Liberty Mutual’s latest court victory highlights how clear indemnity agreements can help insurers recoup losses on surety bonds when clients don’t pay up.
The legal battle between Liberty Mutual Insurance Company and Active Fire Sprinkler NYC, LLC reached a turning point on July 30, 2025, when New York’s Appellate Division, Second Department, sided with the insurer. At issue was whether Liberty Mutual could recover more than $400,000 after covering losses on surety bonds issued for a client’s construction projects.
The story began in March 2011, when Active Fire Sprinkler NYC, LLC and related parties signed an indemnity agreement with Liberty Mutual. The arrangement was straightforward: Liberty Mutual would secure surety bonds for Active Fire’s construction work, and the defendants agreed to reimburse the insurer for any losses, fees, costs, or expenses tied to those bonds - including legal costs if Liberty Mutual had to enforce the agreement.
After Liberty Mutual issued several bonds at the defendants’ request, claims arose. The insurer paid out a total of $411,972.10 but was left uncompensated by Active Fire and the other signatories. In May 2022, Liberty Mutual filed suit, seeking both the principal sum and additional costs and attorneys’ fees.
The case took a detour in September 2023, when the Supreme Court in Kings County denied Liberty Mutual’s motion for summary judgment. The court found that the insurer hadn’t properly established the admissibility of certain business records referenced in its affidavit. Liberty Mutual responded by asking the court to reconsider, arguing that its reply papers and supporting evidence had been overlooked.
By December 7, 2023, the tide had turned. The Supreme Court granted Liberty Mutual’s request for reargument, found that the insurer had indeed provided enough evidence, and awarded summary judgment for the full $411,972.10. The court also referred the calculation of attorneys’ fees and other costs to a referee.
The defendants appealed, but the appellate court affirmed the lower court’s decision. The judges pointed to New York law, which says a surety is entitled to indemnification upon proof of payment—unless the payment was made in bad faith or was unreasonable in amount. In this case, Liberty Mutual submitted the indemnity agreement, documents showing the bonds were issued, records of payments to claimants, and an affidavit from a regional vice president with an itemized list of payments. The court found this evidence sufficient. The defendants, meanwhile, failed to raise any factual dispute.
No specific insurance policy clauses were discussed in the decision. The focus remained on the indemnity agreement and whether Liberty Mutual had done what was necessary to enforce it. The court relied on established New York precedent, emphasizing that a surety’s right to indemnification is clear when payment is proven and not shown to be improper.
For insurance professionals, especially those handling surety bonds and commercial claims, this case is a reminder that clear agreements and solid documentation are essential. When insurers keep their paperwork in order, New York courts will enforce indemnity agreements and support recovery efforts. The Liberty Mutual case is a practical example of how the right contract and good records can help insurers protect their bottom line when clients fall short.
