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Travelers unit must cover subcontractor through performance payment bond

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A federal appeals court has overturned a lower court hearing and held that a Travelers Corp. unit is obligated to pay a subcontractor in a public project under its payment and performance bonds.

Pearl, Mississippi-based McMillan-Pitts Construction Co. L.L.C. was selected as the prime contractor on a public project to construct an office building at the Mississippi State University Delta Research and Extension Center in Stoneville, Mississippi, according to last week’s ruling by the 5th U.S. Circuit Court of Appeals in New Orleans in JSI Communications v. Travelers Casualty & Surety Co. of America.

McMillan-Pitts was required to obtain payment and performance bonds as surety for the project, and did so from Travelers Casualty & Surety, according to the ruling.

One of its subcontractors was Greenwood Mississippi-based Tackett Electric Co. L.L.C., and Tackett subcontracted work in turn to Pearl-based JSI to install and test voice and data cabling as well as fiber optic cabling. JSI completed its work in July 2012 and submitted an invoice to Tackett for $36,346.09, which has not been paid.

Separately, a Tackett creditor unrelated to the project served a writ of garnishment on McMillan-Pitts seeking access to any funds McMillan-Pitts owed Tackett. McMillan-Pitts tendered to the court the $19,445.16 it still owed Tackett for its work on the project, and obtained a judgment from a chancery court releasing it from any further liability on its subcontract with Tackett.

Shortly afterwards, JSI notified both McMillan-Pitts and Travelers it was seeking payment under the project’s payment bond for Tackett’s nonpayment of JSI’s invoice.

In November 2012, Travelers denied JSI’s claim on the bond on the grounds the McMillan-Pitt’s chancery court judgment released it of any obligations under its subcontract with Tackett. JSI filed suit against Travelers, and the federal District Court in Jackson, Mississippi ruled in Travelers favor.

A three- judge appellate panel unanimously overturned the ruling. “We do not interpret the (chancery court) judgment as having any effect on obligations under the payment bond,” said the ruling.

“Accordingly, we conclude that JSI is entitled to recovery under the bond and summary judgment on liability for the invoiced amount (it) should have been granted in the amount of $36,346.09,” said the panel, in remanding the case for further proceedings.