In Fid. & Guar. Ins. Co. v. Star Equip. Corp., Appellant Star Equipment Corporation (“Star”) contracted to replace water mains in the town of Seekonk, Massachusetts (“Seekonk”). Appellee Fidelity and Guaranty Insurance Company (“Fidelity”) executed a performance bond as surety on behalf of Star for the water main work. The principals of Star executed a general agreement for indemnity promising to reimburse Fidelity for any losses. Eventually, Seekonk declared Star to be in default under the construction contract. Consequently, Fidelity filed a declaratory judgment to determine the rights under the bond, and the parties agreed to submit the case to mediation. At the close of the mediation, the parties entered into a settlement memorandum of understanding, to which Star and its principals were parties. Following execution of the settlement memorandum of understanding, Fidelity paid Seekonk pursuant to the terms of the memorandum, but Star’s principals claimed that the settlement was contingent upon the resolution of a separate dispute they had with Fidelity, and that the payment made by Fidelity was in bad faith.

Fidelity and Seekonk then filed a joint motion to enforce the settlement agreement, and the court entered a judgment in their favor. Star and its principals filed an appeal contesting, inter alia, the enforcement of the settlement agreement. The First Circuit upheld the lower court’s decision, finding that the settlement agreement to which the principals had assented in writing was enforceable and that the principals could not claim that Fidelity acted in bad faith by fulfilling its obligations. Thus, where an indemnitor agrees to a payment by an indemnitee, the indemnitor cannot later argue the payment to have been made in bad faith by the indemnitee.

Fidelity and Guaranty Insurance Company v. Star Equipment Corporation, 541 F.3d 1 (2008).