Opinion ID: 203971
Heading Depth: 2
Heading Rank: 1

Heading: Factual Background and the Master Surety Agreement

Text: On May 18, 1994, USF & G and Eastern executed a Master Surety Agreement (MSA). Of particular relevance to this action, the MSA contained both an indemnity clause (Paragraph III(A)) and a collateral security clause (Paragraph III(B)). The indemnity clause provided that Eastern agreed to: exonerate, hold harmless, indemnify and keep indemnified [USF & G] from and against any and all demands, claims, liabilities, losses and expenses of whatsoever kind or nature (including but not limited to, interest, court costs and counsel fees) imposed upon, sustained, or incurred by [USF & G] by reason of: (1) [USF & G] having executed, provided or procured BOND(S) in behalf of [Eastern] or (2) [Eastern's] failure to perform or comply with any of the provisions of this AGREEMENT. The MSA's collateral security clause further provided: In order to exonerate, hold harmless, and indemnify [USF & G], [Eastern] shall, upon demand of [USF & G] place [USF & G] in funds before [USF & G] makes any payment; such funds shall be, at [USF & G's] option, money or property, or liens or security interests in property. (The amount of such money or property or the value of the property to become subject to liens or security interests, shall be determined by surety.) In reliance on the Agreement and in its capacity as a surety, USF & G issued a number of payment and performance bonds [2] for the benefit of several obligees, including the Algonquin Regional School District, to secure Eastern's performance on various school construction projects in Northborough, Massachusetts. The Algonquin Regional School District terminated Eastern's involvement in the project on December 15, 2005, and subsequently made demand under the performance bond issued by USF & G. As a result of Eastern's default, the surety also received claims on the payment bonds issued in connection with the Algonquin project and several other projects.