Safe Harbors Aren't Always Safe

On September 18, 2013 we reported that our attorneys at Reager & Adler were successful in obtaining a judgment for our client who had supplied a substantial amount of material to a public project for which it had been left unpaid.  In that case, Berks Products Corporation v. Arch Insurance Company, the Commonwealth Court affirmed the trial court’s judgment and award to Berks Products against the surety company on a claim that our firm had asserted on behalf of Berks Products against the payment bond issued by Arch Insurance Company.  Arch had asserted that it was insulated from any liability under a provision in the Commonwealth Procurement Code, which is commonly known as the Safe Harbor Provision.  This provision has, in most cases since the enactment of the Commonwealth Procurement Code, insulated both a general contractor and its surety from any liability to a sub-subcontractor or supplier such as Berks Products if the general contractor had made payment to its own subcontractor for the work or materials provided by the sub‑subcontractor or supplier to the general contractor’s subcontractor. 

In prevailing before the Commonwealth Court, Reager & Adler argued that the Safe Harbor Provision was inapplicable in this particular case inasmuch as the specific language included by the surety in the particular payment bond at issue expanded the obligations of the surety effectively waiving the protections of the Safe Harbor Provision.  In affirming the lower court, the Commonwealth Court agreed with the position of Berks Products asserted by Reager & Adler that specific language included by a surety in its bond could, and in this case did, waive the protections which the surety may have otherwise enjoyed under the Safe Harbor Provision.

Following the Commonwealth Court’s decision in favor of Berks Products, Arch requested that the Commonwealth Court reconsider its decision. The Commonwealth Court denied this request which then lead to Arch’s appeal to the Pennsylvania Supreme Court.  The Pennsylvania Supreme Court on April 1, 2014 issued an order denying Arch’s petition for allowance of appeal thus effectively affirming the Commonwealth’s decision in favor of Berks Products. 

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Harrisburg Magazine Readers' Choice 2011