Should the city prevail in its suit against the developers and the insurance company to recover $100,000 on the bond? Explain.

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Should the city prevail in its suit against the developers and the insurance company to recover $100,000 on the bond? Explain.

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Developers under a plan approved by the city of Rye had constructed six luxury cooperative apartment buildings and were to construct six more. To obtain certificates of occupancy for the six completed buildings, the developers were required to post a bond with the city to assure completion of the remaining buildings. The developers posted a $100,000 bond upon which the defendant, Public Service Mutual Insurance Company, as guarantor or surety, agreed to pay $200 for each day after the contractual deadline that the remaining buildings were not completed. After the contractual deadline, more than five hundred days passed without completion of the buildings. The city claims that its inspectors and employees will be required to devote more time to the project than anticipated because it has taken extra years to complete. It also claims that it will lose tax revenues for the years the buildings are not completed. Should the city prevail in its suit against the developers and the insurance company to recover $100,000 on the bond? Explain.

Explanation & AnswerSolution by a verified expert

Explanation

A bond of $100,000 between the city and the insurance company contains the penalty provision but it cannot be claimed as liquidator's damages. The penalty is required in case of harm. Based on the charges of per day, the developer company can claim damages by showing sufficient proof of harm caused for 500 days.
The penalized amount is already secured with the insurance company and that can be recovered per day till the delay in construction prevails. So, the city is going to be eligible to claim compensation from the developers.

Verified Answer

In this case, the city is not going to be entitled to claim the amount of $100,000, as liquidated damages, from the insurance company because that was imposed as a penalty.
The city can claim compensatory damages from the developers because the amount is already insured, as a daily-basis delay penalty, with the insurance company.

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