Is a principal trying to escape its indemnity obligation under the law like the plot of a Hollywood movie? One federal judge thought so, comparing the surety chasing down its indemnity rights to the U.S. Marshalls chasing down a convict in
The Fugitive.
This case concerned the surety’s decision to honor a bond claim and complete the principal’s work. Although factually disputed, the principal claimed that it insisted that the surety deny the bond claim. After completing the work, the surety brought an indemnity claim and the principal counterclaimed. The principal alleged that the surety violated the implied covenant of good faith and fair dealing in at least four ways: insufficiently investigating the bond claim before honoring it, honoring the claim despite knowing the claim was meritless, spending too much to finish the work and being motivated by self-interest. The court
assumed all of these allegations were true yet still dismissed the claim as a matter of law.
According to the court, the general agreement of indemnity gave the surety the “absolute” right to take over the work upon demand and expressly contemplated that the surety might honor claims for which the principal might ultimately be found not liable. Furthermore, the indemnity agreement reflected the surety’s right and entitlement to act in its own self-interest. The court noted that the implied covenant is a gap-filling rule and cannot overcome or contradict the express terms of the indemnity agreement. Consequently, the counterclaim failed as a matter of law.
In perhaps the most colorful language in a surety case ever written, the judge likened the surety to Tommy Lee Jones in The Fugitive. In the film, his character is chasing down an alleged criminal who, when confronted, claims, “I didn’t do it.” Jones responds, “I don’t care.” The court used this bit of allegory to emphasize that under the terms of the general agreement of indemnity, the surety was within its contractual rights to say “I don’t care” in response to a principal that proclaims its innocence and insists that the surety deny a claim.
The case citation is Hartford Fire and Ins. Co. v. E.R. Stuebner, Inc., 2022 WL 245237 (E.D. Pa 2022).
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