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A federal appeals court has reversed its earlier ruling and held a Travelers Cos. Inc. unit is not obligated to pay a subcontractor in a public project under its payment and performance bonds.

The complex case involves Pearl, Mississippi-based McMillan-Pitts Construction Co. L.L.C., which 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 court papers 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.

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 U.S. District Court in Jackson, Mississippi, ruled in Travelers’ favor.

A three-judge panel of the 5th U.S. Circuit Court of Appeals in New Orleans unanimously overturned the ruling in 2015. “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.

On remand, the U.S. District Court ruled in Travelers favor, denying JSI’s bad faith and punitive damages claim. A unanimous-three judge appeals court panel affirmed this ruling on Friday.

“The district court determined that Travelers demonstrated an arguable reason for denying JSIs’ claim and that JSI failed to meet its burden to show otherwise” said the panel’s ruling.

Travelers “met its low burden for showing a reasonable justification for its action. JSI, now with the burden to demonstrate that Travelers’s reasons are not legitimate, fails to persuade,” said the panel, in affirming the lower court ruling.

http://www.businessinsurance.com/article/20171212/NEWS06/912317883/Travelers-need-not-pay-public-project-subcontractor-JSI-Communications

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