A contractor secured performance and payment bonds from a surety and signed an indemnity agreement requiring the contractor to reimburse the surety for losses. The Texas Supreme Court ruled that while a surety has no common law duty of good faith to the contractor, the indemnity contract itself can require good faith as a condition for the surety to collect indemnification. Good faith means honesty in fact without improper motive or willful ignorance—negligence alone doesn't breach it. This matters to subcontractors because it clarifies what "good faith" means in surety indemnity agreements and limits when sureties can deny coverage.
Good faith in indemnity agreements requires proof of dishonesty or intentional wrongdoing, not just careless mistakes or poor judgment
Review your indemnity agreement language carefully—the contract terms control whether good faith is required, not common law alone