 624.730 (2010); or acting in a joint venture or combination without an additional license, Nev. Rev. State § 624.740 (2010). Breach of a contract is not considered an “unlawful act or omission” contemplated under Nev. Rev. Stat. § 624.273(1)(d). However, embezzlement, i.e. receiving payment from the owner or general contractor and then not paying a supplier or subcontractor, would be considered an unlawful act if properly proven. Vegas Paint Co. v. Travelers Indem. Co., 87 Nev. 46, 482 P.2d 813, 1971 Nev. LEXIS 345 (1971).
- WAS THE BOND IN EFFECT WHEN THE CLAIM AROSE?
It is almost self-evident that the bond must have been in effect when the claim arose. Here the language of the bond itself controls, as it states “[t]he liability of the Surety shall be confined to acts, omissions or defaults of the Principal occurring subsequent to the effective date hereof, the Surety shall not be liable for labor and material bills incurred by the Principal prior to the date hereof.” The same applies to acts or omission after the bond has been cancelled. The surety can cancel the bond by giving written notice to the State Contractor’s Board, and the bond obligations are terminated 60 days thereafter.
The issue is typically when the “acts, omissions or defaults” occurred, which gave rise to the bond claim. Here we must look at the claim itself to determine the specific date. If the claim is based on subcategory (a), then the act is either the date of failing to complete the project or the act of failing to remove the lien. However, the date of such an act or omission may be difficult to determine. If the contract, for example, specifies a date of completion, then the act would have occurred the day after the one, when the project was to be completed. If the contract does not have a specific date of completion, then a reasonable date should be implied, though that might be difficult to assess under the circumstances. A similar analysis could be used in the “removal of lien” context, where a principal should have a reasonable time to remove the lien after it has been filed.
Ascertaining a date for the “act or omission” is quite a bit easier in the context of the other three subcategories. Where the principal fails to pay his workers or fails to pay their benefits or fails to pay his suppliers, the dates would be the ones where the failure occurs. For example, if a worker is typically paid on the first of every month, and the principal does not pay him as agreed upon, that would be the date on which the claim is based. The same would apply to the date on a supplier’s invoice indicating when payment is due, or the agreed upon date when a subcontractor is to be paid pursuant to its pay application. And where the claim is based on the alleged “wrongful act or omission” of the principal, the claim itself should identify the alleged act or omission and the date thereof.
- IS THE CLAIM BARRED BY THE STATUTE OF LIMITATION?
Nevada has a two year statute of limitation for contractor’s license bond claims. NRS 624.273.2. The statute begins to run from the date of the commission of the act on which the action is based. (See the discussion above for what that date might be.) Merely filing a claim does not toll the statute of limitation. An action must be commenced by filing a complaint “in a court of competent jurisdiction.”. While this seems to be a fairly straightforward evaluation, there are some possible problem areas.
Property owners will, for example, often try to extend the Statute by either claiming that the Statute hasn’t started to run, because the construction project is still incomplete, or by asserting that it was extended because the contractor went back to the project to do some remedial work. The correct position should be that the 2-year Statute began to run either when the contractor walked off the job, leaving the project incomplete, or didn’t complete the work within the time frame set by the construction contract. In the Payment Bond context, the courts generally draw a distinction between essential work and incidental, repair and warranty work. The latter is insufficient to forestall the running of the limitation period. T Square Equipment Corp. v. Gregor J. Schaefer Sons, 272 F. Supp. 962; Trinity Universal Ins. Co. v. Girdner, 379 F.2d. 317. There is no similar case yet in the license bond context.
A similar vagueness may occur in the labor context. Here, the Statute begins to run when the last work was performed, at least when it comes to unpaid wages, and when the laborer was supposed to be paid for that work. Union trust funds often assert a ‘discovery’ claim, i.e. that the Statute begins when the audit is performed and the deficiency is detected. However, a recent Nevada Supreme Court has held that union trusts are ‘in the shoes’ of their labor members, at least in the giving of notice requirements of payment bond claims. Arguably, this holding can be extended to license bond claims also. Hartford Fire Ins. Co. v. Trs. Of the Constr. Indus. & Laborers Health & Welfare Trust, 208 P.3d 884. Accordingly, the trust funds must file an action within two years of benefits not being paid by the principal.
When it comes to suppliers or subcontractors, the Statute generally starts to run when the last material was supplied or when the last work was done. There are potential exceptions, however. Suppliers and rental or leasing companies sometimes have extended time gaps between deliveries, and under those circumstances one should assert that the earlier deliveries are not covered if outside the Statute of Limitations. The same should apply to situations where just two or three large items are delivered or leased, and where there is an extended time gaps between deliveries of these items. Under those circumstances, a complaint should be filed within two years of the earlier work or delivery for those items to be covered by the bond.
As previously stated, subcontractors often try to extend the Statute by claiming that they did additional work within the Statute. Here the courts, at least in regards to payment bond claims, the courts generally draw a distinction between essential work and incidental, repair and warranty work.
- UDING THOUGHTS
Please note in conclusion that this is a basic introduction to Nevada contractor’s license law. Among other potential claim defenses are, of course, the defenses which the principal has asserted against the claim, and, for example, the fact that federal construction projects are not covered by the bonds (NRS 624.031.8). Concerning further peculiarities of the claims and defenses, the attorneys of Faux Law will be happy to assist you.