An insurance company sells a contract to an insured party, promising protection against a defined array of losses, claims or liabilities. This creates a fiduciary relationship and a duty on the part of the insurer to deal with the insured in good faith. What about a performance surety’s obligation to a project owner in the event of a contractor default? The owner is a named obligee and a third-party beneficiary of the bond, but the owner had no contractual relationship with the surety on the bond. Does the surety owe the project owner a duty of good faith?
An Indiana court addressed this question. The project owner/obligee argued strenuously that bonds are regulated under the same statute as insurance policies, therefore conferring similar status. But the appellate court noted fundamental differences between the insurer-insured relationship and the surety-obligee relationship.
The other case in this issue involved a statutory limitation period for a suit against a professional engineer. Where a builder owned the lot upon which it was building, the limitation period started to run when landslide damage to the land and infrastructure had been discovered. The builder/owner had argued for a later date when structural damage to the building had been discovered.