The Pennsylvania Supreme Court has agreed to hear an appeal of the case
Eastern Steel Construction, Inc. v. International Fidelity Insurance Co., in which the Pennsylvania Superior Court
clarified the claims that a subcontractor may bring, as well as judgments that it may enforce against a surety. There were four key takeaways for contractors:
- First, a surety that has full knowledge of arbitration proceedings involving its principal and is provided with an opportunity to participate will be bound by the arbitration award.
- Second, if a surety is liable for “all sums due” to a subcontractor, the surety is also liable for attorneys’ fees the subcontractor incurs in the action against the principal if the subcontract entitles the subcontractor to recover attorneys’ fees.
- Third, a judgment against a surety will be subject to a statutory prejudgment interest of 6% and not any different rate that the subcontract provides, absent specific language binding the surety to that interest rate.
- Fourth, a surety cannot be held liable for attorneys’ fees and punitive damages for bad faith because the bad faith statute in Pennsylvania applies to “insurers,” and a surety is not an “insurer.”
Following the Superior Court’s decision, both parties sought to appeal to Pennsylvania’s highest court. On November 7, 2023, the Pennsylvania Supreme Court agreed to hear an appeal of the case to address the following issues:
- Whether a surety is liable for attorneys’ fees and/or contractual interest under the terms of a payment bond that covers only labor, materials and equipment.
- Whether a surety is bound by a default judgment entered in an arbitration in which the surety was not a party and despite a provision in the bond specifying that litigation against the surety will proceed in a court of law.
- Whether Pennsylvania’s bad faith statute, 42 Pa.C.S.A. § 8371, applies to surety contracts/policies issued by insurance companies.
Presently, the parties are submitting their briefs to the Supreme Court, after which the court will schedule an argument and issue its decision. Until that time, the Superior Court’s decision remains in effect. However, the Pennsylvania Supreme Court will ultimately have the final word. We will keep you updated as to what the final word is and what impact it may or may not have as to the scope of surety liability.
As we noted in the prior blog post on this case, navigating payment bond claims can be challenging even for the most experienced contractors. What is recoverable under the bond terms is critical, as are notice and timing. Fortunately, the lawyers at Cohen Seglias are able to guide you through that process.
