By Kurt Faux & Willi Siepmann

Contractor licensing in Nevada is controlled by the provisions of Nevada Revised Statute (NRS) 624. It provides for general licenses and specialty licenses, and in many instances, a contractor will have general and several specialty licenses such as carpentry, roofing, plumbing and electrical. Unless waived due to the contractors length of time in business and financial status, the Nevada State Contractors Board (NSCB) will require for each such license a license bond issued by a surety or a cash bond.  Each bond may be in different penal sums, again depending on the length of business and financial status of the contractor. Pool contractors are also required to post a so-called consumer protection bonds, in amounts usually in the six figures, a policy which was recently extended in certain circumstances to contractors performing work on residential projects. The license status of a contractor can be found on the NSCB web site. The page for each contractor will show, among others, the license number, the types of licenses held by the contractor and the bonding company, if any, with details concerning the penal sum and the effective date of the bond.

The coverage of most license bonds is controlled by NRS 624.273, which delineates, among others, who can recover from such bonds, the statute of limitation for bond claims, and how to handle multiple bond claims. Claims against pool consumer protection bonds and residential bonds are governed by both NRS 624.273 and NRS 624.276. The NSCB provides the bond forms, and the language of the bonds matches that of the applicable statute.

Regarding bond claims, an important issue is, of course, how much information the claimant has provided to support the claim, such as the nature and facts of the claim, the dates involved, the amount of the claim, and whether there are supporting documents. If the claimant is unrepresented by counsel, as is often the case, the claimant will be asked to provide such  information as a first step.

In the meantime, the surety claims handler will contact the bond principal and ask for the principal’s defenses and response to the claim. That contact will be an ongoing one, if the principal responds, and ultimately, if the defenses are reasonable and supported by factual evidence, will probably lead to a denial of the claim, as the surety is entitled to rely on these defenses.

• First Steps in Evaluating a Claim.

When a new bond claim is received, and there is sufficient information, the claims handler, after reviewing the facts of the claim, should do two things right away: (a) review the bond to see if the listed contractor on the claim form is the named contractor on the bond and whether the bond was in effect when the claim arose; (b) review the NSCB web page for the contractor to see if the information on that page matches that of the bond and if the license was active when the claim arose; and (c)  review the NSCB web page to determine the type of license involved, whether it is a general license or a specialty license.

An important consideration here is the issue when a particular bond claim arose and whether a bond was in effect at the time. Both the statute and the bond use the phrase “after the commission of the act on which the action is based” in the statute of limitation context. If for example, a claimant alleges that unpaid material was delivered to the contractor in 2023 and the bond became effective in 2024, then the bond was obviously not in effect when the claim arose and Nevada license bonds are not retroactive. Unfortunately, the issue when a claim arose often requires further investigation, especially if the claimant has insufficient information.

Another issue which sometimes can lead to an immediate denial of a claim pertains to the two-year statute of limitation for asserting bond claims. If a subcontractor claimant asserts, for example, that he worked for the contractor in 2021 and was not paid for that work and the date of the claim is more than two years later, then there is an obvious breach of the statute, which requires the filing of a complaint in a court within two years after a claim arises. This, of course, requires a clear reading as to when that claim arose (see above).

Another first step is, of course, contacting the principal and requesting its defenses and response.    

• Subsequent Assessments

By now, the claims handler will have enough information to fully evaluate the claim, based on additional facts and evidence provided by the claimant and the defenses and response provided by the principal, and even if the principal has failed to respond, such an assessment can be made, based on the following: (a) Is the claimant a proper one according to the statute and the bond? (b) Was there an act within the effective period of the bond? (c) Was the principal’s license in effect when the claim arose? (d) Did the principal use its license to warrant the claim against the license bond; and (e) Does the claim violate the 2-year statute of limitation? For all these questions the bond itself provides some answers, although court rulings concerning the provisions must also be considered. Naturally, if the principal’s defenses appear reasonable and are supported by the facts and the law, a denial of the claim may be warranted.

(a) Who can assert bond claims?

The statute and the bond list four categories of claimants as follows:

1. Each bond or deposit required by NRS 624.270 must be in favor of the State of Nevada for the benefit of any person who:  ( a) As owner of the property to be improved entered into a construction contract with the contractor and is damaged by failure of the contractor to perform the contract or to remove liens filed against the property; (b) As an employee of the contractor performed labor on or about the site of the construction covered by the contract; (c) As a supplier or materialman furnished materials or equipment for the construction covered by the contract; or (d) Is injured by any unlawful act or omission of the contractor in the performance of a contract.

Nevada case law has expanded these categories by adding subcontractors to sub-category (c) of the above categories (Midland Ins. Co. v. Yanke Plumbing & Heating, Inc., 99 Nev. 66 (1983)) and by including union trust fund claims for unpaid benefits in sub-category (b) (Genix Supply Co. v. Board of Trustees, 84 Nev. 246 (1968)).

As stated, property owners are covered by sub-category (a), although they might also sometimes qualify under sub-category (d). There must be a contract between the property owner and the contractor, and there must be conduct by the contractor amounting to a “failure to perform” that contract, a rather vague concept to say the least. It obviously covers project abandonment cases, but does it also cover construction defect claims? The statute and the bond did not have the ‘failure to perform’ language when the Nevada case of Boswell v. Ins. Co. of North America, 85 Nev. 359 (1969) excluded construction defect claims from bond coverage, so this issue is up in the air at this time.

Sub-category (d) is also quite vague as to its coverage. It is typically asserted by claimants, who do not qualify otherwise, such as general contractors or finance companies. What is an ‘unlawful act or omission’ ‘in the performance of a contract’? Are failures to complete a project or to pay off loans covered, or even causing a traffic accident, while traveling toward or from a project? Here, the Nevada Supreme Court in the case of Day & Night Mfg. Co. v. Fidelity & Cas. Co., 85 Nev. 227 (1969) held that unlawful acts or omissions of the contractor must be specifically identified as unlawful by the NRS. 624, the contractor licensing statute. Such acts or omissions include working beyond the scope of one’s license, or embezzling contract funds.

(b) The act or omission must be within the effective period of the bond.

The bond will typically state its effective date, and that date can be confirmed on the NSCB web page for the contractor. There is no retroactive coverage, and if the bond was cancelled, there is no coverage beyond the cancellation date stated on the NSCB web page. Those pages, however, do not show the contractor’s bond history, so that quite often claimants will assert a claim against a contractor’s present bond, although their claim obviously arose or accrued well before that bond became effective. The NSCB will provide a contractor’s bond history upon request.

There are, however, situations where claimants will assert that, although their claim arose before the bond became effective, that claim is an ongoing one and this should be covered. It typically involves “failure to complete’ claims under sub-category (a) of NRS 624.273. Such claims should be rejected, as otherwise bond coverage would extend indefinitely. Also, construction contracts typically state when a project is to be completed, and, if not, a reasonable time is implied. Those dates should control this issue.

(c) Was the Principal’s license in effect when the claim arose?

A related issue involves situations where bonds are still in effect, although the license itself has been cancelled or suspended. If then a contractor works without a license, should that be covered by the bond. Here, two claim defenses can be asserted: 1. That the bond runs with the license and that the license cancellation or suspension also cancels the bond; and 2. That there must be a causal connection between the alleged unlawful act of working without a license and the claimed damages. While there are no Nevada cases specifically dealing with this issue, cases in other jurisdictions support this position.         

(d) Did the Principal use the license against which the claim is made?

As stated previously, Nevada has multiple license categories both for general licenses and for specialty licenses. The categories can be found in NRS 624.215 and the Nevada Administrative Code, Sections 624.140 through 624.574. The Administrative Code provides for two General Contracting licenses (A-General Engineering and B-General Building) and for several subcategories for each such license. Specialty licenses range from C-1 Plumbing and Heating Contracting to C-42, Constructing, altering or improving video service networks. Each sub-section defines the work covered by that license.

Many contractors in Nevada have more than one license, often combining general licenses with specialty licenses or two or more specialty licenses. If claims are asserted against two or more of these licenses, the issue arises whether the contractor was using a specific license on a project to warrant such a claim. Faux Law presently has a case where an electrical supply company is making a claim against a surety’s bonds issued to cover the contractor’s C-10 Landscape contracting and C-18 Masonry licenses. The contractor, however, also has an A-10 Commercial and Residential Pool license, covered by bonds from another surety.  We are disputing the claims against the landscaping and masonry bonds, as it is highly unlikely that the contractor used those licenses while also using the claimant’s electrical supplies. This defense is especially effective in this case, as there was a bond from another surety in effect to cover the claim. Again, there are no Nevada case specifically on point, though cases from neighboring Arizona, which has a similar scheme as Nevada, support our position.

(e) Does the claim violate the 2-year Statute of Limitation of NRS 624.273?

NRS 624.273.2 provides that “No action [lawsuit] may be commenced on the bond or deposit 2 years after the commission of the act on which the action is based.” While in many instances it is clear that the claim violates the Statute, such as when material was supplied more than two years before the lawsuit is filed, it is often not clear when the act or omission warranting the claim arose. As previously discussed, this is often the case in ‘failure to complete’ situations, but it also arises with claims asserted by union trust funds for failures to pay union benefits. These funds will typically try to extend the Statute by arguing a ‘discovery rule’, namely that they did not know about the unpaid benefits until an audit was performed.

• Final Considerations

The above Primer is meant to be a mere introduction to evaluating and resolving Nevada contractor license bond claims. Multiple other issues might arise during that process, including, among others, when two or more claims are asserted, when a claim pertains to a federal project, when the project was an out-of-state one, or when the NSCB is involved and is investigating the claim against the principal. Faux Law is certainly willing to answer any questions concerning the above and other questions pertaining to Nevada contractor license bonds, and Faux Law has published the book “Nevada Surety Law” which covers all types of Nevada bond and surety issues. That book is for sale.