Christopher G. Hill | Construction Law Musings | August 12, 2019
I talk about payment bonds often here at Construction Law Musings. I talk a bit less about performance bonds and even less about the General Indemnity Agreements (GIA) that are signed by companies and their principals as part of the agreement between a construction company and its bonding company for the provision of these bonds. However, this does not mean that these GIA’s are not important. In fact, these are the agreements that allow a bonding provider to recoup any money paid out pursuant to either a payment or performance bond.
A 2018 case illustrates their importance. In Allegheny Cas. Co. v. River City Roofing, LLC, the Court considered a claim by Allegheny seeking both specific performance of the collateral agreement and reimbursement of certain expenses and investigative costs expended by Allegheny pursuant to its performance bond. Allegheny sought to be reimbursed for certain payments for siding work, investigative costs, and costs spent enforcing the GIA. Allegheny further sought to force the defendants to post sufficient collateral. To do so, Allegheny sued in the Eastern District of Virginia and then moved for summary judgment stating that the GAI unequivocally required such a result due to the good faith payment for the siding work and the plain language of the GIA.
In response, the Defendants, River City Roofing and its principals that had personally guaranteed the indemnity, argued that the GIA did not apply to the siding work because only the roofing contract was subject to the performance bond and that any bond claims for which collateral was demanded were inchoate and therefore not proper for specific performance.
The Court granted summary judgment, rejecting all of defendant’s arguments. Interpreting the general indemnity agreement, the Court found that whether payment made by the Plaintiff was for bonded work was immaterial to the analysis. Instead, the Court explained that the terms of the general indemnity agreement required the Defendants to reimburse Allegheny for any payment made in good faith whether or not “liability, necessity or expediency” existed. The Court also determined that the plain terms of the general indemnity agreement required the Defendants to post sufficient collateral. Finally, the Court pointed out that the general indemnity agreement did not include a reasonableness test for reimbursement of Plaintiff’s investigation and enforcement costs and, therefore, the Court determined that the Plaintiff was entitled to be reimbursed for its investigation and enforcement costs arising from the general contractor’s claim.
In short, the GIA was broad enough that any good faith payments were subject to indemnification. This is another case of reading the contract and looking at its terms instead of trying to guess its meaning. So, like with other contracts, the early assistance of an experienced construction lawyer can only add value and help you know what you are signing when you seek to get bonding.
Be sure to read the full opinion linked above and make your own assessment. Once you do, let me know if you have any thoughts.