The Surety's Indemnity Agreement - Law and Practice, Third Edition

This is a comprehensive examination of the Surety's Indemnity Agreement, the first publication of its kind; providing a description of the Surety's Indemnity Agreement's provisions along with a discussion of the cases that have interpreted those provisions. In addition, the book provides practice pointers assisting practitioners in the enforcement of the surety's rights under the Indemnity Agreement. Both the footnotes in the book and the bibliographies attached cite numerous cases and published and unpublished papers that concern the development and analysis of the surety's rights under the Indemnity Agreement.

In addition to updating the law and adding as many case citations and articles about the surety's Indemnity Agreement as possible, this new edition has been updated with the new cases related to surety indemnity agreements handed down since the FSLC published the Second Edition in 2013.

List of contents

TABLE OF CONTENTS

Preface .....................................................................................................iii

Editors and
Authors
.................................................................................. v

Chapter I

INTRODUCTION
TO THE SURETY’S RIGHTS AS THE

FOUNDATION FOR
THE INDEMNITYAGREEMENT.......................
1

A. Background and
Summary........................................................... 1

1.      
The Nature of Suretyship
...................................................... 2

2.      
Comparison with Insurance: The Extension of Credit
Concept and Other Distinctions ............................................ 4

a.      
Underwriting Issues and Considerations ........................ 7

b.      
It is the Surety’s Hope and Expectation that It Will

Suffer No Loss ................................................................ 8

B.      The Surety’s
Common Law and Statutory Rights ....................... 9

1.      
The Surety’s Common Law Right to Protection from Loss:

Exoneration
........................................................................... 9

2.      
The Surety’s Common Law and Statutory Rights to

Reimbursement.................................................................... 10

3.      
The Surety’s Subrogation Rights and the Indemnity

Agreement ........................................................................... 15

a.      
The Surety’s Subrogation Rights—Basis at Law and in
Equity............................................................................ 15

b.      
The Surety’s Subrogation Rights—Practice and Effect 19

(i)    
The Surety’s Subrogation to the Obligee’s Rights . 19

(ii)  
The Surety’s Subrogation to the Principal’s Rights21

(iii) The Surety’s
Subrogation to the Rights of

Subcontractors
and Suppliers ................................. 22

(iv) 
The Property Subject to the Surety’s Subrogation

Rights
..................................................................... 22

c.      
Comparing and Contrasting the Surety’s Subrogation Rights
to the Surety’s Reimbursement Rights Under the Indemnity Agreement ................................................... 23

(i)    
Advantages of Subrogation in Comparison with

......................................................... 24

d. The Effect of the
Surety’s Rights Under Its Indemnity Agreement on Subrogation–Selection
and Election of Rights ............................................................................ 25

C. Conclusion
................................................................................. 26

Chapter II

CREATION OF
THE RELATIONSHIP AMONG THE SURETY, THE PRINCIPAL, AND THE INDEMNITORS—WHO AND
HOW .......... 29

A. The Parties to the Indemnity Agreement and
its Execution....... 29

1.      
Principal and Indemnitors
................................................... 29

a.      
Individuals
.................................................................... 30

b.      
Corporation ................................................................... 31

(i)    
Subchapter C Corporations
.................................... 31

(ii)  
Subchapter S
Corporations..................................... 35

(iii) Holding
Company .................................................. 36

c.      
Limited Liability Company
.......................................... 36

d.      
Partnership .................................................................... 38

(i)    
General Partnerships .............................................. 39

(ii)  
Limited Partnerships
..............................................
40

(iii) Limited
Liability Partnership ................................. 41

e.      
Joint
Venture................................................................. 42

(i)    
Multiple Purpose/Multiple
Projects........................ 42

(ii)  
Single Purpose/Single Project Joint Venture.......... 44

f.       
ESOP (Employee Stock Ownership Plans)................... 44

g.      
Foreign Entity ............................................................... 45

(i)    
Foreign
Corporations.............................................. 45

(ii)  
Foreign
Sovereigns................................................. 46

(iii) Sovereign
Tribal Nations ....................................... 47

(iv) 
Tribal
Affiliates/Entities......................................... 50

(v)   
Alaska Native Corporations
................................... 51

h.      
Trust/Trust Beneficiaries .............................................. 51

(i)    
Testamentary
Trust................................................. 52

(ii)  
Business
Trusts....................................................... 53

(iii) Asset
Protection/Spendthrift Trusts ....................... 54

(iv) 
Family or Special Interest Trust .............................
55

 

xii

2.      
Surety
.................................................................................. 55

a.      
Corporate Surety ........................................................... 56

b.      
Personal Surety ............................................................. 56

c.      
Compensated Surety
..................................................... 56

d.      
Uncompensated Surety
................................................. 57

e.      
Co-Surety ...................................................................... 57

(i)    
Contractual Co-Surety............................................ 57

(ii)  
Successor/Predecessor Surety
................................ 58

f.       
Reinsurer....................................................................... 59

g.      
Surety in Receivership
.................................................. 60

h.      
Surety in Liquidation
.................................................... 61

3.      
Signatures and Requirements for Signature ........................ 61

a.      
Execution by All Parties
............................................... 61

b.      
Notarial Acknowledgment
............................................ 62

(i)    
Purpose (Forged Signatures) .................................. 62

(ii)  
Protections (Notary Liability)
................................ 63

c.      
Corporate Resolution .................................................... 64

d.      
Need for Original
Signature.......................................... 65

4.      
Surety’s Acceptance—By Writing
Bonds........................... 65

B. The Principal’s and the Indemnitors’
Representations and

Warranties .................................................................................. 65

1.      
The Right, Power, and Authority to Execute and Perform
the Indemnity
Agreement.......................................................... 65

2.      
The Financial Information Provided to the Surety .............. 67

a.      
Right to Have Access to Principal’s and Indemnitors’

Books and
Records ....................................................... 68

b.      
Right to Financial Information from Third Parties .......
68

3.      
Acknowledgment that There are No Oral or Other Agreements
as a Condition Precedent or to Induce the Execution of the Indemnity Agreement. ............................. 72

C. Consideration ............................................................................. 75

D. Severability and Partial
Execution............................................. 79

1.      
Severability of Invalid, Illegal, Void, or Unenforceable
Provisions of the Indemnity Agreement.............................. 80

2.      
Partial Execution of the Indemnity Agreement ................... 82

 

xiii

a. One or More Parties
Fails to Execute the Indemnity Agreement..................................................................... 82

E.      The Execution
of the Indemnity Agreement by One or More Parties is Defective or Invalid for
Any Reason ......................... 82

F.      Multiple
Indemnity Agreements ................................................ 84

1.      
With the Same
Surety.......................................................... 85

2.      
With Two or More
Sureties................................................. 86

G.     The Bonds
Included Under the Indemnity Agreement .............. 87

1.      
Bonds Executed On or After the Date of the Indemnity
Agreement ........................................................................... 87

2.      
Bonds Executed Prior to the Date of the Indemnity
Agreement ........................................................................... 88

H.     The Surety’s
Right to Decline to Execute Bonds ...................... 91

1.      
The Principal is Not Obligated to Obtain Bonds from the
Surety
.................................................................................. 91

2.      
The Surety’s Right to Decline to Execute Any New Bonds 92

3.      
The Surety’s Right to Decline to Execute Any Final Bonds

............................................................................................. 92

4.      
Bid Bond Losses Where Final Bonds Not Issued
............... 95

5.      
Surety Liability for Defective or Rejected Bonds ............... 95

I.       
The Rights of Other Sureties, Co-Sureties, and Reinsurers .......
96

J.       
Termination of the Indemnity Agreement Relationship ............ 98

1.      
The Indemnity Agreement as a Continuing Obligation ...... 98

2.      
Method of Termination
..................................................... 100

a.      
Written Notice Required
............................................. 100

b.      
Delivery of Written Notice to the Surety–Manner ..... 101

c.      
Time Conditions—Termination Effective Date.......... 102

3.      
Effectiveness of Termination with Respect to the Bonds . 102

a.      
Bonds Executed Prior to the Termination Effective Date

.................................................................................... 102

b.      
Bonds Executed After the Termination Effective Date

.................................................................................... 103

c.      
Future Liability for Additional Bonds Executed After the
Termination Effective Date ........................................ 104

4.      
Continuing Liability of Non-Terminating Indemnitors..... 104

 

xiv

5.      
Termination By Operation of Law (Voiding of a Bond or
Bonded Contract and its Effect on the Indemnity Agreement)

........................................................................................... 104

6.      
Disputes Between the Principal and the Indemnitors and/or
Among the Indemnitors..................................................... 105

 

Chapter III

DOCUMENTS AND
AGREEMENTS RELATED TO THE INDEMNITY AGREEMENT
.............................................................. 107

A.     The Surety’s
Agreements with the Principal and Indemnitors 108

1.      
Subsequent Indemnity
Agreements...................................
108

2.      
Subordination Agreements
................................................ 109

a.      
Subordination of Debt to and from Affiliate Entities . 110

b.      
Indemnitor Loans as Subordinated Debt
.................... 112

3.      
Collateral Agreements
....................................................... 112

4.      
Capital Retention
Agreements........................................... 112

5.      
Tribal
Addenda.................................................................. 114

6.      
Funds Control
Agreements................................................ 121

a.      
Joint Account Agreements.......................................... 122

b.      
Trust
Agreements........................................................ 123

c.      
Third-Party Funds Control Agreements
..................... 125

d.      
Cash Collateral Agreements
....................................... 126

7.      
Lending, Financing, Security Type Agreements ............... 130

a.      
Direct Lending ............................................................ 130

b.      
Indirect Lending.......................................................... 131

8.      
Underwriting Agreements
................................................. 132

9.      
Standstill Agreements
....................................................... 136

10.  
Opinions of Counsel.......................................................... 137

11.  
Confidentiality Agreements
..............................................
138

B.      Collateral for
the Surety........................................................... 138

1.      
What Kinds of
Collateral................................................... 138

a.      
Irrevocable Letter of Credit
........................................ 138

(i) ...

About the author

Mike Pipkin’s wide range of experience allows him to be creative when crafting strategies and solutions for his clients. Throughout his 25 year legal career, Mike has represented clients in complex business, surety, construction, fidelity, professional liability, and insurance litigation and trials, as well as legal analysis and counseling to businesses of all varieties.

Mike’s approach is to work with his clients to determine one or more desirable outcomes, then fashion the appropriate plan to achieve success. Throughout the course of the engagement, Mike and his team keep in close contact with the client, so that they are aware of current developments, and expectations are established and managed using the latest information.

Mike is recognized nationally as a thought leader in the legal industry. Mike is a Past Chair of the ABA Tort Trial and Insurance Practice Section Fidelity and Surety Law Committee and currently serves as one of eight attorneys in the USA on the National Association of Surety Bond Producers (NASBP) Attorney Advisory Council. In 2016, Mike was elected to membership in the Federation of Defense & Corporate Counsel (FDCC), an organization comprised of leaders in the insurance and corporate defense bar. FDCC membership is selective and by invitation to those who have been judged by their peers to have achieved professional distinction. In 2017, Mike was named a Charter Fellow in the Construction Lawyers Society of America, an invitation-only construction lawyer honorary society with membership limited to 1,200 practicing Fellows from the United States and internationally.

Also in 2017, Mike passed the Louisiana State Bar Examination, allowing WRP to expand its base of services beyond Texas, Oklahoma, and Arkansas.
Partner with SMTD Law LLP, Los Angeles, California. She received her Bachelor of Science degree in Political Science from Santa Clara University in 1975 (with honors) and her J.D. from University of California, Hastings College of the Law in 1978 (Thurston Society). She served as the 2003-2004 Chair of the ABA/TIPS Fidelity and Surety Law Committee and received the FSLC Martin J. Andrew Award for Lifetime Achievement in Fidelity and Surety Law in 2017.

Partner with the
law firm of Wright, Constable & Skeen, LLP, in Baltimore, Maryland. Mr.
Bachrach is a graduate of Harvard University in 1971 (with honors), and
Georgetown University Law Center in 1974. He served as the 2001-2002 Chair of
the Fidelity and Surety Law Committee and received the FSLC Martin J. Andrew
Award for Lifetime Achievement in Fidelity and Surety Law in 2009. In 2018, Mr.
Bachrach received the Chairman’s Award from the National Bond Claims
Association for contributions made to the fidelity and surety industry.
VP & Director of Fidelity, Surety, Trade Credit and Political Risk claims with Zurich American Insurance Company in Dallas, Texas. She received both her Bachelor of Business Administration and her Bachelor of Arts degrees from Southern Methodist University in 1987, and her J.D. from Southern Methodist University Dedman School of Law in 1990. She served as the 2007-2008 Chair of the ABA/TIPS Fidelity and Surety Law Committee.

Summary

This is a comprehensive examination of the Surety's Indemnity Agreement, the first publication of its kind; providing a description of the Surety's Indemnity Agreement's provisions along with a discussion of the cases that have interpreted those provisions. In addition, the book provides practice pointers assisting practitioners in the enforcement of the surety's rights under the Indemnity Agreement. Both the footnotes in the book and the bibliographies attached cite numerous cases and published and unpublished papers that concern the development and analysis of the surety's rights under the Indemnity Agreement.

In addition to updating the law and adding as many case citations and articles about the surety's Indemnity Agreement as possible, this new edition has been updated with the new cases related to surety indemnity agreements handed down since the FSLC published the Second Edition in 2013.

Product details

• Assisted by: George J. Bachrach (Editor), Tracey Lee Haley (Editor), Marilyn Klinger (Editor), Mike F. Pipkin (Editor)
• Publisher: Ingram Publishers Services
• Languages: English
• Product format: Paperback / Softback
• Release: 19.09.2023, delayed
• EAN: 9781639052776
• ISBN: 978-1-63905-277-6
• No. of pages: 738
• Subjects: Social sciences, law, business > Law > International law, foreign law; LAW / Liability