WINDSOR METAL v. GEN. ACC.

• Decision Date: 30 November 1999
• Citation: 722 N.E.2d 58,700 N.Y.S.2d 90,94 N.Y.2d 124
• Parties: WINDSOR METAL FABRICATIONS, LTD., Respondent, v. GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant.
• Court: New York Court of Appeals Court of Appeals

94 N.Y.2d 124

722 N.E.2d 58

700 N.Y.S.2d 90

WINDSOR METAL FABRICATIONS, LTD., Respondent, v. GENERAL ACCIDENT INSURANCE COMPANY OF AMERICA, Appellant.

Court of Appeals of the State of New York.

Argued October 20, 1999.

Decided November 30, 1999.

Wolff & Samson, P.A., New York City (Armen Shahinian and Scott D. Baron of counsel), and Couch White, L. L. P., Albany (Leslie F. Couch of counsel), for appellant.

Sol Kodsi, New York City, for respondent.

Gresens & Gillen, L. L. P., Buffalo (James W. Gresens of counsel), for General Building Contractors of New York State, Inc., amicus curiae.

Scotto, Georgoulis & Dockery, New York City (Michael Mc-Dermott of counsel), for Trataros Construction Inc., amicus curiae.

Edward G. Gallagher, Martha L. Perkins, Washington D.C., and Brown & Kelly, L. L. P., Buffalo (Frederick D. Turner of counsel), for Surety Association of America and another, amici curiae.

Chief Judge KAYE and Judges SMITH, LEVINE, CIPARICK, WESLEY and ROSENBLATT concur.

OPINION OF THE COURT

BELLACOSA, J.

This case presents the puzzle of when the one-year limitations period for suing a surety on a public improvement construction bond begins to run, within the meaning of State Finance Law § 137 (4) (b). Also implicated is whether contractual provisions in a subcontract can effectively toll the statutory time period.

We conclude that the one-year period starts to be counted as of the time when a subcontractor has demanded final payment from the general contractor with whom it contracted, and 90 days have passed since the subcontractor ceased work on the project. This time frame may not be extended or overridden by any provisions of the subcontract.

I.

This controversy arises out of a public improvement contract for the construction of a health care facility at Green Haven Correctional Facility. Eberhard Construction Company, the general contractor, held the prime contract with the State of New York. Plaintiff Windsor subcontracted with Eberhard to provide and erect all structural steel for the project, at a cost of $404,000.

Defendant General Accident provided the statutory payment bond for the project. The document stated that it was a Comptroller's Form Bond issued pursuant to State Finance Law § 137 and that "all rights and remedies on this bond * * * shall be determined in accordance with the provisions, conditions and limitations of said Section."

Windsor started its work on the project on April 12, 1994. The State terminated its prime contract with Eberhard on March 28, 1995. This resulted in the termination of the subcontract with Windsor and in Windsor's cessation of work on the project. Windsor's president later asserted in an affidavit:

"Prior to the termination, Eberhard had already fallen behind in payments to Windsor. Following the termination, I contacted Eberhard on several occasions in an attempt to secure final payment, all to no avail."

On March 31, 1995, three days after the State terminated the contract with Eberhard, Windsor wrote to General Accident, stating:

"As of this date we are owed the amount of $211,192.00. Plus, we are awaiting charges from our erector for changing opening and delays.

"For you [sic] convenience we have hereby attached a copy of our request for payment sent to Eberhard Construction.

"Please regard this as a notice for payment. Please be kind enough to inform us as to when we can expect the monies due to us."

At all relevant times, Eberhard and General Accident denied owing Windsor additional compensation and rejected Windsor's payment demands. Indeed, Eberhard took the position that Windsor's failure to fulfill its obligations under the subcontract caused the State to terminate the prime contract with Eberhard.

On April 19, 1995, Windsor filed a notice of mechanics' lien in the amount of $214,036.36, which Windsor indicated was due on March 1, 1995. The lien was discharged when Eberhard and General Accident posted a $250,000 bond, separate from the initial statutory payment bond.

On April 19, 1995, Windsor also filed a demand for arbitration against Eberhard, seeking the $214,036.36. Windsor immediately notified General Accident of the arbitration, and General Accident participated in the proceedings to the extent that it joined Eberhard in the attempt to prove Windsor had breached its subcontract; General Accident also asserted that Windsor was responsible for General Accident's own losses incurred as a result of its having to arrange to complete the project following the termination of Eberhard, its principal.

Windsor won an arbitration award against only Eberhard on April 2, 1996 in the sum of $231,678.20. Supreme Court confirmed the award and, on December 24, 1996, entered a $255,130.22 judgment against Eberhard. Unfortunately for Windsor, Eberhard was apparently insolvent by this time. Windsor, thus turned its recovery effort toward General Accident, which denied its demand for payment.

In early 1997, Windsor sued General Accident, seeking $255,130.22, the amount of the judgment entered against Eberhard. General Accident raised the Statute of Limitations as an affirmative defense (State Finance Law § 137 [4] [b]), and Supreme Court granted summary judgment to General Accident on this ground.

The Appellate Division disagreed. It relied on specific provisions of Windsor's subcontract and found that none of the "final payment" provisions in the subcontract could operate to raise a time bar. As pertinent to this appeal, the Appellate Division unanimously reversed and granted that part of Windsor's motion seeking summary judgment on its first cause of action pursuant to the payment bond.

This Court granted General Accident leave to appeal. We now reverse, reinstate the Supreme Court ruling, and dismiss Windsor's complaint.

II.

State Finance Law § 137 (4) (b) states:

"No action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which final payment under the claimant's subcontract became due" (emphasis added).

Section 137 (3) of State Finance Law provides that anyone who has furnished labor or material pursuant to a subcontract made directly with the contractor and who is not paid within 90 days "after the day on which the last of the labor was performed or material was furnished * * * shall have the right to sue" on the surety payment bond.

Together, subdivisions (3) and (4) set the beginning and end-point measurements for a lawsuit against a surety in these circumstances. They establish a date upon which the claim against a surety becomes ripe (State Finance Law § 137 [3]) and a date after which time has run out for an action on the claim (State Finance Law § 137 [4] [b]). The pinpointing of this latter date is the operative question in this case; it hinges on the definition of "the date on which final payment under the claimant's subcontract became due" (State Finance Law § 137 [4] [b]).

This date is critical because the lawsuit must be started within one year from that fixed point. In this case, Windsor proffers as the date upon which this one-year period begins the date of the favorable arbitration determination. To so calculate this date, it relies on a combination of the final payment provision ("when the Subcontractor's work is fully performed in accordance with the requirements of the Contract Documents, the Architect has issued a Certificate for Payment covering the Subcontractor's completed Work and the Contractor has received payment from the Owner") and the arbitration clause ("[a]ny controversy or claim between the Contractor and the Subcontractor arising out of or related to this Subcontract, or the breach thereof, shall be settled by arbitration"). We reject Windsor's contract-based calculation of the measuring date.

Our holding focuses principally on when the one-year limitations period begins to run, within the meaning of State Finance Law § 137 (4) (b). We conclude that it starts at a point when a subcontractor who has directly contracted with the general contractor has submitted an invoice for final payment (or given the functional equivalent thereof) and 90 days have passed since the subcontractor has ceased to work on the project. Contractual provisions between the subcontractor and general contractor cannot modify this starting-point date. The necessity to incorporate and satisfy all these considerations is supported by the statute, as well as precedent of this Court.

A.

The language—"date on which final payment under the claimant's subcontract became due"—stems from a bill recommended by the Law Revision Commission in 1962. The Commission suggested that an action upon the bond be commenced within one year after the date on which the claimant performed the last of the labor or supplied the last of the material "except that if the beneficiary is a subcontractor of the contractor, action on the bond must be commenced within one year from the date on which final payment under the subcontract became due" (1962 Report of NY Law Rev Commn, at 186). The initial bill introduced on the Commission's recommendation was withdrawn for study of criticisms.

In 1963, a new bill was recommended by the Commission. Like the original bill, it included a provision regarding suit against a surety "like that of the [Federal] Miller Act * * * It adds an exception, however, under which, if the claimant is a subcontractor, the one year period runs from the date on which final payment under the subcontract became due" (1963 Report of NY Law Rev Commn, at 105). In 1964, the 1963 recommendations of the Commission were adopted in substantially unchanged form and State Finance Law § 137 (4) (b) was enacted to provide:

"No action on a payment bond furnished pursuant to this section shall be commenced after the expiration of one year from the date on which the claimant performed the last of the labor or furnished the last of the material for which such action is

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