Security & the Law
Caution Is Key With the Indemnity Bond
General Indemnity Agreement
A jury trial in Hawaii found that the defendants — a fire alarm company and its owners — breached a contract with their bonding company. This was after finding that the defendants failed to respond to the bonding company’s request that they post collateral to cover the bonding company’s potential exposure on third-party claims against the defendants.
In 2012, the defendants successfully bid on several contracts to install fire alarm systems at public schools for the state of Hawaii. As a condition of the contracts, the defendants obtained performance bonds from the bonding company. Under the terms of those bonds, if the defendants defaulted on the contracts, the state could require the bonding company to pay the cost of completing the work.
In return for providing the bonds, the bonding company required the defendants to sign a general indemnity agreement. That agreement allowed the bonding company to seek indemnification from the defendants if the state made a claim against the bonding company under the performance bonds. The bonding company also retained the right to require the defendants to post collateral while it investigated any claims made against the bonds.
After a dispute concerning payment arose between the state and the defendants, the defendants stopped working on three of its contracts with the state. The state then declared the defendants were in default and turned to the bonding company to complete the work. In accordance with the parties’ agreement, the bonding company asked the defendants to post collateral to cover its potential losses. The defendants posted no collateral and the bonding company filed this action.
The jury found that the defendants had breached the general indemnity agreement by failing to indemnify the bonding company for the costs incurred in investigating the state’s claims against the bonds and by failing to post collateral. The jury awarded the bonding company $20,260.93 in damages, the court having reserved for post-trial proceedings the issue of the amount of any collateral to be posted, which the parties agreed was an equitable remedy not subject to jury trial.
The court granted the plaintiff’s motion for equitable relief of specific performance and ordered the defendants to collectively deposit with the plaintiff insurance company the sum of $698,515 in cash as collateral.
READERS ASK
Q: One of my central station operators has refused to return to work because he claims one of his family members has an underlying condition and could be susceptible to the COVID-19, and he is afraid. Can I fire him?
A: You probably cannot terminate his services, as many states and the federal family first law mandate that this is a valid excuse for an employee if a family member is susceptible to the virus. I would, however, check with your local attorney to find out what the local state or municipal laws may be which cover this situation, particularly since there may be economic issues for the employer.
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