The issues in this decision were whether the court would (1) issue a stay pending an appeal of its order compelling indemnitors to provide collateral to Safeco under an indemnity agreement, and (2) permit the surety to exercise it rights to an assignment of the contractor’s claims against the Corps of Engineers and the power of attorney to go along with it.

The court granted the stay to post collateral on the grounds that to compel the indemnitors to come up with the collateral would cause them to face an imminent threat of insolvency. And if they became insolvent they would lack the funds necessary to prosecute their appeal.

Moreover, the harm caused to Safeco by granting the stay could be mitigated by requiring the indemnitors to post a bond before the stay issued. The court stated that in this way “the appropriate balance is struck by issuing a stay that maintains the status quo under conditions that mitigate the harm to Safeco.”

With respect to the assignment of the claims and power of attorney to Safeco, the court held that these rights were clear under the indemnity agreement, and independent of the right to collateral.

Since the indemnitors failed to show that they had any likelihood of success in an appeal on the assignment issue, and failed to show that they would suffer irreparable harm in the event of an assignment the court agreed with the surety and refused to stay the assignment.

The court rejected the indemntors’ argument that they would be harmed because Safeco would not try to maximize the claims against the Corps. The court stated that Safeco had the obligation to settle the claims in good faith, and if it didn’t the indemnitors could assert that argument as a defense to Safeco’s claim for indemnity.

The court also said (which I thought was the most interesting statement in the opinion) that “if [the indemnitors] establish not only Safeco’s bad faith in settling their claims, but also the merits of those claims, [the indemnitors] may be able to recover the value of those claims from Safeco.”

Now there’s an incentive for the Surety to diligently prosecute the indemnitors’ claims!