A recent decision from the United States District Court for the District of Connecticut is a reminder to contractors and developers that indemnification agreements tied to bonds usually heavily favor and give a large amount of discretion to insurers issuing bonds. See Arch Ins. Co. v. Centerplan Constr. Co., LLC, No. 3:16-CV-01891 (VLB), 2019 WL 613375, --- F.Supp. --- (D. Conn. Feb. 13, 2019). In Arch, the court granted summary judgment in favor of Arch Insurance Company ("Arch") and required developer Centerplan Construction Company ("Centerplan") to indemnify Arch $39.1 million for bond payments and costs related to the construction of Dunkin’ Donuts Park, a minor league baseball stadium in Hartford, Connecticut, and other construction projects.
Arch issued surety bonds to Centerplan as the developer of Dunkin’ Donuts Park and other construction projects in exchange for Centerplan’s execution of indemnification agreements that required Centerplan to indemnify Arch for any losses or costs incurred due to the bonds. After the City of Hartford terminated Centerplan for failing to meet a substantial completion deadline and other defaults, Arch agreed to complete the stadium for the City. Arch sued Centerplan for the reimbursement of the paid claims and other incurred costs and expenses arising from the bonds.
Centerplan argued that Arch should not have paid certain claims under the language of the bonds, and therefore Arch did not act in good faith and should not be able to recover from Centerplan. However, the court did not look to the requirements under the bonds for Arch’s claim but rather solely looked to Arch’s right under the indemnity agreements to recover costs and payments that were made in good faith under the bonds. The indemnification agreement gave Arch the exclusive right to handle claims under the bonds. As a result, the developer was obligated to indemnify Arch for all of Arch’s costs and payments under the bonds without close scrutiny as to whether Arch should have incurred all of its costs under the bonds. This case gives notice to contractors and developers that they should expect an indemnification agreement signed in connection with a bond issuance to be strictly enforced.