PSE Consulting, Inc. v. Mercede
267 Conn. 279 | Supreme Court of Connecticut | 2004
What This Case Means for Subcontractors
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.
Key Takeaways
- •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
Surety's discretion to settle is not unfettered; surety entitled to indemnification only for good faith payments.
Frequently Asked Question
Can a surety company settle a claim against my bond however it wants if the indemnity agreement gives it broad power?
No. Even with a broad indemnity clause, a surety must act in good faith when settling claims. If the surety settles improperly or unfairly, you can sue for damages for breach of good faith and fair dealing. The court will look at whether the surety actually investigated the claim and dealt fairly with you.
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