The Indemnity Agreement — A Benefit to the Surety and Contractor - Articles

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Posted by: Elizabeth Stengel on Jan 8, 2018
Indemnity agreements are a standard document in the surety and insurance industry, but for those outside the industry, they can be relatively unknown. If you are outside the construction arena, they can be near impossible to understand and they can be difficult to navigate when your construction client is required to provide a bond to secure its bidding, payment and performance obligations under a construction contract.
 
Surety bonds are third-party contracts between the principal/contractor, the surety and the obligee. By providing the principal/contractor with the bond, the surety is guaranteeing to the obligee that money is available to cover the cost of damages as a result of the principal’s failure to adhere to the terms of the underlying contractual obligation and the bond provided. The surety issues a bond with the assumption that the surety will not lose money if a claim is made against the bond.
 
So, if the surety guarantees to the obligee that money is available to cover any losses or damages where the principal/contractor is at fault, how can the surety assume that it will not lose anything? The surety will look to the ever-important indemnity agreement. While this may sound overwhelming, the indemnity agreement is a necessary component of the construction industry, and understanding the indemnity agreement can assist you and your client, the contractor, in the operation of its business. 
 
An presentation during the upcoming Construction Law Forum will address this and other questions regarding the indemnity agreement. To register for this CLE opportunity, click here
 
Elizabeth "Beth" Stengel is a West Tennessee Delegate for the Tennessee Bar Association's Construction Law Section. Stengel is a shareholder in the Memphis office of Evans Petree. She holds degrees from the University of Tennessee and the University of Memphis College of Law. Stengel can be contacted at 901-474-6138 or bstengel@evanspetree.com.