Section 11.10 Who Can Recover on a Surety Bond

• Library: Insurance Practice 2015

The primary beneficiary of a surety bond is the named obligee, who can enforce the surety’s liability. Those not expressly named as obligees may recover if they are included within a class that has been given recovery rights by statute or by express provision in the instrument or the contract that it guarantees. Much litigation has come about adjudicating third-party rights of claimants, principally laborers and material suppliers. Generally, it must be shown that the surety contract was entered into with the intention to benefit such third parties. Ceco Corp. v. Plaza Point, Inc.,573 S.W.2d 92 (Mo. App. W.D. 1978).

See also Terre Du Lac Ass’n, Inc. v. Terre Du Lac, Inc., 737 S.W.2d 206 (Mo. App. E.D. 1987), and Kansas City N.O. Nelson Co. v. Mid-Western Construction Co. of Mo., Inc., 782 S.W.2d 672 (Mo. App. W.D. 1989), denying third-party claims.

With regard to private contracts (when no statutory bond is involved), many decisions cite and follow Restatement (First) of Security § 166 (1941): “Where a surety guarantees the performance of a contract by a contractor who does not promise the owner to pay those furnishing labor or materials but agrees to complete the work free of liens or to furnish labor and materials, laborers and materialmen have no rights against the surety.” (Emphasis added.) Brower Co. v. Noise Control of Seattle, Inc.,401 P.2d 860 (Wash. 1965). But if there is...