A surety company (National Fire Insurance) tried to recover indemnification payments it made to settle a claim under a payment bond. The court ruled that even though the indemnity agreement favored the surety, the surety must still act in good faith when making settlement payments. The surety lost because evidence showed it settled the claim improperly and in bad faith, meaning subcontractors and sureties cannot hide behind broad indemnity language to avoid accountability for unfair settlement practices.
Broad indemnity clauses in surety agreements do not give sureties unlimited power to settle claims—good faith is always required, even when the contract says otherwise
If a surety settles a claim against your bond without proper investigation or fair dealing, you can sue for breach of the implied covenant of good faith and recover damages
Document everything about how a surety handles your bond claim; if settlement looks rushed or unfair, gather evidence immediately because you may need to prove bad faith