Sureties May be Liable for Principal's Fraud

摘要

In a case that could have significant ramifications for the surety industry, a federal court ruled in United States ex rel. Scollick v. Narula, 2017 WL 3268857 (D.D.C. July 31, 2017), that a bond broker and several insurance companies could be held liable for the allegedly fraudulent actions of their principal. The plaintiff alleged that various defendants violated the False Claims Act by working together to fraudulently obtain government contracts set aside for small business by setting up front companies. The plaintiff claimed that the surety defendants knew of the fraud and facilitated the fraud by issuing Miller Act bonds to those front companies.