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CONTRACTOR WILL REIMBURSE $65K TO SURETY THAT SETTLED WITH UNPAID SUPPLIER

Thursday, February 28, 2019 01:50 pm

 

Bonds — Indemnity

N. Am. Specialty Ins. Co. v. Masonry Builder’s of KY, Inc., 2018 U.S. Dist. Lexis 196824 (E.D. Ky. November 19, 2018)

By executing a broad indemnity agreement, a contractor gave up its right to complain about the way its bond surety made decisions regarding payment to a project supplier.

In May 2013, surety North American Specialty Insurance Company (NAS) issued both payment and performance bonds to Masonry Builder’s of KY, Inc. (Masonry) on a brick work construction project at the Morgan County Wellness and Youth Center.

At some point during Masonry’s contract performance, the project owner issued an unauthorized change: It selected an alternative brick product supplied by Hinkle Block and Masonry, LLC (Hinkle). Hinkle sought payment for the supplied brick from Masonry, but the contractor refused to pay, contending that the project owner should pay the difference in material costs related to the alternate product.

Hinkle submitted a claim to NAS for $66,596 against Masonry’s bond. After two years of litigation, NAS and Hinkle reached a settlement in the amount of $64,958. Next, NAS sought reimbursement from Masonry for all expenses incurred in defending and settling the Hinkle litigation. Masonry refused, and NAS initiated the current action to recover the requested sums.

NAS moved for summary judgment, seeking indemnification from Masonry. The district court ruled that, under the parties’ broad indemnity agreement, Masonry was responsible for reimbursing NAS for its bond payments in the Hinkle litigation.

Agreement encompassed any and all loss

The record showed that Masonry induced NAS into providing the bonding capacity required for the project by agreeing to enter into a broad general indemnity agreement.

Generally speaking, “[a] contract of indemnity is an ob [...]

 
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