United States District Court, E.D. Kentucky, Southern Division, Pikeville
OPINION AND ORDER
E. Wier United States District Judge.
North American Specialty Insurance Company
(“NAS”), moving for summary judgment, seeks
indemnification from Defendants Masonry Builder's of KY,
Inc. (“Masonry”) and Masonry's
owners/guarantors, Tim and Rontona Mitchell (collectively,
“Defendants”). DE #16. Having thoroughly analyzed
the record and DE #16's full briefing, for the reasons
that follow, the Court GRANTS the motion on the terms of this
needed bonding capacity to qualify for a particular contract.
NAS signed on as surety, facilitating the project, but
Masonry (and its individual owners) induced NAS by entry of a
broad General Indemnity Agreement in NAS's favor. That
Agreement gave NAS much authority with respect to and
protection regarding any underlying bond claim. Masonry and
the Mitchells cavil over NAS's handling, but the
Indemnity Agreement puts them squarely on the hook for
NAS's bond payments and resulting legal expenses.
FACTUAL AND PROCEDURAL BACKGROUND
2013, NAS, a licensed surety, issued payment and performance
bond #2171269 (the “Bond”) to cover Masonry's
contract with Morgan County Real Properties I for
construction of the Morgan County Wellness and Youth Center
(the “Youth Center”). DE #1 ¶¶ 2, 8;
see DE #1-1 (Bond). Payment bonds serve to ensure
that subcontractors and vendors have recourse if the bonded
contractor fails to pay them for project goods or services;
performance bonds guarantee payment for the balance necessary
to complete the project, should the contractor fail to do so.
Sureties often logically condition bonding upon execution of
an agreement indemnifying the surety in the event of the
contractor's default under the bond. Accordingly, as
required to obtain the Bond, Masonry and personal indemnitors
Tim and Rontona Mitchell executed a General Indemnity
Agreement (“GIA”) agreeing to indemnify and hold
NAS harmless from any “Loss” relative to the
Bond. DE #1 ¶ 9; see DE #1-2 (GIA) ¶
won the contract for brick work on the Youth Center. The
defense tendered various unauthenticated contract documents
suggesting that an unauthorized change by the Owner inserted
an alternative brick product into the mix. That alternative,
supplied by Hinkle Block and Masonry, LLC
(“Hinkle”), is at the root of this dispute.
Masonry contended the Owner should have paid for the
difference in materials and costs, but Hinkle looked to
Masonry. When Masonry refused payment, Hinkle submitted to
NAS a claim for $66, 596.23 against Masonry's Bond. DE #1
¶ 11. NAS initially refused payment on the claim, so
Hinkle brought suit against Masonry, NAS, and NAS's
affiliate Washington International Insurance Company
(“Washington”) (which the GIA includes in its
denomination of “Surety[, ]” see DE #1-2
at 1). DE #1 ¶ 12. See Hinkle Block &
Masonry, LLC v. Masonry Builder's of KY, Inc., et
al., Morgan County Civil Action No. 15-CI-00141; DE
#18-3 (Hinkle Complaint).
Hinkle litigation involved various claims, including
a breach of contract claim against Masonry, a claim for
breach of the Bond against NAS and Washington, and bad faith
claims against NAS and Washington. DE #18-3 ¶¶
15-38. NAS alleges that it “continually urged”
Masonry to settle the Hinkle claims, which Masonry
denies, and the litigation persisted for over two years. DE
#1 ¶ 14; DE #7 ¶ 11. In July 2017, NAS, allegedly
“with the full cooperation and consent of Masonry,
” reached a settlement in the Hinkle action
and paid Hinkle $64, 958.25 to resolve all claims against
NAS, Masonry (without prejudice), and Washington. DE #1
¶ 15. Masonry adds that this settlement resulted in bad
faith claim dismissal with prejudice. The order
dismissed the contract claim against Masonry without
prejudice, and NAS, as surety, took an assignment of that
claim. See DE #18-5 (Agreed Order of Dismissal).
NAS sought reimbursement from Masonry for all expenses
incurred in defending and settling the Hinkle
litigation. NAS filed a UCC financing statement securing
NAS's interest in Masonry's assets and demanded
payment from Masonry via letter. DE #1 ¶¶ 18-20; DE
##1-3, 1-4. Masonry steadfastly refused payment, and NAS
initiated this action to recover the requested sums. NAS
asserts three counts against Masonry: (1) breach of the GIA;
(2) breach of the implied contractual duty of good faith and
fair dealing; and (3) common law indemnity for the sum paid
to Hinkle, $64, 958.25, as well as any expenses and attorney
fees incurred in litigating the Hinkle case. DE #1
¶¶ 22-38. NAS additionally requests reimbursement
for the costs of bringing this action to enforce the GIA,
including reasonable attorney fees. Id. at 8.
moves for summary judgment, seeking $105, 444.92 in damages,
plus ongoing legal fees. DE #16 at 1, 10. As required by the
GIA, NAS has attached what it deems “[a]n itemized
statement of payments made by the Surety, sworn to by an
officer of the Surety[, ]” which the GIA designates as
“prima facie evidence of the liability of the
Indemnitors to reimburse the Surety.” DE #1-2 ¶ 9;
see DE #16-1 (Affidavit of Bryan Seifert).
Defendants responded to the summary judgment motion (DE #18),
and NAS replied (DE #22).
Court makes certain observations about the record. First, NAS
does not discuss the merits of Counts II and III, so the
Court does not address those claims. Second, Masonry tendered
various documents in response but authenticated none.
Further, Masonry offered no affidavit to rejoin the factual
claims of the Seifert Affidavit. The Court can process only
what the record properly contains and so goes forth to
resolve the motion.
Summary Judgment Standard
judgment is proper if “the movant shows that there is
no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed.R.Civ.P.
56(a). A reviewing court must construe the evidence and draw
all reasonable inferences from the underlying facts in favor
of the nonmoving party. Matsushita Elec. Indus. Co., Ltd.
v. Zenith Radio Corp., 106 S.Ct. 1348, 1356 (1986);
Lindsay v. Yates, 578 F.3d 407, 414 (6th Cir. 2009).
“The moving party bears the burden of showing the
absence of any genuine issues of material fact.”
Sigler v. Am. Honda Motor Co., 532 F.3d 469, 483
(6th Cir. 2008). The movant may satisfy this burden by
demonstrating that “after reviewing the record as a
whole a rational factfinder could not find for the nonmoving
party.” Ercegovich v. Goodyear Tire & Rubber
Co., 154 F.3d 344, 349 (6th Cir. 1998). In evaluating a
summary judgment motion, a district court must avoid
“credibility judgments and weighing of the evidence,
” Bennett v. City of Eastpointe, 410 F.3d 810,
817 (6th Cir. 2005), and view “the facts and any
inferences that can be drawn from them . . . in the light
most favorable to the non-moving party, ” id.
(citing Matsushita, 106 S.Ct. at 1356).
moving party meets its burden, the burden then shifts to the
nonmoving party to produce “specific facts”
showing a “genuine issue” for trial Celotex
Corp. v. Catrett, 106 S.Ct. 2548, 2253 (1986); Bass
v. Robinson, 167 F.3d 1041, 1044 (6th Cir. 1999). The
nonmovant must “do more than simply show that there is
some metaphysical doubt as to the material facts.”
Matsushita, 106 S.Ct. at 1356. The nonmovant
“has an affirmative duty to direct the court's
attention to those specific portions of the record upon which
it seeks to rely to create a genuine issue of material
fact.” In re Morris, 260 F.3d 654, 655 (6th
Cir. 2001). Summary judgment is particularly appropriate in a
contract action, if the questions are primarily legal rather
than factual, and “the documents and/or evidence
underlying the contract are undisputed and there is no
question as to intent.” Terry Barr Sales Agency,
Inc. v. All-Lock Co., Inc., 96 F.3d 174, 179 (6th Cir.
1996). Where the contract language is ambiguous, however,
disputed fact issues as to intent preclude summary judgment.
Id.; see also Parrett v. American Ship Building
Co., 990 F.2d 854, 858 (6th Cir. 1993).
Validity and Enforceability of the GIA
governing “the construction and interpretation of a
contract”-including whether the contract's terms
are ambiguous-“are questions of law to be decided by
the court[.]” Frear v. P.T.A. Indus., Inc.,
103 S.W.3d 99, 105 (Ky. 2003) (quoting First Commonwealth
Bank of Prestonsburg v. West, 55 S.W.3d 829,
835 (Ky. Ct. App. 2000)); accord Zetter v. Griffith
Aviation, Inc., 435 F.Supp.2d 622, 628-29 (E.D. Ky.
2006). The Court's “review must begin with an
examination of the plain language of the instrument.”
Ky. Shakespeare Festival, Inc. v. Dunaway, 490
S.W.3d 691, 694 (Ky. 2016). “In the absence of
ambiguity, a written instrument must be enforced strictly
according to its terms[.]” Wehr Constructors, Inc.
v. Assurance Co. of Am., 384 S.W.3d 680, 687 (Ky. 2012)
(quoting Frear, 103 S.W.3d at 106).
contract of indemnity is an obligation or duty requiring a
promisor . . . to make good any loss or damage which another
has incurred while acting at the request or for the benefit
of the promisor.” Intercargo Ins. Co. v. B.W.
Farrell, Inc., 89 S.W.3d 422, 426 (Ky. Ct. App. 2002).
An indemnification agreement accompanying a performance or
payment bond in the construction industry is a “prime
example” of such a contract. Id. In Kentucky,
“[t]he right of an indemnitee to recover of the
indemnitor under a contract of indemnity according to the
terms of such a contract is well recognized.” U.S.
Fid. & Guar. Co. v. Napier Elec. & Constr. Co.,
571 S.W.2d 644, 646 (Ky. Ct. App. 1978). Further,
“[s]uch a contract is not against public policy and
will be enforced if the indemnitee has suffered loss
thereunder and has complied with its terms.”
Id.; accord Thompson v. The Budd Co., 199
F.3d 799, 807 (6th Cir. 1999) (finding that an
indemnitor's liability is “determined by the
provisions of the indemnity agreement itself”).
do not contend that the GIA is ambiguous, or that its terms
are subject to different interpretations. Indeed, the Court
finds that the relevant, operative language is not ambiguous.
See Ky. Shakespeare Festival, 490 S.W.3d at 694-95.
To the extent Defendants contest the validity of the GIA
itself, they argue that: (1) as a general matter of public
policy, “Kentucky law disfavors contracts  calling
for indemnification for the actions of the indemnitee”;
and (2) specifically, this GIA provides for indemnification
for costs “related, at least in part, to [NAS's]
own claimed wrongful conduct, ” rendering it an
“[e]xculpatory contract . . . highly disfavored under
Kentucky law[.]” DE #18 at 5. The argument hinges on
the fact that Hinkle sued both Masonry and the sureties. The
claims against NAS included an extra-contractual theory.
Thus, per Masonry, NAS spent money and incurred loss for its
own alleged improper conduct relative to claim adjustment.
The GIA Does Not Violate Public Policy
offer no real support for their first proposition, which is
contrary to Kentucky precedent. Kentucky law does not
disfavor, nor does it discriminate against, indemnity
agreements. See U.S. Fid. & Guar. Co., 571
S.W.2d at 646; see also Enerfab, Inc. v. Ky. Power
Co., 433 S.W.3d 363, 366 (Ky. Ct. App. 2014) (noting
that “general principles of contract construction apply
equally to indemnification agreements” and agreeing
with the U.S. Fid. & Gaur. Co. court that
“[s]uch a contract is not against public
policy[.]”); accord Nat. Sur. Corp. v. People's
Mill. Co., 57 F.Supp. 281, 282 (W.D. Ky. 1944)
(“The right of an indemnitee to recover of the
indemnitor under a contract of indemnity according to the
terms of such a contract is well recognized. Such a contract
is not against public policy and will be enforced if the