Glen Burnie, MD asked in Contracts and Construction Law for Maryland

Q: What does MHIC guaranty fund pay for?

Concrete sidewalk/steps/handrails installed - paid in full $3900. MAJOR issues with the work and home inspection deemed all of work unsafe. Every other contractor said all concrete had to be removed and redone - basically start from scratch. Total paid to redo - $7100. Filed claim and have hearing set with MHIC, but now am being told we can only recoup the $3900, NOT what it cost us to have job done correctly. Is this correct?

Now that hearing is set, contractor has offered to refund our $3900 - we've been advised by the MHIC investigator (see add below) to accept as we risk losing even that a hearing. I'm so confused. Thank you!

Add: MD code bus reg 8-405 (e) commisson may not award from fund: (5) an amount in excess of the amount paid by or on behalf of the claimant to the contractor against whom the claim is filed

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1 Lawyer Answer
Mark Oakley
Mark Oakley
  • Construction Law Lawyer
  • Rockville, MD
  • Licensed in Maryland

A: The regulations governing the adjudication of claims against the Guaranty Fund specify the formulas to be used by the Commission when calculating an award for actual loss from the Guaranty Fund:

Unless it determines that a particular claim requires a unique measurement, the Commission shall measure actual loss as follows:

(a) If the contractor abandoned the contract without doing any work, the Claimant's actual loss shall be the amount which the claimant paid to the contractor under the contract.

(b) If the contractor did work according to the contract and the claimant is not soliciting another contractor to complete the contract, the claimant's actual loss shall be the amount which the claimant paid to the original contractor less the value of any materials or services provided by the contractor.

(c) If the contractor did work according to the contract and the claimant has solicited or is soliciting another contractor to complete the contract, the claimant's actual loss shall be the amounts the claimant has paid to or on behalf of the contractor under the original contract, added to any reasonable amounts the claimant has paid or will be required to pay another contractor to repair poor work done by the original contractor under the original contract and complete the original contract, less the original contract price. If the Commission determines that the original contract price is too unrealistically low or high to provide a proper basis for measuring actual loss, the Commission may adjust its measurement accordingly.


In your case, subsection (c) applies. $3,900 paid + $7,100 to repair the defective work, minus $3,900 original contract price = $7,100; unless the MHIC proves with evidence that the original contract amount was too low. In other words, if the demolition and removal of the defective work was only charged as $1,500, and the rest of the $7,100 ($5,600) was to install the work from scratch, then the MHIC may argue that $3,900 was never a high enough price to do that work, and you were underpaying, so you should not get the State of Maryland to pick up the tab for a more expensive job. There are insufficient facts to determine why the $3,900 is all you will get. Who is telling you this? The contractor’s lawyer, or the Assistant Attorney Generals representing the MHIC and the Guaranty Fund?

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