Indiana District Court Finds “Pay If Paid” Clause Valid Defense To Bond Claim

Kegler Brown Construction Newsletter

Decisions around the country have been mixed as to whether a valid “pay if paid” clause in a subcontract can be utilized as a defense to payment of a bond claim by a surety. In a decision dated January 13, 2011, the U.S. District Court for the Southern District of Indiana found that the surety’s liability could not exceed that of its principal – the contractor – and therefore allowed the surety to deny the subcontractor’s payment bond claim because the condition of payment by the owner had not been satisfied. BMD Contractors v. Fidelity and Deposit Company, Case No. 1:09-cv-0121-TWP-DML.