General Accident Insurance Co. of America v. Merritt-Meridian Construction Corp.
975 F. Supp. 511 | District Court, S.D. New York | 1997
What This Case Means for Subcontractors
An insurance company (GAIC) that issued a performance bond sued a general contractor (Merritt-Meridian) over a dispute involving the bond. The court ruled that the indemnity agreement between the surety and contractor is binding and enforceable. The surety can settle bond claims on its own without the contractor's permission, unless the contractor puts up collateral as required by the settlement terms. This matters to subcontractors because it shows that sureties have significant power to manage bond claims independently.
Key Takeaways
- •Indemnity agreements between sureties and general contractors are legally binding—don't expect a GC to override a surety's settlement decision
- •A surety can settle bond claims without the GC's consent unless the GC has posted collateral under the settlement clause—know what collateral requirements exist in your bonds
- •If you're a subcontractor on a bonded project, understand that the GC's relationship with the surety is separate from your rights—focus on your direct contract with the GC
The indemnity agreement governs the relationship between the surety and the contractor.
Frequently Asked Question
Can a surety settle a bond claim without the general contractor's permission?
Yes, according to this case. The surety's indemnity agreement with the GC gives the surety the right to settle bond claims independently. The only exception is if the GC has posted collateral as required by the settlement clause. This means as a subcontractor, you can't rely on the GC to block a surety settlement.
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