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No GIRMA Coverage for Subcontractor Claim

The Georgia Court of Appeals recently held that claims against municipal governments by subcontractors are not covered by GIRMA’s risk management policy due to the exclusion for breach-of-contract claims. 

In City of College Park v. Georgia Interlocal Risk Management Agency, a subcontractor brought suit against a municipality because it had not been paid by the municipality’s general contractor.  Normally such a claim would have been asserted against the payment bond provided pursuant to the Georgia Local Government Public Works Construction Law.  However, a payment bond was not provided on this project. 

Where a local government does not take a payment bond from its contractor, under O.C.G.A. § 36-91-91, the  local government is liable to all subcontractors and others who provide labor, skills, tools, machinery, or materials to the contractor or subcontractors for any loss resulting therefrom.

In this case, the subcontractor brought suit against the municipality under this statute.  In turn, the municipality brought suit against GIRMA claiming that the subcontractor’s claim was covered by GIRMA’s risk management policy.  The municipality moved for summary judgment in favor of coverage, which was granted by the trial court. 

On appeal, the court reversed the grant of summary judgment, holding that the risk management policy did not provide coverage.  While at first glance the policy seemed to include the subcontractor’s claim, an exclusion precluded such coverage.  Specifically, the policy excluded claims based on breach of contract. 

The municipality argued that the claim was not based on a breach-of-contract theory because the municipality had no contract with the subcontractor.   Additionally, it argued that the claim was based on a violation of statute (the Georgia Local Government Public Works Law, which required a payment bond). The court was not persuaded. 

The Court of Appeals looked to the “underlying facts and circumstances of the claims asserted, rather than the theory of the claims.”  The court noted that the subcontractor’s claim was based on a breach of contract — its subcontract with the general contractor.  Even though the specific claim against the municipality was based on the violation of a statute, the factual substance was based on the breach of its subcontract.  As a result, the policy’s exclusion for claims based on breach of contract eliminated coverage for the subcontractor’s claim.