Associated Indemnity Corp. v. CAT Contracting, Inc.
964 S.W.2d 276 | Texas Supreme Court | 1998
What This Case Means for Subcontractors
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.
Key Takeaways
- •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
- •If a surety denies indemnification claiming bad faith, demand specific evidence of improper motive or willful ignorance, not just negligence
Good faith requires honesty in fact, free of improper motive or willful ignorance.
Frequently Asked Question
If my surety denies my indemnification claim for bad faith, what exactly do they have to prove?
The surety must prove you acted dishonestly or with improper motive, or that you deliberately ignored facts you should have known. Simple negligence or poor judgment isn't enough. The surety cannot deny your claim just because you made a mistake—they need evidence of intentional wrongdoing or willful blindness.
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