I have previously posted articles about the all mighty General Agreement of Indemnity (“Agreement of Indemnity”) that a surety requires a contractor bond-principal and designated guarantors to execute before issuing payment and performance bonds to the contractor. In cases forming the basis of the articles, the surety demands rights under the Agreement of Indemnity such as the right for collateral security to protect the surety from anticipated or pending claims and the contractor bond-principal refuses. In these cases, the surety files a lawsuit and moves for an injunction which, among other things, requires the principal to post the very collateral security it refused to post to begin with. As reflected in these cases, the surety gets the injunction granted because the Agreement of Indemnity is designed to protect the surety’s interests. In other words, don’t mess with the Agreement of Indemnity because the surety will typically get the recourse it pursues.
Recently, another opinion came out further supporting the rights of a surety under the Agreement of Indemnity and why it is beneficial to figure out an avenue to work with the surety instead of against it. In this case, Travelers Casualty and Surety Co. of America v. Design Build Engineers and Contractors Corp., 2014 WL 7274803 (M.D.Fla. 2014), the contractor bond-principal was working on two public projects. On one project, a dispute with a subcontractor resulted in a claim that the surety paid plus substantial attorney’s fees awarded to the subcontractor by the court. Although the contractor reimbursed its surety for the principal amount of the claim, it refused to reimburse the surety for the substantial attorneys’ fees awarded to the subcontractor. And, on the other project, the contractor was terminated resulting in pending performance bond and payment bond claims against the surety.
The contractor, in furtherance of trying to shield major property and assets, did some creative asset transfers forming holding companies, etc. This did not work. The surety filed a lawsuit against the contractor and guarantors under the Agreement of Indemnity and moved for a preliminary injunction to require the contractor to post collateral security and to prevent the contractor from disposing of assets. Guess what? The surety prevailed on its motion for an injunction and the Middle District Court ordered that the contractor post the requested collateral that included properties the contractor tried to shield and prevented the contractor and certain holding companies it formed from disposing or encumbering of assets (inclusive of the real property is was ordered to post as collateral).
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