Legal Updates

Date: 9/26/2007

The firm has repeatedly obtained judgments for sureties in indemnity cases. The Western Surety v. Henricksen case was no different; with the exception that Judge Burgess of the United States District Court for the Western District of Washington issued a well-reasoned summary judgment order that wholly dismissed each of the indemnitors' many arguments. Among other defenses, the indemnitors' argued that Western unreasonably paid and compromised claims. In rejecting the defense, the Court cited to the general agreement of indemnity ("GIA") provisions which provided both that: (1) "the Surety shall have the absolute right at its sole option and sole discretion" to pay and compromise claims on the bonds; and (2) Western may settle claims so long as it had the "reasonable belief that it might be liable for the amount disbursed." The Court also specifically upheld the validity of a GIA provision that stated "an itemized statement of ... loss and expense, sworn to by a representative of the Surety ... shall be prima facie evidence of the fact and amount of the liability of the Undersigned ... ." One indemnitor stated that she should not be liable under the GIA because she never read the document, she believed the document was something other than what she signed, and she signed the document as a mistake. Following Washington's "objective manifestation," the Court found the indemnitor's subjective intent (and alleged mistake) to be irrelevant. The Court also enforced the GIA's provision that required written documentation to terminate indemnity obligations. The court ruled that the surety was not estopped from holding the indemnitor liable after the indemnitor orally notified the surety that she no longer intended to be an indemnitor because the indemnitor did not follow the written termination procedure established by the GIA, and further ruled that the surety had no obligation to provide her legal advice about the procedure.

Jan D. Sokol
Lawrence ("Lee") A. Wagner

Business & Commercial Litigation
Surety & Fidelity