282 A.3d 827
Pa. Super. Ct.2022Background
- PSU contracted with Ionadi for steel erection; International Fidelity Insurance Company (IFIC) issued a $10,125,000 payment bond for Ionadi.
- Eastern Steel was subcontracted by Ionadi to install reinforcing steel; the subcontract required AAA arbitration for disputes and allowed contractual interest and attorneys’ fees.
- Ionadi stopped timely payments; Eastern demanded payment under the bond, then pursued AAA arbitration (IFIC had notice and invitations to participate but declined).
- Arbitrator awarded Eastern $433,489.42 (including interest and attorneys’ fees); award was confirmed and reduced to judgment against Ionadi.
- Eastern sued IFIC to collect; trial court excluded the arbitration award at trial by in limine ruling, later a jury returned a verdict for Eastern (amount mirroring arbitration) and the court molded the verdict to include prejudgment interest at 6%. Appeals followed.
Issues
| Issue | Plaintiff's Argument (Eastern) | Defendant's Argument (IFIC) | Held |
|---|---|---|---|
| Whether an arbitration award against the principal (Ionadi) is binding on the surety (IFIC) when the surety had notice and opportunity to participate | Arbitration award is conclusive on IFIC because IFIC was jointly/severally liable under the bond, had notice, and declined to participate | IFIC not a party to the subcontract/arbitration so the award cannot bind it; award was a default/unauthorized to bind surety | Award is binding on IFIC; court reversed trial judge's exclusion of the award — a surety who had notice and chance to defend is bound by arbitration against its principal |
| Recovery of attorneys’ fees claimed by Eastern | Fees provided in subcontract (and awarded in arbitration) are part of "all sums due" and thus collectible from IFIC as surety | Bond limits liability; IFIC not liable for fees to enforce its own surety obligations | Fees that are part of the sums due from Ionadi (i.e., awarded in arbitration) are recoverable; fees incurred to enforce IFIC’s separate surety obligation are not recoverable against IFIC |
| Prejudgment/contractual interest rate (1.5% monthly v. statutory 6%) and period | Eastern seeks contractual interest (1.5%/mo) on the sums due; prejudgment interest should run from the arbitration award date | IFIC contends bond terms/control and trial court has discretion on interest period and rate | Interest that was part of the arbitration award is part of the adjudicated sum; as to recovery from IFIC, prejudgment interest on the definite sum is recoverable as of right at statutory rate (6%); the trial court’s award/timing was vacated and remanded for correct calculation (interest runs from the arbitration award date) |
| Applicability of Pennsylvania bad-faith statute (42 Pa.C.S. § 8371) to surety bonds | Section 8371 should cover surety bonds because it addresses insurer misconduct and UIPA defines "insurance policy" broadly | Section 8371 applies only to insurance policies; suretyship is not insurance and exposing sureties to § 8371 would impose greater liability than on principals | Section 8371 does not apply to surety bonds; summary judgment for IFIC on bad-faith claim affirmed |
Key Cases Cited
- Conneaut Lake Agricultural Ass'n v. Pittsburgh Surety Co., 74 A. 620 (Pa. 1909) (a surety notified of arbitration that fails to appear is bound by the award)
- United States ex rel. Fidelity Nat'l Bank v. Rundle, 107 F. 227 (9th Cir. 1901) (judgment against principal not admissible against surety except when surety had opportunity to defend or bond conditions so provide)
- McIntyre Square Assocs. v. Evans, 827 A.2d 446 (Pa. Super. 2003) (default or confessed judgment against principal not binding on surety unless surety had chance to defend)
- Fort Pitt Bridge Works v. Cont'l Cas. Co., 240 A.2d 493 (Pa. 1968) (surety liable for interest that is part of the "sum justly due")
- United States ex rel. Maddux Supply Co. v. St. Paul Fire & Marine Ins. Co., 86 F.3d 332 (4th Cir. 1996) (under Miller Act analogies, interest and attorneys’ fees recoverable if included in subcontract)
- Isidor Paiewonsky Assocs., Inc. v. Sharp Props., Inc., 998 F.2d 145 (3d Cir. 1993) (nonparty may be bound by arbitration when its interests are directly related or congruent to a party’s)