Lessons from the Eclipse: Contractors need not tremble at indemnity agreements

EclipseA narrow 60-mile-wide path across the Unites States from Texas to Maine will witness a total eclipse of the sun on April 8, 2024. Solar eclipses are visible somewhere on Earth once every 18 months, yet witnessing a total eclipse is rare. “A total eclipse happens at any given station only once in about 360 years,” wrote Henry Norris Russell in a 1927 textbook titled Astronomy: A Revision of Young’s Manual of Astronomy. In fact, the last recorded total eclipse in Dallas, Texas, where I am stationed, was over 400 years ago on Oct. 23, 1623.

This part of the world was very different in those days. I imagine the Spanish settlers and native inhabitants around here were more in tune with nature. We have mythologies and reports from earlier civilizations that demonstrate how much people were in awe of solar eclipses. “Cherokee say it is a giant frog in the sky trying to eat the sun. Everybody is supposed to go outside and make a big noise with drums, whistles, and voices to scare the frog away,” wrote Dennis Zotigh in “American Indian Beliefs About the Eclipse,” for Smithsonian Magazine.

Can you imagine living in a time without electric lighting or dimmer switches and seeing the bright midday sunlight fade gradually on the ground under a cloudless sky? Can you imagine seeing those weird, crescent-shaped shadows around all the trees with the hush of animal noises and the temperature dropping gently? Who is the author of this prank?

We know now that this supernatural event is caused by our moon’s being 400 times smaller than the sun and our moon’s being 400 times closer to Earth than the sun. When the two spheres are viewed from Earth, they appear to be the same size and at times appear to mingle with one another. The likelihood of this coincidence in size and spacing is astronomically low. The oddity of such a bizarre fit can be eerie to think about and yet spiritually comforting.

Along with the benefit of scientific explanations, modern eclipse viewers also know when to expect an eclipse. But in times when the eclipse was more novel, it was likely more fearsome.

As a surety professional, I have noticed similar trepidation from some contractors when they are first asked to provide a bond to secure a public contract and they encounter “the indemnity agreement.”

Contractors that routinely complete unbonded projects can be taken aback by a bond request out of the blue. The project may be a perfect opportunity, so the contractor may call an agent to get qualified for a bond only to find out that the contractor will be required to sign an indemnity agreement promising to pay back any claims incurred. This can feel other-worldly. The project can seem promising and yet threatening all at once.

It’s a comfort to know that surety is also a three-party system – the contractor, public entity and surety all work together like the Earth, sun and moon. In fact, bringing further reassurance, bonded jobs have a lower rate of default. “Unbonded projects are more likely to default, perhaps by as much as ten times,” said EY in its November 2022 report “The Economic Value of Surety Bonds.” Therefore, surety participation decreases the risk for contractors.

The indemnity agreement, like an eclipse, may give you pause, but it is nothing to fear. The contractor is already obligated by its contract agreement. The alignment with the surety is beautiful because the bond covers the exact size of the contract without altering the obligations of the other two parties. All three partners are in support of a successful project and each other’s future prosperity.

Trepidation is not right or wrong. It is human nature. But maybe on those occasions when we are more aware of our circumstances, the perfect overlay of these entities working in unison can remind us to pause and admire our good fortune in this rare world that we enjoy together.

Greg Thrailkill

Greg is an Executive Surety Marketing Representative for Old Republic Surety.