Virginia Federal Court Rules that Prejudgment Interest May Not Be Assessed Against a Surety Until a Demand is Made

This past November, the United States District Court for the Eastern District of Virginia found as a matter of first impression in Virginia that prejudgment interest cannot accrue against a surety until a beneficiary has first made a demand for payment against the payment bond.

In Attard Industries, Inc. v. United States Fire Insurance Co., 2010 WL 4670704 (E.D.Va. Nov. 9, 2010), the Court examined a jury verdict awarding judgment against the surety in the amount of $1,872,430, plus prejudgment interest running from January 18, 2007. On its Motion to Alter or Amend the Judgment, the surety objected to the fact that a formal claim and demand against the payment bond had not been made by the plaintiff until October 20, 2009, but the jury awarded prejudgment interest for a extensive period prior to the demand. In granting the surety’s motion, the Court explained that although Virginia state courts and the Fourth Circuit had not yet addressed the running of prejudgment interest against sureties, other circuits have concluded that “a surety may only be liable for prejudgment interest from the date it receives demand for payment from the beneficiary.” The Court then amended the judgment to account for prejudgment interest as of October 20, 2009.

The Court further harmonized its decision with Virginia’s prejudgment interest statue which, as the Court explained “rests on notions of fairness arising from the plaintiff’s loss and the defendant’s obligation for that loss. In that connection, it is intended to compensate the plaintiff, not penalize the defendant.” Therefore, the Court reasoned, to impose prejudgment interest on a surety before a demand for payment has been made against the surety would penalize the surety during a time at which it “had no contractual duty to satisfy any obligations on its part under the Bonds.”

For further information on BrigliaMcLaughlin, PLLC’s surety practice, click here.