Over the past four decades, Faux Law Group has litigated and evaluated numerous claims against Utah DMV dealer bonds, and, in the process, has utilized the following seven steps in evaluating and resolving the claims.

FIRST STEP: Familiarize yourself with the provisions of the bond and of Utah Code.

Utah Code Section 41-3-205 governs claims against DMV dealer bonds. Make sure that the coverage provisions of the bond and of the statute are identical. The bond form presently used by sureties is form MVED-1, mandated by the Utah Motor Vehicle Enforcement Division (“MVED”) and approved by the Utah attorney general’s office, and it matches the provisions of the statute.

SECOND STEP: Identify the nature of the claim.

The statute and the bond cover claims for fraud, fraudulent representations and violations of Utah Code 41-3-301(1) and 41-301-402(1), failures to provide certificates of title or manufacturer’s certificate of origin and failures to pay-off liens on motor vehicle trade-ins. If the claim is for any other ground, it should be denied.

THIRD STEP: Was the bond in effect when the claim arose?

The bond itself should state its effective date. If the bond was cancelled, the notice of cancellation will state its date of cancellation. If the date giving rise to the claim occurred before that initial effective date or after the date of cancellation, this alone should be grounds for claim denial. If the claims are made on the basis of fraud or fraudulent representation, the date giving rise to the claim will be the date when all of the elements of the fraud are present. If the claim is for failure to pay off a trade in, the dealer must pay off the lien within 15 days, if it has received payment in full for the vehicle, or within 21 days of the date of sale, if partial payment or financing are involved. Titles must be provided to the purchaser of the DMV within 45 days of the sale. If the bond was not in effect or no longer in effect, the claim should be denied.

FOURTH STEP: Did the claimant comply with the filing requirements?  

The filing requirements are in Section 41-3-205(2)(a). Before asserting a bond claim, the claimant must first file a complaint with the Utah MVED within one year after the cause of action aroseand must file a lawsuit within two years after filing the complaint with the MVED. If the claimant failed to comply with either filing provision, the claim should be denied.

FIFTH STEP: Mandatory six-month waiting period for first bond claim payment.

If the claim is the first claim against the bond, the surety must wait six months to pay the claim, if it is a valid one, from the date that the claim was made in writing.  Utah Code 41-3-205(3)(a). This provision applies even if a lawsuit has been filed against the principal and the surety.

SIXTH STEP: Pro-rata distribution of bond proceeds and interpleader when multiple claims exceed the penal sum.

If, after the six-month period has expired, there are more than one valid bond claims, then the surety should propose a pro-rata distribution of the bond penal sum to the valid claimants. If the claimants cannot agree on a pro-rata distribution, or if the claims exceed the penal sum, then the filing of an interpleader is indicated. Utah Code 41-3-205 (3)(d). As to attorneys fees in an interpleader “A surety or principal may not be awarded attorney fees that exceed $2,500 for an interpleader action filed.” Utah Code 41-3-205(4)(b). Also note, that if the bond is not depleted, “A person making a claim on the bond shall be awarded attorney fees in cases successfully prosecuted or settled against the surety or principal if the bond has not been depleted.”  Utah Code 41-3-205(4)(a).

SEVENTH STEP: Evaluation of the validity of the claim.

This may be the most important step of all, namely the ultimate evaluation of the validity of the claim, if all other steps have been successfully passed. This evaluation will, of course , depend on the nature of the claim. Our recommendation: contact Faux Law for details.