Insurance Co. of the West v. Engineered Systems and Construction
A public entity typically requires a successful bidding contractor to obtain a performance bond to ensure the work will be fully performed. To obtain this bond, the contractor must generally enter into an indemnity contract with a surety in which the surety agrees to issue the bond and guaranty the performance. In exchange, the contractor agrees to indemnify (repay) the surety for any payments made by the surety to the public entity on a claim. Under the indemnity contract, a surety is not the contractor's insurer, but rather acts as a guarantor with rights against the contractor if the surety pays on a claim brought by the public entity.
In this case, a public entity brought claims against a contractor for claimed deficiencies in the work and against the contractor's surety to enforce a performance bond. The surety settled this claim for $250,000 and then sued the contractor and others who had signed a March 2006 indemnity agreement. As amended, the complaint alleged these defendants breached the indemnity agreement by refusing to indemnify the surety for the $250,000 settlement payment and for the attorney fees and costs incurred in the underlying action. The contractor (and the other defendants) filed a cross-complaint, seeking declaratory relief that no valid indemnity contract existed and various other forms of relief pertaining to a deed of trust.
The surety moved for summary judgment on the complaint and cross-complaint. The court granted the motion, and entered a judgment in the surety's favor for $250,000. The court also stated the surety would be entitled to move for its attorney fees and costs incurred in the underlying action in a postjudgment motion.
The contractor and related parties appeal, contending disputed factual issues exist as to whether there was a valid indemnity agreement governing the performance bond at issue and whether the $250,000 was a reasonable settlement. We conclude the court erred in granting summary judgment on the complaint and cross-complaint. Specifically, we determine there are triable issues of fact regarding the reasonableness of the $250,000 settlement and the reasonableness of the fees incurred by the surety in the litigation on the underlying bond. For guidance on remand, we also discuss appellants' argument that they are not bound to indemnify the surety because there was no valid applicable indemnity agreement between the parties.
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