Cohen Seglias Pallas Greenhall & Furman PC provided clarity and takeaways regarding claims that a subcontractor may bring against a surety in Pennsylvania.

From Cohen Seglias Pallas Greenhall & Furman PC:

The Pennsylvania Superior Court recently clarified the claims that a subcontractor may bring, as well as the judgments that may be enforced, against a surety in Pennsylvania in Eastern Steel Constructors, Inc. v. International Fidelity Insurance Company.

The Case
In 2008, Penn State University entered into a contract with Ionadi Corporation for steel work on the Millenium Science Center Complex at Penn State’s University Park Campus, and International Fidelity Insurance Company (IFIC) issued a payment bond for Ionadi (the bond). Ionadi then subcontracted with Eastern Steel Constructors, Inc. for installation services of the steel reinforcing material. While the project was ongoing, Eastern notified IFIC of Ionadi’s default based on Ionadi’s failure to pay them pursuant to the terms of their subcontract and made a claim on the payment bond, which IFIC denied.

As a result of Ionadi’s failure to pay, Eastern commenced a successful arbitration against Ionadi, resulting in an award against Ionadi. However, IFIC refused to pay the arbitration award and Eastern filed suit to enforce it and asserted a claim for bad faith against IFIC. The jury returned a verdict in favor of Eastern and against IFIC. IFIC then appealed to the Pennsylvania Superior Court, which found that IFIC was bound by the arbitration award. In doing so, the Superior Court also addressed a few unsettled areas of surety law in Pennsylvania.