Insurance & LiensQuestion 682 of 1632

Claims against a contractor's $25,000 license bond total far more than $25,000: a residential homeowner claims $40,000, an unpaid framer claims $8,000 in wages, and a commercial property owner claims $30,000. Under Bus. & Prof. Code §7071.11, how is the bond distributed?

a.Residential homeowners are paid in full before any other claimant
b.All claimants share it in proportion to their respective claims
c.The first claim to reach the surety is paid in full first
d.Employees are paid in full, then the remainder is prorated

Explanation

B&P §7071.11(a) is explicit: if the bond is insufficient to pay all claims in full, its sum is distributed to all claimants in proportion to the amount of their respective claims. The same subdivision caps the surety's aggregate liability on wage and fringe-benefit claims at $4,000, so the framer cannot draw more than that from the bond however large the wage claim. (a) is the widespread belief that the bond is a consumer-priority fund — §7071.5 does list homeowners among the beneficiaries, but being a beneficiary is not the same as having priority. (c) applies a first-in-time rule the section does not use. (d) is the most tempting wrong answer, because the section does single out wage claims — but it caps them, it does not prioritise them.

Law Reference: Bus. & Prof. Code §7071.11(a)

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