Section 11.7 Nature and Extent of Surety’s Liability

• Library: Insurance Practice 2015

The surety’s liability is contractual by nature and is usually determined and limited by the terms of the surety bond or agreement. But the surety’s obligation under a statutory bond is “prescribed by the statute in compliance with which it [the bond] is given and by the language employed in the bond defining it.” Home Indem. Co. v. Mo., 78 F.2d 391, 393 (8^th Cir. 1935); 72 C.J.S. Principal and Surety § 70 (1987); § 107.170, RSMo 2000; Chapter 522, RSMo.

“A surety’s liability is secondary and requires the surety to pay only in the event the principal does not.” Lindsey Masonry Co. v. Jenkins & Assocs., 897 S.W.2d 6, 16 (Mo. App. W.D. 1995) (quoting State ex rel. Mo. Highway & Transp. Comm’n v. Morganstein, 703 S.W.2d 894 (Mo. banc 1986)).

A surety is not liable on a bond unless its principal is liable. Smith v. Sinclair, 424 F. Supp. 1108 (W.D. Okla. 1976). A principal cannot maintain a suit against a surety for the principal’s own default. Chicago Dist. Council of Carpenters Health & Welfare Fund v. Alan Scott Co., 597 F.2d 1103 (7^th Cir. 1979).

Under Missouri law, in the absence of limitations and restrictions, a surety’s liability is coextensive with that of the principal. Phoenix Assurance Co. of N.Y. v. Appleton City, 296 F.2d 787 (8^th Cir. 1961); Yerkes v. Asberry, 938 S.W.2d 307 (Mo. App. E.D. 1997) (suit on a notary bond) (quoting Krenski v. Cont’l Cas. Co., 908 S.W.2d 917 (Mo. App. E.D. 1995)); City of Independence ex rel. Briggs v. Kerr Constr. Paving Co., 957 S.W.2d 315 (Mo. App. W.D. 1997); see also State ex rel. Webb v. Hartford Cas. Ins. Co., 956 S.W.2d 272 (Mo. App. W.D. 1997).

A claim against a surety does not arise until the obligee suffers actual damage. Neither the state highway commission nor material suppliers for highway construction had a claim against the receiver for the contractor’s surety when the contractor did not default until after the insolvent surety’s liability termination date and the materialman supplied material after that date. Ark. State Highway Comm’n v. Union Indem. Ins. Co. of N.Y., 748 S.W.2d 338 (Ark. 1988).

It is generally held that, when a surety bond is given in accordance with a statute and the terms of the bond are more limited than the statute requires, the bond coverage will be enlarged to the specifications of the statute. Sch. Dist. of Springfield R-12 ex rel. Midland Paving Co. v. Transamerica Ins. Co., 633 S.W.2d 238 (Mo. App. S.D. 1982). The surety on the bond of a contractor that was constructing a...