General Contractor Waives Right to Challenge Settlement by Surety

Kennerson v. LaBarbera, 536 F. Supp. 2d 305 (W.D.N.Y. 2008)

In this case, a subcontractor sued a general contractor and a surety for failure to make payments for work performed on a construction project for a county water authority.  The surety filed cross-claims against the general contractor pursuant to an indemnification agreement.  The water authority asserted indemnification claims against the surety.  The surety subsequently settled the claims against the general contractor and moved for summary judgment as to all cross-claims.  The district court granted the motion.

The district court held that the surety was entitled to recover losses sustained in executing the performance bonds because the general contractor failed to rebut the surety’s prima facie evidence of its losses.  In respect to the indemnification claims made by the surety, the bond explicitly provided that a settlement decision by the surety would be final and binding upon the general contractor.  The court also noted that the general contractor waived any right to object to the settlement because it refused to provide information that would help the surety negotiate the settlement.  The court also held that the water authority was not a beneficiary of the performance bonds, nor did the bonds obligate the surety to indemnify the water authority.