November 17, 2014 · 8:57 AM
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When serious trouble befalls a bonded contractor, its surety might be called upon to shoulder significant risk both downstream (i.e., payment obligations to subs & suppliers) and upstream (i.e., performance obligations to the owner, if the bonded contractor is prime, or to the prime, if the bonded contractor is a sub).
Yet even when adversity strikes, sureties don’t expect to suffer a loss, as counter-intuitive as that might sound. That’s a feature of suretyship distinguishing it from insurance (for a handy, 1-page chart summarizing other distinctions, see page 6 of this 18-page surety primer by CNA Surety).
How do bonding companies seek to avoid losses on troubled construction projects? One of the most significant weapons in the surety’s loss-avoidance arsenal is the “general indemnity agreement” or GIA, an instrument that virtually every surety requires each bonded contractor, the contractor’s owners and the owners’ spouses to sign as a condition of surety credit extension. The GIA vests in the surety numerous rights and remedies against the corporate and individual indemnitors, which are typically triggered once trouble starts brewing.
Here are some of the key rights enjoyed by sureties under a typical GIA:
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Filed under Indemnity Rights, Surety Law
Tagged as basics of construction bonds, construction bond basics, construction bonding primer, construction bonds, contruction bonding basics, general agreement of indemnity, general indemnity agreement, performance and payment bonds, surety basics, surety primer, surety rights, understanding construction surety
October 22, 2012 · 9:00 AM
It was an honor and pleasure to speak at last week’s surety and fidelity claims conference in Philadelphia hosted by the American Conference Institute. Mark Oertel, a surety attorney from Los Angeles, and I closed out the conference on Thursday, October 18 with a presentation entitled “The Interplay Between Equitable Subrogation and the General Agreement of Indemnity’s Assignment Clause.”
Our remarks focused on two of the tools sureties use to minimize loss after satisfying claims made under payment and performance bonds. One of those tools, equitable subrogation, allows the surety to step into the shoes and assert the rights of those entities to whom or on whose behalf the surety has performed or made payment. That means after it performs its bond obligations, a surety becomes “subrogated” to the owner’s right to apply contract funds to completion costs, to the bond principal’s right to recover against poor-performing and/or late-performing subcontractors, and to the subs’ and suppliers’ rights to payment. Since the courts have held that the surety’s equitable rights trump the rights of bankruptcy trustees, lenders and taxing authorities, equitable subrogation is undoubtedly the most powerful weapon in the surety’s salvage arsenal.
That’s MOST powerful. Not ALL powerful.
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Filed under Equitable Subrogation, Indemnity Rights, Payment Bonds, Performance Bonds, Surety Law
Tagged as assignment clause, construction law, construction lawyer nc, construction lawyer raleigh, equitable subrogation, general agreement of indemnity, NC construction law, nc surety law, payment bond, performance bond, salvage, surety bonds, surety indemnity, surety law, surety lawyer nc, surety lawyer raleigh, surety salvage