Eastern Steel Const. v. International Fidelity

J-A12017-21
2022 PA Super 149EASTERN STEEL CONSTRUCTORS, INC IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellant
v.
INTERNATIONAL FIDELITY INSURANCE
COMPANY
Appellee No. 998 MDA 2020
Appeal from the Judgment Entered July 23, 2020
In the Court of Common Pleas of Centre County
Civil Division at No.: 2011-3233
EASTERN STEEL CONSTRUCTORS, INC IN THE SUPERIOR COURT
OF PENNSYLVANIA
Appellee
v.
INTERNATIONAL FIDELITY INSURANCE
COMPANY
Appellant No. 1034 MDA 2020
Appeal from the Judgment Entered July 23, 2020
In the Court of Common Pleas of Centre County
Civil Division at No.: 2011-3233
BEFORE: LAZARUS, J., STABILE, J., and MUSMANNO, J.
OPINION BY STABILE, J.: FILED: SEPTEMBER 1, 2022
In this suretyship action, Appellant/Cross-Appellee, Eastern Steel
Constructors, Inc. (“Eastern” or “Claimant”), and Appellee/Cross-Appellant,
International Fidelity Insurance Company (“IFIC”), appeal and cross-appeal,
respectively, from the July 23, 2020 judgment entered in the Court of
J-A12017-21
Common Pleas of Centre County (“trial court”). Following the prime contractor
Ionadi Corporation’s (“Ionadi”) failure to pay Eastern for work Eastern
performed under a subcontract, Eastern sought to recover the outstanding
payments from IFIC, Ionadi’s surety. Eastern secured an arbitration award
against Ionadi that was subsequently confirmed and reduced to a judgment.
Thereafter, Eastern unsuccessfully attempted to collect the judgment from
IFIC. Eastern filed suit and the case eventually proceeded to a jury trial, at
the conclusion of which the jury returned a verdict in favor of Eastern and
against IFIC. We now are called upon to decide, inter alia, whether a surety,
who had notice of and an opportunity to participate in arbitration proceedings
against its principal, is bound by an arbitration award rendered against the
principal and, separately, whether a surety is subject to the bad faith statute,
42 Pa.C.S.A. § 8731. After careful review, we have concluded, inter alia, that
IFIC, as surety, was bound by the arbitration award, but not subject to a bad
faith action under Section 8731. Accordingly, we affirm in part, reverse in
part, vacate in part, and remand for further proceedings.
I. BACKGROUND
In 2008, the Pennsylvania State University (“PSU”) entered into a prime
contract (the “Construction Contract”) with Ionadi for the erection of steel on
a project for the construction of the Millennium Science Center Complex at
PSU’s University Park Campus in Centre County, Pennsylvania (the “Project”).
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On October 29, 2008, IFIC issued a $10,125,000.00 payment bond
(“Payment Bond”) for Ionadi in connection with the Project.1 To do so, IFIC
utilized The American Institute of Architects (“AIA”) standard form AIA
Document A312, which the parties modified to suit their needs. In particular,
the Payment Bond provided:
1. The Contractor2 and the Surety3, jointly and severally, bind
themselves, their heirs, executors, administrators, successors and
assigns to the Owner4 to pay for labor, materials and
equipment furnished for use in the performance of the
Construction Contract5, which is incorporated herein by reference.
2. With respect to the Owner, the obligation shall be null and void
if the Contractor:
2.1 Promptly makes payment, directly or indirectly, for all
sums due Claimants . . . .
3. With respect to Claimants, this obligation shall be null and void
if the Contractor promptly makes payment, directly or indirectly,
for all sums due.
4. The Surety shall have no obligation to Claimants under this
Bond until:
4.1 Claimants who are employed by or have a direct
contract with the Contractor have given notice to the
Surety (at the address described in Paragraph 12) and sent
____________________________________________
1 On the same day, IFIC also issued a performance bond for Ionadi relating to
the Project, but that bond is not at issue in this appeal.
2 Bond references to the “Contractor” are to Ionadi.
3 Bond references to the “Surety” are to IFIC.
4 Bond references to the “Owner” are to PSU.
5 The “Construction Contract” under the bond is the prime contract between
Ionadi and PSU.
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a copy, or notice thereof, to the Owner, stating that a claim
is being made under this Bond and, with substantial
accuracy, the amount of the claim.
....
6. When the Claimant has satisfied the conditions of Section 4, the
Surety shall promptly and at the Surety’s expense take the
following actions:
6.1 Send an answer to the Claimant, with a copy to the
Owner, within 60 days after receipt of the claim, stating the
amounts that are undisputed and the basis for challenging
any amounts that are disputed.
6.2 Pay or arrange for payment of any undisputed amounts.
6.3 The Surety’s failure to discharge its obligations under
this Section 6 shall not be deemed to constitute a waiver of
defenses the Surety or Contractor may have or acquire as
to a claim. However, if the Surety fails to discharge its
obligations under this Section 6, Surety shall indemnify the
Claimant for the reasonable attorney’s fees the Claimant
incurs to recover any sums found to be due and owing
to the Claimant.
9. The Surety shall not be liable to the Owner, Claimants or others
for obligations of the Contractor that are unrelated to the
Construction Contract. . . .
....
11. No suit or action shall be commenced by a Claimant under this
Bond other than in a court of competent jurisdiction in the location
in which the work or part of the work is located or after the
expiration of one year from the date (1) on which the Claimant
gave the notice required by Subparagraph 4.1 . . ., or (2) on which
the last labor or service was performed by anyone or the last
materials or equipment were furnished by anyone under the
Construction Contract, whichever of (1) or (2) first occurs.
....
15. DEFINITIONS
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15.1 Claimant: An individual or entity having a direct contract
with the Contractor or with a subcontractor of the Contractor
to furnish labor, materials or equipment for use in the
performance of the contract. The intent of this Bond shall be
to include without limitation in the terms “labor, materials or
equipment” that part of [all utilities] . . . or rental equipment
used in the Construction Contract, . . . and all other items for
which a mechanic’s lien may be asserted in the jurisdiction
where the labor, materials or equipment were furnished.
Payment Bond, 10/29/08, at 5-6 (emphasis added).
On November 11, 2008, Ionadi subcontracted (the “Subcontract”) with
Eastern, a family-owned commercial subcontractor, for installation services
relative to the steel reinforcing material. Specifically, Eastern agreed to,
among other things, “supply labor and trade hand tools for installation of
prefabricated reinforcing steel.” Subcontract, 11/11/08, at ¶ 1. For the
reinforcing steel installation, the Subcontract set the unit price of structure
rebar at $0.33/per pound. Id. The Subcontract also provided in pertinent
part:
18. Payment schedules to [Eastern] will be made on or before the
calendar 25th of each month, of an amount equal to 90% of the
total value of work placed or performed during the preceding
month. There will be a 10% retention holding. Retention release
shall occur no later than 60 days after [Eastern’s] reinforcing
completion.
....
19. [Eastern] shall receive a copy of all delivery tickets for all
material which [Eastern] will be installing. With each delivery, a
copy will immediately be issued to [Eastern] for its records, and
all weights will be shown on delivery tickets from reinforcing
suppliers.
....
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21. Rebar weights for payment to [Eastern], regarding
installation, shall be actual bar weights as shipped, providing such
weights are shipped for installation.
....
23. [Eastern] reserves the right to charge interest at one and
one-half percent (1-1/2%) monthly on delinquent debt or
payments, and to decline to perform any work except upon receipt
of payment or security; or upon terms and conditions satisfactory
to [Eastern]. [Eastern] shall be considered a direct obligee
of [Ionadi’s] bond assuring this [Subcontract]. Any costs
incurred, direct and indirect, for which [Eastern] is
subjected in pursuing any money, or consequential
damages, legal fees, and costs of any kind to [Eastern] for
nonperformance, will be [Ionadi’s] and [IFIC’s]
responsibility.
....
25. If any filing of claim, dispute, or legal actions are
pursued and/or initiated against [Ionadi], such will occur
and take place through means of the American Arbitration
Association [(“AAA”)] by means of binding arbitration within the
nearest local jurisdictional boundaries, or city, in which the
[P]roject is located.
Id. at ¶¶ 18-19, 21, 23, and 25 (emphasis added).
Thereafter, on November 25, 2008, Eastern separately entered into a
written agreement with Tinney Rebar Services, Inc. (“Tinney”), a reinforcing
supplier, for the fabrication and supply of the reinforcing steel for the Project.
The Tinney agreement also contained an AAA arbitration provision.
A. Payment Dispute
On February 28, 2009, pursuant to the Subcontract, Eastern began
handling and installing reinforcing steel, supplied to Ionadi by Tinney, at the
Project. Eastern concluded its work at the Project on September 4, 2010.
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Eastern submitted requests for payment to Ionadi monthly by completing an
AIA Application and Certification for Payment (“Payment Requests”). Each of
the Payment Requests submitted by Eastern to Ionadi contained an invoice
number, identified the amount of work performed within the covered time
period, and listed the weight of reinforcing steel, among other things.
Ionadi paid Eastern on the first five Payment Requests for work
performed at the Project through June 30, 2009. Thereafter, however, Ionadi
either failed to pay the Payment Requests at all, or paid them only partially
and late, citing cash flow problems.
On April 27, 2010, while work at the Project was ongoing, Eastern
notified IFIC in writing of a claim under the Payment Bond for nonpayment of
$622,182.90 by Ionadi. Eastern stated:
[Ionadi] is in default of payments due and owing to [Eastern],
which Eastern is demanding payment by you as the surety co-
obligor[.] . . . [Ionadi] has admitted they have received
payments that should have been forwarded to Eastern, however,
due to their financial problems they have not. [Eastern]
demand[s] prompt payment plus legal and statutory interest paid
to Eastern.
Letter, 4/27/10. On April 29, 2010, IFIC notified Eastern that IFIC did not
have sufficient information to determine whether all or any portion of the
alleged amounts due was undisputed or disputed under the Payment Bond.
See Letter, 4/29/10. IFIC directed Eastern to complete a proof of claim form.
Id. On May 5, 2010, Eastern complied, submitting the required proof of claim
to IFIC in support of its April 27, 2010 claim for nonpayment by Ionadi for
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services it rendered on the Project. IFIC denied Eastern’s claim on June 17,
2010. See Letter, 6/17/10. Eventually, however, IFIC reversed course and
made payments to Eastern. On August 23, 2010, IFIC issued a check to
Eastern for $277,295.00. Later, IFIC issued another check for $172,080.00
to Eastern on December 23, 2010. In the aggregate, Eastern received
$944,277.52 for its work on the Project. Eastern, however, claimed that,
exclusive of interest, attorneys’ fees, costs, expenses and penalties, Eastern
still was due $253,788.08 for its work on the Project.
B. Arbitration and Bankruptcy
On November 29, 2010, consistent with the Subcontract’s AAA
arbitration provision, Eastern filed a demand for binding arbitration against
Ionadi. Eastern contacted and notified IFIC of the arbitration, but IFIC
declined to participate. In September 2010, Tinney, Ionadi’s reinforcing steel
supplier who also had not been paid by Ionadi, filed a civil complaint against
IFIC in the Court of Common Pleas of Allegheny County. IFIC filed preliminary
objections, compelling Tinney to arbitrate its claims against Ionadi because
Tinney’s subcontract with Ionadi contained an AAA arbitration provision.
Tinney subsequently in July 2011, filed a demand for arbitration and its
arbitration was subsequently consolidated with Eastern’s. As a condition for
joining Eastern’s arbitration proceeding, Tinney advised IFIC in writing of the
proposed joinder, and like Eastern, invited IFIC to participate directly in the
arbitration. IFIC once again declined. The joint arbitration hearing began on
October 5, 2011, and Ionadi, despite having continual notice of the scheduled
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arbitration hearing, elected not to participate therein. In spite of Ionadi’s
absence, the arbitrator required Eastern and Tinney to present their cases.
On the day arbitration began, Ionadi filed for bankruptcy protection
under Chapter 11 of the United States Bankruptcy Code in the Western District
of Pennsylvania at case number 11-26204-TPA. On October 6, 2011, the
arbitrator suspended the arbitration hearings pending efforts of Eastern’s and
Tinney’s counsel to obtain a lift of the automatic stay of claims against Ionadi
from the bankruptcy court. IFIC, despite notice, did not attend a hearing
before the bankruptcy court to contest Eastern’s motion to lift stay. On
October 7, 2011, Eastern’s and Tinney’s counsel returned to the arbitrator’s
office from the bankruptcy court and advised the arbitrator that the
bankruptcy court had issued an order lifting the automatic stay. See
Arbitration Award, 11/9/11, at 1. As a result, the arbitration hearings
proceeded to conclusion. Id. On November 9, 2011, the arbitrator awarded
Eastern $433,489.42 under the Subcontract,6 which included the $253,788.08
Eastern claimed it was owed by Ionadi under the Subcontract for the work it
performed at the Project. Id. at 2. Additionally, the arbitrator directed Ionadi
to reimburse Eastern for $19,933.94 in arbitration fees and expenses. Id.
Neither Ionadi nor IFIC sought to vacate the arbitration award.
____________________________________________
6 The award included: $92,830.52 for outstanding contract balance, including
retainage; $87,823.06 for extra work; $73,132.14 for bulletin work;
$68,299.08 for interest and penalties through November 9, 2011; and
$111,404.62 in attorneys’ fees.
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On February 9, 2012, the bankruptcy court held a hearing on Eastern’s
motion for relief from the automatic stay to determine whether to lift the stay
so that Eastern could proceed to confirm the arbitration award. Despite
attending the hearing, IFIC did not object to Eastern’s motion. The bankruptcy
court ultimately granted relief and lifted the automatic stay. See Bankruptcy
Order, 2/10/12, at 1-2.
Eastern then petitioned the Court of Common Pleas of Allegheny County
to confirm and enter judgment on the arbitration award pursuant to Section
7342(b) of the Uniform Arbitration Act, 42 Pa.C.S.A. § 7342(b).7 In July 2012,
the trial court confirmed the award, and judgment was entered in favor of
Eastern and against Ionadi.8 Even though IFIC’s counsel attended the
proceedings, see Reproduced Record (R.R.) at 120a, neither IFIC nor Ionadi
appealed the judgment. Eastern unsuccessfully attempted to collect the
judgment from IFIC.
C. Centre County Action
On August 1, 2011, Eastern brought the instant Centre County action
against IFIC under Section 11 of the Payment Bond by filing a writ of
____________________________________________
7 Section 7342(b) provides that “[o]n application of a party made more than
30 days after an award is made by an arbitrator under section 7341 (relating
to common law arbitration), the court shall enter an order confirming the
award and shall enter a judgment or decree in conformity with the order.”
42 Pa.C.S.A. § 7342(b).
8 The Allegheny County court specifically noted in its order that it was “not
making any findings or conclusions as to the res judicata or preclusive effect
of the award of arbitration or any confirmation or judgment derived therefrom
as against IFIC or any other party.” Order, 7/23/12 (emphasis in original).
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summons. On November 7, 2011, Eastern filed a complaint against IFIC,
which it amended on November 14, 2011. In its amended complaint, Eastern
asserted multiple claims against IFIC. Count 1: breach of contract; Count 2:
breach of contract (third party beneficiary); Count 3: action in assumpsit/civil
action under the Public Works Contractors’ Bond Law of 1967, 8 P.S. § 191 et
seq.; Count 4: indemnification; Count 5: breach of contract (enforcement of
arbitration award); Count 6: action in assumpsit/civil action under the Public
Works Contractors’ Bond Law (enforcement of arbitration award); Count 7:
bad faith under 42 Pa.C.S.A. § 8731; and Count 8: promissory estoppel.
Following the overruling of preliminary objections, on April 9, 2012, IFIC
answered the amended complaint, denying the averments of the complaint
and asserting new matter. Eastern replied to IFIC’s new matter on May 24,
2012.
On March 11, 2013, IFIC filed a “Motion for Partial Judgment on the
Pleadings or, in the Alternative, Certification of Issues for Interlocutory
Appeal.” IFIC sought dismissal, as a matter of law, of Count 5 (breach of
contract – enforcement of arbitration award), Count 6 (action in assumpsit –
enforcement of arbitration award), and Count 7 (bad faith), claiming that IFIC,
as Ionadi’s surety, was not bound by the arbitration award and the judgment
thereon. In support, IFIC reasoned that there was no statutory predicate or
case law in Pennsylvania that would obligate it to pay an arbitration award
rendered against its principal and in favor of a subcontractor in an ex parte
proceeding to which IFIC was not a party. In other words, IFIC argued that it
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was not a party to the Subcontract containing the AAA arbitration provision
and it did not participate in the resulting arbitration proceedings at which
Ionadi failed to defend itself. Thus, according to IFIC, it was not liable to pay
the arbitration award, as confirmed and reduced to judgment. With respect
to Count 7, IFIC argued that Eastern’s claim for bad faith was not cognizable
against a surety and, therefore, should be dismissed as a matter of law. IFIC
reasoned that there was no authority to support Eastern’s claim that a surety
contract constituted an insurance policy within the meaning of Section 8371.9
On March 22, 2013, while IFIC’s motion for partial judgment on the
pleadings was pending, Eastern filed a motion for partial summary judgment
with respect to Counts 1 through 3, 5, and 6 of the amended complaint.
Eastern’s summary judgment motion was premised, inter alia, on its
contention that IFIC was indeed bound by the arbitration award and that, as
a result, the award should be enforced against IFIC. Eastern based its
summary judgment motion in large part on certain admissions made during
the deposition testimony of Kathleen Maloney, IFIC’s senior claims
representative and admissions in IFIC’s answer to the amended complaint.
Thereafter, on April 4, 2013, Eastern responded to IFIC’s motion for
partial judgment on the pleadings, asserting that IFIC was bound by the
arbitration award entered against Ionadi. Eastern reasoned that IFIC, as a
____________________________________________
9 Section 8371 provides in part that it is applicable only “[i]n an action arising
under an insurance policy[.]” 42 Pa.C.S.A. § 8371 (emphasis added). We
discuss Section 8371 in more detail, infra.
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co-obligor, was in privity with Ionadi and had notice of, and opportunity to
participate in, the arbitration proceedings. Eastern claimed that “Ionadi, as
well as co-obligor IFIC, had received advance notice, [and Ionadi] had
responded to the demand for arbitration and participated in conferences with
the arbitrator prior to the arbitration proceedings.” Answer to Motion for
Partial Judgment on Pleadings, 4/8/13, at ¶ 4. Specifically, Eastern countered
that it “notified IFIC of the filing of its demand for arbitration, and noticed IFIC
when each breach was ripe, and on several occasions invited any claims agent
of IFIC as an original promisor pursuant to the [Payment Bond] to intervene
in the arbitration.” Id. at ¶ 6. Eastern further claimed that IFIC attended
proceedings in Allegheny County on Eastern’s petition to confirm and enter
judgment on the arbitration award. Id. at ¶ 5. With respect to IFIC’s
contention that Eastern’s bad faith claim should be dismissed, Eastern
responded that the surety risk undertaking was insurance.
On August 27, 2013, the trial court issued an order on IFIC’s motion for
partial judgment on the pleadings and Eastern’s motion for partial summary
judgment. The court granted IFIC’s motion for partial judgment to the extent
IFIC sought certification for an interlocutory appeal. The trial court, however,
denied IFIC’s motion insofar as it sought the dismissal of Counts 5 and 6,
concluding that IFIC was bound by the arbitration award entered against
Ionadi and that IFIC chose not to participate in the arbitration, despite notice
and opportunity. Trial court Opinion, 8/27/13, at 7-8. The court found that
“the arbitration award entered against Ionadi is ‘at least prima facie evidence
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against [IFIC].” Id. at 8. The trial court denied the motion with respect to
the dismissal of Count 7, bad faith, concluding that the issue had to be further
litigated. With respect to Eastern’s motion for partial summary judgment, the
trial court ordered the disposition thereof be held in abeyance in light of its
decision to certify for interlocutory appeal issues raised in IFIC’s motion for
partial judgment on the pleadings. Id. at 10-11.
IFIC subsequently petitioned this Court for permission to appeal from
the trial court’s August 27, 2013 order. We, however, denied relief. See
Eastern Steel Constructors, Inc. v. Int’l Fid. Ins. Co., No. 81 MDM 2015
(Pa. Super. filed November 8, 2013). On January 22, 2014, the trial court
denied Eastern’s motion for partial summary judgment. In so doing, the court
again reasoned in part that “the arbitration award entered in favor of [Eastern]
and against Ionadi is prima facie evidence against IFIC. Trial Court Opinion,
1/22/14, at 5. The court determined that the arbitration award was not
conclusive evidence against IFIC, and the issue would need to be more fully
developed at trial. Id.
On December 22, 2014, Eastern renewed its motion for partial summary
judgment based on IFIC’s subsequent answers to interrogatories and
subsequent document production. On February 4, 2015, the trial court denied
the motion.
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On March 9, 2015,10 IFIC filed a motion in limine, seeking to exclude
evidence of the arbitration award and the resulting judgment. The trial court,
despite its prior rulings, granted the motion, explaining without citation to any
legal authority:
Ever mindful of the previous rulings of this [c]ourt, after thorough
examination of the Pennsylvania authority, it is clear in this case
that [Eastern] may not rely upon, and not even introduce, the
outcome of the arbitration process. Our fundamental tenants of
due process require that before the [c]ourt will accept and rule on
evidence against any party, that the party has every opportunity
to challenge, and to test, that evidence. Here, that has not been
the case. [Eastern] urges that IFIC was on notice that the
arbitration was to be conducted, but there were conditions and
restrictions placed on IFIC that inclined IFIC to not participate. No
contractual obligation bound [IFIC] to arbitrate, and no role was
played by [IFIC] in the selection of the Arbitrator. Furthermore,
no evidence was introduced or challenged by [IFIC] during the
arbitration process. In fact, this [c]ourt is not aware that [IFIC]
knows anything more about the arbitration than is contained in
the two-page Award dated November 9, 2011.
Equally as significant to this [c]ourt is the fact that [IFIC] cannot
be made to stand in the shoes of [Ionadi], as all evidence is that
Ionadi essentially rolled over for the entry of a “Default Award”
against them. This [c]ourt cannot fathom a trial strategy and
delivery which is available to [IFIC] that would allow it to
effectively demonstrate to any jury that the Award of the
Arbitrator was incorrect, inflated, or in any way improper. If the
Award is introduced to the jury, [IFIC] would be limited to the
barest of collateral attacks on the court-sanctioned citadel of the
arbitration. That outcome offends every sense of due process
known to Pennsylvania law.
The unique facts of this case, together with a dearth of applicable
case law upon which to rely, leave this [c]ourt only to retreat to
the foundational principles of the law. There it finds no basis for
____________________________________________
10 The in limine motion was faxed to and received by the trial court on March
6, 2015, but docketed on March 9.
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allowing [Eastern] to introduce the Award which would
conclusively prejudice the open minds of any jury toward the
outcome determined by the Arbitrator. [IFIC] would be left
without any realistic opportunity to scrub that conclusion from the
jurors’ minds.
Trial Court Opinion, 3/9/15, at 1-2. This order was a marked departure from
the court’s previous rulings on this issue.
On March 10, 2015, the matter proceeded to a jury trial, where Eastern
attempted to introduce into evidence a white binder full of Tinney’s delivery
tickets that, according to IFIC, previously had not been produced in discovery
or identified as trial exhibits. On March 11, 2015, the trial court recessed the
trial to permit IFIC time to review the Tinney documents and conduct
additional discovery. See Trial Court Order, 3/11/15. On March 16, 2015,
the trial court issued an order reserving for trial the issue of attorneys’ fees
under Section 6.3 of the Payment Bond. See Trial Court Order 3/16/15. The
court explained that it would be able to determine at trial whether IFIC failed
to discharge its obligations under the Payment Bond. Id.
On May 7, 2015, IFIC moved for partial summary judgment as a matter
of law with respect to Counts 4 and 7 of the amended complaint. Eastern, in
Count 4, sought recovery for attorneys’ fees and costs under Section 6.3 of
the Payment Bond and Count 7, as noted earlier, was the bad faith claim.
Eastern’s claims for indemnification and bad faith centered on IFIC’s alleged
failure to promptly and timely comply with the requirement of Section 6 of the
Payment Bond. In support of its summary judgment motion, IFIC argued that
the evidence “demonstrates an absence of any genuine issue of material fact
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as to IFIC’s compliance with Section 6 of the [Payment] Bond.” IFIC Summary
Judgment Motion, 5/7/15, at ¶ 7. Subsequently, the trial court declared the
previously commenced jury trial to be a mistrial when Eastern dismissed its
counsel. See Trial Court Order, 6/1/15.
Following a hearing, the trial court granted IFIC’s motion for partial
summary judgment. With respect to Count 4, the trial court concluded that
IFIC satisfied its obligations under Section 6 of the Payment Bond by
investigating “the claim promptly and notif[ying] Eastern [] within sixty days
that it was disputing the entire amount of the claim due to lack of sufficient
documentation to substantiate the claim[.]” Trial Court Opinion, 10/15/15, at
5-6. This ruling was a reversal of its March 16, 2015 order on this issue. On
the bad faith claim (Count 7), the trial court revisited its prior rulings and
concluded that Section 8371 “was not intended to include surety bonds.” Id.
at 7.
On September 21, 2016, IFIC filed a motion in limine to exclude delivery
tickets. In particular, IFIC challenged the admissibility of Tinney’s delivery
documents that had been proffered during the March 2015 trial. IFIC
contended that the delivery tickets were inadmissible because they were
irrelevant, could not be authenticated properly, and constituted hearsay.
Following a hearing, on April 11, 2017, the trial court denied the motion. The
court concluded that the delivery tickets were relevant insofar as they created
a presumption that the rebar delivered to the Project by Tinney was shipped
for installation. Moreover, the court determined that the delivery tickets were
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self-authenticating documents and satisfied the business records exception to
the rule against hearsay. See Trial Court Opinion, 4/11/17, at 5.
On August 4, 2017, Eastern filed a motion in limine regarding the
arbitration award and resulting judgment. Eastern argued that, despite the
trial court’s ruling that the arbitration award should not be shown to the jury,
Eastern—to prove its claims—had to “introduce evidence and argue in the
presence of the jury about matters relating to the arbitration other than the
result, including Eastern’s initiation of arbitration against Ionadi, the conduct
of the arbitration and the fact that the arbitration proceeded to a result.”
Eastern’s Motion In Limine, 8/4/17, at ¶ 9 (emphasis added). On the same
day, Eastern also filed a motion in limine to exclude expert testimony of Jim
Bertoline on the amount of rebar installed at the Project. After yet another
hearing, the trial court granted Eastern’s motion on September 21, 2017. The
court explained that Eastern’s motion in limine
seeks clarification of this [c]ourt’s ruling barring reference to the
arbitration award. At trial, [Eastern] wishes to inform the jurors
that an arbitration took place, as arbitration is required by the
contract between [Eastern] and Ionadi. [Eastern] believes that if
this fact is wholly excluded from trial, the jurors may believe that
[Eastern] did not abide by the contract.
Although the [c]ourt agrees that excluding all mention of the
arbitration could cause jurors to speculate, the [c]ourt also
recognizes that allowing the parties to reference the outcome or
the conduct at arbitration would likely prejudice the minds of the
jurors. Therefore, the [c]ourt will draft a brief statement to be
read by the [c]ourt during the trial which will address the binding
arbitration clause of the [Subcontract].
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Trial Court Opinion, 9/21/17, at 3. Accordingly, the trial court ordered that it
would provide the following instruction to the jury:
There has been testimony relating to a [Subcontract] between
[Eastern] and [Ionadi]. One provision of this contract requires
disputes between the parties to be resolved through binding
arbitration. I am instructing you now that [Eastern] has fully
complied with the arbitration provision. You are not to use this
information for any purpose other than to decide whether Eastern
has met its obligations under the [Subcontract].
Id. at 5.11 On the issue of expert testimony, the trial court concluded that
Mr. Bartoline’s testimony was relevant to present IFIC’s theory of payment to
Eastern—that is, the amount of rebar installed at the Project instead of the
amount of rebar shipped. Id. at 2-3. The court, therefore, denied Eastern’s
motion on this issue.
At some point in 2018, the trial judge, Judge Thomas King Kistler,
retired from the bench and this matter was reassigned to Judge Brian K.
Marshall. On August 17, 2017, Eastern sought reconsideration of the trial
court’s March 9, 2015 order issued by Judge Kistler, granting IFIC’s motion in
limine seeking to exclude evidence of the arbitration award and judgment
thereon. On December 10, 2018, the trial court (Judge Marshall) denied
Eastern’s reconsideration motion. The court concluded that it was divested of
jurisdiction to entertain the motion because it was patently untimely.
____________________________________________
11The trial court clarified that its March 9, 2015 order remained in effect and,
as a result, the parties were prohibited from introducing evidence from the
arbitration, the arbitration award, or the final judgment.
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Furthermore, the trial court determined that the coordinate jurisdiction rule,12
which provides that judges of coordinate jurisdiction should not overrule each
other’s decisions, prevented it from revisiting Judge Kistler’s March 9, 2015
order and that Eastern failed to establish an exception to that rule. See Trial
Court Opinion, 12/10/18, at 2-5.
The parties thereafter filed additional motions in limine,13 which the trial
court, following a hearing, disposed of on February 3, 2020. First, relying on
its September 21, 2017 ruling, the trial court denied Eastern’s motion with
respect to the amount of rebar installed. The trial court then denied, for a
second time, IFIC’s in limine motion relating to delivery tickets, concluding
the issue previously was litigated and decided on April 11, 2017. The trial
court also denied IFIC’s motion in limine to preclude prejudgment interest,
concluding that in the event of a jury verdict in favor of Eastern, Eastern was
entitled to prejudgment interest from the time it notified IFIC of Ionadi’s
default—that is May 5, 2010—until the time of mistrial, which occurred on May
28, 2015. The court concluded that any delay in proceeding to trial since May
28, 2015 was mostly attributable to Eastern. See Trial Court Opinion, 2/3/20,
at 14. The trial court lastly denied IFIC’s in limine motion seeking to limit
____________________________________________
12 See Zane v. Friends Hospital, 836 A.2d 25, 39 (Pa. 2003) (explaining
that the coordinate jurisdiction rule “provides that judges of coordinate
jurisdiction should not overrule each other’s decisions.”).
13Eastern sought to exclude evidence relative to the amount of rebar installed,
and IFIC again sought to exclude the delivery tickets, preclude recovery of
prejudgment interest, and limit Eastern’s recovery.
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Eastern’s recovery. IFIC argued that during the aborted March 10, 2015 trial,
Eastern’s President Judith Striebinger stated that the total amount due to
Eastern was $220,029.09. Id. at 14. Yet, as IFIC pointed out, during a
subsequent pretrial statement, dated March 11, 2019, Eastern claimed it was
owed $253,758.72. Id. IFIC asked the court to consider as a judicial
admission the testimony of Ms. Striebinger and bind Eastern thereto. Eastern
countered that because Ms. Striebinger had not been cross-examined, her
statement on the amount owed should not be viewed as a judicial admission.
The trial court agreed, concluding that her testimony was incomplete and
offered during an aborted trial. Id. at 15-16.
Retrial commenced on February 24, 2020 and, following close of the
evidence, the trial court, among other things and without any objection,
instructed the jury on the nature of suretyship as follows:
In this case, [Ionadi] and IFIC are separate legal entities who
entered into a surety contract. A surety contract is a direct and
original undertaking under which the surety provider, IFIC, is
primarily and jointly liable with the principal, Ionadi. The
liability of IFIC as surety is coextensive with that of Ionadi as
principal. And accordingly, the surety, IFIC, is bound to perform
whatever may be legally required of its principal, Ionadi.
N.T., Trial, 2/26/20, at 201 (emphasis added). The jury found in favor of
Eastern. Id. at 213. On the verdict slip, the jury answered “no” to the
question of whether Eastern was paid in full by Ionadi under the Subcontract
for Eastern’s work on the Project. See Verdict Slip, 2/27/20, at ¶ 1. Having
answered “no,” the jury then proceeded to the second and final question on
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the verdict slip, which required the jury to state the amount of money that
Eastern was entitled to be paid for its work, over and above the amount that
Eastern already has been paid. The jury determined that amount to be
$253,788.06, which essentially mirrored the damages claimed under the
Subcontract and awarded in arbitration. Id. at ¶ 2.
On March 2, 2020, IFIC filed a motion for post-trial relief, which it
amended on March 9, 2020. On March 6, 2020, Eastern also moved for post-
trial relief and sought to mold the verdict to include prejudgment interest.
Following a hearing, the trial court denied the parties’ respective post-trial
motions on July 1, 2020, but on July 17, 2020, molded the verdict to
$330,427.70, reflecting an award of prejudgment interest of six percent (6%)
per annum from May 5, 2010 until May 28, 2015.14 On July 23, 2020, the
molded verdict was reduced to judgment in favor of Eastern. The parties
timely cross appealed.15 On September 9, 2020, the trial court directed the
parties to file a Pa.R.A.P. 1925(b) statement of errors complained of on
appeal. Both parties complied. In response, the trial court issued a Pa.R.A.P.
1925(a) opinion.
II. DISCUSSION
On appeal, Eastern presents the following issues for our review.
____________________________________________
14 This reflected a decrease of $103,061.42 from the November 9, 2011,
arbitration award.
15On September 11, 2020, we sua sponte consolidated Eastern’s appeal
docketed at 998 MDA 2020 and IFIC’s cross-appeal docketed at 1034 MDA
2020.
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I. As to the AAA arbitration award and judgment obtained by
Eastern against . . . Ionadi, did the trial court commit an
abuse of discretion and/or error of law as it relates to the
following:
a. Granting IFIC’s motion in limine to preclude entry into
evidence the arbitration award at time of trial.
b. Ruling that the arbitration award and judgment were not
binding and conclusive upon IFIC.
c. Refusing to allow into evidence exhibits of the arbitration
award and entry of judgment obtained against [Ionadi].
d. Fail[ing] to give a jury instruction that the arbitration
award and judgment obtained against [Ionadi] was
conclusive as against [IFIC].
II. Did the trial court commit an abuse of discretion and/or
error of law by granting IFIC’s motion for partial summary
judgment and thereby denying Eastern the right to collect
attorney’s fees and costs required by the [Subcontract]?
III. Did the trial court commit an abuse of discretion and/or
error of law by instructing the jury that it could not award
counsel fees to Eastern as required by the [Subcontract]?
IV. Did the trial court err in limiting Eastern’s prejudgment
interest to 6% and ignoring the [Subcontract’s] provision for
18% interest?
V. Did the trial court commit an error of law and/or abuse of
discretion in granting partial summary judgment as to
Eastern’s bad faith claim?
Eastern’s Brief at 7-8 (unnecessary capitalizations omitted).
On cross-appeal, IFIC argues only that the trial court misinterpreted “the
payment terms of [the Subcontract] for steel reinforcing material installation
services to permit [Eastern] to recover payment for quantities of steel
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reinforcing material without introducing any evidence of ‘actual bar weights
as shipped.’” IFIC’s Brief at 3.
A. Eastern’s Appeal
1. The Effect of the Arbitration Award Upon IFIC As Surety
We begin by addressing Eastern’s first claim on appeal, consisting of
multiple subparts, raised principally within the context of the trial court
deciding motions in limine, by answering the following question, as the answer
to this question will be dispositive of the remaining subparts. Whether IFIC,
as surety under the Payment Bond, is bound by an arbitration award entered
and reduced to judgment against its principal, Ionadi, when IFIC, as surety,
had full knowledge of the proceeding and an opportunity to participate in and
defend against the arbitration claims.
With respect to motions in limine, our standard of review is well-settled.
A motion in limine is used before trial to obtain a ruling on the
admissibility of evidence. It gives the trial judge the opportunity
to weigh potentially prejudicial and harmful evidence before the
trial occurs, thus preventing the evidence from ever reaching the
jury. A trial court’s decision to grant or deny a motion in limine is
subject to an evidentiary abuse of discretion standard of review.
Questions concerning the admissibility of evidence lie within the
sound discretion of the trial court, and we will not reverse the
court's decision absent a clear abuse of discretion. An abuse of
discretion may not be found merely because an appellate court
might have reached a different conclusion, but requires a manifest
unreasonableness, or partiality, prejudice, bias, or ill-will, or such
lack of support so as to be clearly erroneous.
In addition, to constitute reversible error, an evidentiary ruling
must not only be erroneous, but also harmful or prejudicial to the
complaining party.
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Parr v. Ford Motor Co., 109 A.3d 682, 690-691 (Pa. Super. 2014) (citations
omitted), appeal denied, 123 A.3d 331 (Pa. 2015), cert. denied, 136 S. Ct.
557 (2015).
Eastern argues that the trial court abused its discretion in prohibiting it
from introducing and admitting at trial evidence of the arbitration award and
the resulting judgment. Eastern contends that the arbitration award rendered
in its favor was conclusive and enforceable against IFIC. Thus, according to
Eastern, the jury should have been made aware of its existence. We agree.
We begin our analysis by examining the terms of the Payment Bond and
Subcontract. Under the terms of the Payment Bond, IFIC as surety, and
Ionadi as Contractor and Principal, jointly and severally, bound themselves to
PSU to pay for all labor, materials, and equipment furnished for use in
performance of the Construction Contract. Payment Bond ¶ 1. Under this
provision, both Ionadi and IFIC agreed to be individually and/or jointly
responsible for the entire payment obligation. Accordingly, anyone claiming
payment from Ionadi could pursue payment in a joint action against Ionadi
and IFIC, or by separate actions against any one of them. 16 With respect to
the Owner, the bond obligation would be deemed null and void if Ionadi made
payment, directly or indirectly, for all sums due Claimants. Id. at ¶ 15.
____________________________________________
16 Black’s Law Dictionary defines “[J]oint and several liability” as “[l]iability
that may be apportioned either among two or more parties or to only one or
a few select members of the group, at the adversary’s discretion.” Black’s
Law Dictionary (11th ed. 2019).
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“Claimants” are defined under the Payment Bond to include anyone, like
Eastern, who has a direct contract with Ionadi.
With respect to “Claimants”, the Payment Bond separately provides that
any obligation to make payment under the bond will be deemed null and void
if the Contractor promptly makes payment, directly or indirectly, for all sums
due. Id. at ¶ 3. Because the Payment Bond does not define “all sums due”
to a subcontractor, logically, all sums due by necessity must be determined
under the terms of the Subcontract that detail the work to be performed by a
subcontractor and how it is to be paid. To this end, the Subcontract confirms
that Eastern, as a subcontractor to Ionadi, shall be a direct obligee of Ionadi’s
Payment Bond assuring the Subcontract. Subcontract at ¶ 23. As important,
the Subcontract provides that any claim, dispute, or legal action between
Eastern and Ionadi must be resolved by means of binding arbitration through
the American Arbitration Association (“AAA”) within the nearest jurisdictional
boundary where the project is located. Id. at ¶ 25. Reading the Payment
Bond and Subcontract together, it is clear that IFIC’s liability for payment to
Claimants, like Eastern, is co-extensive with that of Ionadi, its principal, to
make payment to Eastern as provided for under the Subcontract, for work
performed in connection with Ionadi’s Construction Contract with PSU. The
question presently is whether IFIC, as surety, is liable for all sums due to a
subcontractor like Eastern, as determined by arbitration, the method made
mandatory to resolve payment claims under the terms of the Subcontract.
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Our research reveals that many cases that examined this issue begin
with citation to the more than century old case of United States ex. Rel.
Fidelity Nat’l Bank v. Rundle, 107 F. 227 (9th Cir. 1901). There, the court
held that a judgment against the principal upon a bond is not admissible in
evidence against a surety, except, first, in cases where the bond is conditioned
to pay such judgment as may be rendered against the principal, and, second,
as is pertinent here, in cases in which the sureties have had the opportunity
to appear and defend in the action against the principal. Id. at 229. In
Pennsylvania, the case of Conneaut Lake Agricultural Association v.
Pittsburgh Surety Company, 74 A. 620 (Pa. 1909), precedent cited by
Eastern and almost as old as Rundle, is consistent with the rule announced
in Rundle that a judgment against the principal is admissible against a surety
where the surety had the opportunity to appear and defend in the action
against the principal.17 Conneaut Lake, however, is more definitive as to the
binding effect of a judgment entered against a principal on its surety.
Conneaut Lake holds that an award entered against a contractor is
conclusive and binding upon the surety where the surety was notified of
____________________________________________
17 Contrary to the trial court’s statement that there exists a dearth of
applicable case law upon which to rely on this issue, a substantial body of case
law does in fact exist nationally that reveals a majority rule as to whether a
surety is bound by an arbitration award entered against its principal. See
Arbitration and the Surety, American Bar Association Book Publishing
(January 1, 2020); Chapter 6, Res Judicata and Collateral Estoppel Effect Upon
the Surety; 50 State Survey, Bryan and Springer.
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the time and place of the arbitration hearing and chose not to appear and
defend when it had the opportunity to do so.18
In Conneaut Lake, an agricultural association entered into contracts
for construction of a race track. The plaintiff’s contract for which the
defendant contractor/principal provided surety required all disputes to be
referred to a duly authorized and appointed arbitrator—an engineer—whose
decision would be final and binding. Id. at 621-22. The surety was notified
of the time and place of the arbitration hearing. Id. at 621. Despite this
notice, neither the surety nor the contractor appeared for arbitration. Id. The
arbitrator rendered an award in favor of the plaintiff, who subsequently
brought suit to recover the amount awarded under arbitration from the surety.
Id. The trial court found in favor of the plaintiff. On appeal, our Supreme
Court rejected the surety’s contention that it was not bound by the arbitration
award. It reasoned:
The award was conclusive and binding upon it. The appellant
was notified of the time and place of hearing before the arbitrator.
It did not, apparently, see fit to appear and defend when it had
the opportunity to be heard. It is not now in a position to raise
questions which if they had any merit should have been raised by
its principals, the contractors, and which were clearly within the
____________________________________________
18 IFIC attempts to dismiss the precedential effect of Conneaut Lake upon
the basis of its age and that the case has not since been cited by any
Pennsylvania court. Brief for Appellee/Cross-Appellant at 34-35. Regardless,
and more importantly, the holding in Conneaut Lake has not been overruled
or disavowed by our Supreme Court and hence, remains good and binding law
upon this Court. See Commonwealth v. Millner, 888 A.2d 680, 693 (Pa.
2005) (explaining that the jurisprudential task of the Superior Court is to
effectuate the decisional law of the Supreme Court, not to restrict it through
curtailed readings of controlling authority.).
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jurisdiction of the arbitrator chosen by the parties to the contract
to decide all matters of difference between them connected in any
way with the work.
Id. at 622 (emphasis added).
Here, as detailed earlier, Eastern exercised its rights under the
Subcontract to collect the amounts due from Ionadi by proceeding to AAA
arbitration. Consistent with the terms of the Subcontract, Eastern sought to
recover contract damages, as well as attorneys’ fees and interest as provided
for under the Subcontract. The arbitrator rendered an award for $433,489.42
in favor of Eastern. The award included attorneys’ fees, interest, and
penalties, as provided for in the Subcontract. IFIC was aware of the
arbitration and related proceedings at all times. Yet, IFIC failed to facilitate
Ionadi’s defense or participate in the arbitration despite invitation to do so.19
Following the issuance of the arbitration award, neither Ionadi nor IFIC sought
to vacate the award. See Ass’n of Contracting Plumbers of City of New
York, Inc. v. Loc. Union No. 2 United Ass’n of Journeymen &
Apprentices of Plumbing & Pipefitting Indus. of U.S. & Canada, 841
F.2d 461, 466 (2d Cir. 1988) (holding that nonparties to arbitration may attack
the award where the award “affects the [nonparties] in a sufficiently
substantial and concrete matter”). Moreover, neither Ionadi nor IFIC
objected—before the bankruptcy court—to Eastern’s request to lift the
____________________________________________
19Tellingly, IFIC compelled Tinney, the reinforcing steel supplier, to arbitration
when Tinney had filed a civil action against Ionadi for nonpayment related to
the Project in Allegheny County.
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automatic stay so that Eastern could confirm the award. After the bankruptcy
court granted relief to Eastern, Eastern petitioned the Allegheny County trial
court to confirm the arbitration award and enter judgment thereon. Both
Ionadi and IFIC participated in this proceeding. After the trial court confirmed
the $433,489.42 arbitration award, inclusive of attorneys’ fees, interest and
penalties, and reduced it to judgment against Ionadi, neither Ionadi nor IFIC
appealed the judgment. The record in this case, without any doubt,
demonstrates that IFIC was kept appraised of all critical proceedings with
respect to the arbitration and confirmation of the arbitration award and
judgment rendered in favor of Eastern. Despite every opportunity to do so,
IFIC intentionally chose not to participate in the arbitration or any other
proceeding against its principal—Ionadi—for which it was jointly and severally
liable for all sums due Eastern.
Under these circumstances, and consistent with Conneaut Lake, given
IFIC’s notice of and opportunity to participate in the arbitration proceedings
that determined the sums due Eastern under its Subcontract, we agree that
the arbitration award was enforceable against and binding upon IFIC who
stood in the shoes of Ionadi, its defaulting principal. Our conclusion in this
regard is consistent with most jurisdictions that hold a surety is conclusively
bound by an arbitration award against its principal if the surety had notice and
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a reasonable opportunity to participate in the arbitration.20 The trial court’s
grant of IFIC’s motion in limine to preclude entry into evidence the arbitration
award was an error of law. The arbitration award entered in favor of Eastern
and against Ionadi was entitled to be given binding and conclusive effect in
Eastern’s suit against IFIC.
We are aware of other authority that would render the arbitration award
as only prima facia evidence against the surety. See P.R. Post Corp. v.
Maryland Cas. Co., 271 N.W.2d 521, 525 (Mich. 1978); Escambia
Chemical Co. v. Rocker , 184 S.E.2d 31, 36 (Ga. App. 1971); Lake Cnty.,
supra; Seaboard Surety v. Westwood Lake, Inc., 277 F.2d 397, 404 (5th
____________________________________________
20 See Rundle, supra; Arbitration and the Surety, supra at n.17; See
also Isidor Paiewonsky Assocs., Inc. v. Sharp Properties, Inc., 998 F.2d
145, 155 (3d Cir. 1993) (applying Pennsylvania law, the court held that an
arbitrator’s award was binding against a non-party whose interests were
“directly related, if not in fact congruent” to those of a party in the arbitration
proceeding); Sheffield Assembly of God Church, Inc. v. Am. Ins. Co.,
870 S.W.2d 926, 932 (Mo. App. 1994); Rashid v. Schenck Const. Co., Inc.,
438 S.E.2d 543, 546-47 (W. Va. 1993); U.S. for Use & Ben. of WFI
Georgia, Inc., v. Gray Ins. Co., 701 F. Supp.2d 1320, 1329 (N.D. Ga.
2010); Seaboard Sur. Co. v. Bd. of Chosen Freeholders of Warren Cnty.,
537 A.2d 310, 314 (N.J. Super. App. Div. 1988); Kidder Elec. of Fla., Inc.
v. U.S. Fid. & Guar. Co., 530 So.2d 475, 476-77 (Fla. Dist. Ct. App. 1988);
U.S. ex rel. Frontier Constr., Inc. v. Tri-State Mgmt. Co., 262 F. Supp.
2d 893, 897 (N.D. Ill. 2003); U.S. ex rel. MPA Constr., Inc. v. XL Specialty
Ins. Co., 349 F. Supp. 2d 934, 942 (D. Md. 2004); U.S. for Use & Benefit
of Skip Kirchdorfer, Inc. v. M.J. Kelley Corp., 995 F.2d 656, 661 (6th Cir.
1993); Fewox v. McMerit Constr. Co., 556 So.2d 419, 425 (Fla. Dist. Ct.
App. 1989), Raymond Int’l Builders, Inc. v. First Indem. of Am. Ins. Co.,
516 A.2d 620, 622 (N.J. 1986); Frederick v. United States, 386 F.2d 481,
485 n. 6 (5th Cir. 1967); Lake Cnty. v. Massachusetts Bonding & Ins.
Co., 75 F.2d 6, 8 (5th Cir. 1935); Von Eng’g Co. v. R.W. Roberts Constr.
Co., 457 So.2d 1080, 1082 (Fla. Dist. Ct. App. 1984); First Mobile Home
Corp. v. Little, 298 So.2d 676, 682–83 (Miss. 1974).
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Cir. 1960); Hopkins v. Nat’l Sur. Co., 97 So. 297, 298 (La. 1923); Becker
v. Koza, 53 F.R.D. 416, 421 (D. Neb. 1971). Before concluding otherwise,
the trial court in this case as well, concluded that the arbitration award entered
against Ionadi was at least prima facia evidence against IFIC. Trial Court
Opinions, 8/27/13, at 7-8 and 1/22/14 at 5. The line of authority represented
by these cases, as well as the trial court’s earlier rulings, are inconsistent with
our precedent. We reject their holding that an arbitration award may only be
considered as prima facia evidence of the amount owed by a surety. Admitting
an arbitration award as only prima facia evidence, as opposed to being
conclusive and binding, does not give full effect to the finality objectives to be
achieved by submitting claims to binding arbitration, a policy fully endorsed
by our state and federal laws. See Taylor v. Extendicare Health Facilities,
Inc., 147 A.3d 490, 501-502 (Pa. 2016) (noting the federal policy favoring
arbitration where arbitration agreements are valid, irrevocable and
enforceable, save upon such grounds as exist at law or in equity for the
revocation of any contract); accord Provenzano v. Ohio Valley General
Hosp., 121 A.3d 1085, 1096 (Pa. Super. 2015) (noting that Pennsylvania
endorses the nationally liberal policy favoring arbitration agreements); see
also 42 Pa.C.S.A. § 7303 (“A written agreement to subject any existing
controversy to arbitration or a provision in a written agreement to submit to
arbitration any controversy thereafter arising between the parties is valid,
enforceable and irrevocable, save upon such grounds as exist at law or in
equity relating to the validity, enforceability or revocation of any contract.”).
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A holding that only considers an arbitration award as prima facia evidence
against a surety, impermissibly gives the surety, who stands in the shoes of
its principal, a second bite at the proverbial apple to challenge sums due a
claimant already determined under binding arbitration. See Commonwealth
v. Turner, 17 A.2d 352, 354 (Pa. 1940) (noting a plaintiff should not be
compelled to prove a second time facts upon which a surety’s liability is
predicated, facts which already have been established in an action against the
principal). Nor do such holdings give full effect to the surety’s obligation to
be and remain jointly and severally liable for all sums due a bond claimant.
Permitting a surety to require a claimant to litigate a second time those sums
due from its principal essentially severs the joint and several liability aspects
of a suretyship and destroys the coextensive contractual liability for payment
that is the hallmark of a surety payment bond.
Indeed, it is long settled that a surety’s liability for contract damages is
coextensive with the liability of its principal. See White v. Commonwealth,
39 Pa. 167, 176 (1861) (noting that “the obligation of the surety was
coextensive with that of his principal”); see also Plummer v. Wilson, 185
A. 311, 313 (Pa. 1936) (“We have often said that it is a fundamental incident
of suretyship that upon default a surety and his principal are both primarily
liable upon the original undertaking.”). Where there is a surety relationship,
an obligee is entitled to performance of a contractual duty by the principal or
alternatively, if the principal defaults, by the principal’s surety. Kiski Area
Sch. Dist. v. Mid-State Sur. Corp., 967 A.2d 368, 371–72 (Pa. 2008)
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(citations omitted). The surety stands in the shoes of the principal and must
complete any obligation due the obligee at the time of default. Id. at 372.
It would be inconsistent to recognize that a surety is obligated to fulfill a
principal’s defaulted obligation, but at the same time hold that the surety is
entitled to independently challenge that obligation after the sums due from its
principal are established under binding arbitration to which it had ample notice
and opportunity to participate in those proceedings.21
For the same reasons, we reject IFIC’s opening position that since it is
not a party to the Subcontract that compels arbitration between Ionadi and
Eastern, it cannot be bound by an arbitration award against its principal. The
Third Circuit case of Allstate Settlement Corp. v. Rapid Settlements, Ltd.,
559 F.3d 164 (3d. Cir. 2009), cited by IFIC for the proposition that an
arbitration award rendered in an arbitration between consenting parties
cannot bind a party that had not agreed to arbitration, is clearly inapposite.22
Although that case did recognize a number of exceptions under Pennsylvania
law whereby non-signatories to an arbitration agreement may be bound by an
arbitration award, the issue of a surety’s liability for an arbitration award
entered against its principal where the surety is jointly and severally liable
____________________________________________
21The issue as to whether a surety may raise defenses personal to it in an
arbitration proceeding and how that may affect its obligation to its principal is
not presently before this Court.
22 Similarly, we reject the trial court’s view that IFIC cannot be bound to the
arbitration award, since it was not a party to those proceedings, as that view
ignores completely the terms of the Payment Bond, the Subcontract, and the
inherent nature of a suretyship long established under our law.
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with its principal was not within the facts before that court. In fact, that case
did not concern a suretyship at all.
Citing McIntyre Square Associates v. Evans, 827 A.2d 446 (Pa.
Super. 2003), IFIC nonetheless contends that the arbitration award can have
no effect on it because the award was entered by default. We agree the case
is instructive, but contrary to IFIC, we believe the case supports, rather than
contradicts, our conclusion that the arbitration award here was conclusive and
binding. In McIntyre, this Court was asked to address both procedural and
substantive issues in an action against sureties on a commercial lease
following the default of, and confession of judgment against, the tenant on
the lease. The tenant, Professional Male, had executed a lease and a
subsequent extension with the property management agent, First City, acting
on behalf of the lessee McIntyre Square. The lease was guaranteed by various
Professional Male owners, officers, and an owner spouse. When Professional
Male defaulted on the lease, First City confessed judgment against
Professional Male and then subsequently sought to enforce that judgement as
binding and conclusive upon the guarantors. The trial court declined to give
preclusive effect to First City’s confessed judgment against Professional Male
for First City’s damages under the guaranty agreement, thus allowing the
guarantors to re-litigate damages. After trial, the damages awarded First City
were substantially less than those entered by confession. First City appealed.
To resolve whether the confessed judgment was conclusive as to the
guarantors, we first distinguished the line of cases—belonging to a narrow
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category of disputes concerning sureties on official or “good faith,” bonds—
upon which First City relied. Those bonds assure the performance of official
or fiduciary duties and, regarding such bonds, we noted a long line of cases
from this Commonwealth that support the contention a surety is bound by a
determination of the principal’s liability, a proposition not generally applicable
to all sureties. Id. at 456.23 Our review of extant cases, however, suggested
that where a surety had no right to defend, as in the case of a confessed
judgment, or potentially in the case of a default judgment, the judgment
against the principal was not binding on the surety. Id. at 457. In particular,
we noted the case of Giltinan v. Strong, 64 Pa. 242 (1870), wherein our
Supreme Court held that a judgment recovered against a tenant for rent is
not evidence against the surety on the lease where the surety had no
opportunity to defend. Giltinan was cited later for support in Thommen v.
Aldine Trust Co., 153 A. 750 (Pa. 1931). There, the plaintiff and her husband
jointly started a company. She left the company, and later sued her husband’s
estate to make payments guaranteed by him in the event the company
defaulted on payments due under her noncompete agreement with the
company. The Court held that she could not use her prior successful judgment
against the company wherein the estate had no notice or ability to defend
____________________________________________
23Sureties on official or fiduciary bonds are liable because, by the nature of
the bond relationship, the sureties submit to the acts of the principal and to
judgments against the principal. McIntyre, 827 A.2d at 457.
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against the estate. Thommen, 153 A. at 752. Upon further review, we
ultimately held that
[E]xcept where the surety agreement concerns an official or
other fiduciary bond, or where the agreement explicitly
states otherwise, a default or confessed judgment obtained
against the principal in the underlying action is not evidence
of liability in an action against the surety, unless, in the
underlying action, the surety had an opportunity to
defend.
McIntyre, 827 A.2d at 459 (emphasis added). Because the guarantors did
not have an opportunity to defend, we held that the trial court correctly
prohibited the admission of the confessed judgment against Professional Male
as evidence of the guarantors’ liability in the action by First City against them.
In contrast to McIntyre, instantly, IFIC, as surety, was given every
opportunity to defend against Eastern’s claim for all sums due. It chose not
to do so. On this critical fact, the result in McIntyre is distinguishable from
the present case, but its statement that a default is not binding on the surety,
unless the surety has an opportunity to defend, supports our conclusion that
the arbitration award was conclusive and binding on IFIC. To the extent
Eastern’s arbitration award may be considered a default judgment against
Ionadi,24 we hold nonetheless, that it is conclusive and binding upon IFIC
____________________________________________
24 As the record reveals, although Ionadi participated in pre-trial conferences
before arbitration it failed to appear for the proceedings. Nevertheless, the
arbitrator required Eastern to set forth its proofs to establish Ionadi’s liability
for the sums claimed and awarded. Eastern thereafter petitioned the common
pleas court to enter the arbitration award as a judgment against Ionadi. We
(Footnote Continued Next Page)
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because IFIC was given every opportunity, as surety jointly and severally
liable with Ionadi, to defend against Eastern’s claim. Although not discussed
by the McIntyre Court, coincidentally, the same result in fact was reached in
Conneaut Lake where the surety was held liable for an arbitration award in
favor of plaintiff and against the principal contractor where after notice,
neither the contractor nor the surety appeared for arbitration.
IFIC lastly contends that the arbitration award cannot be enforced
against it because its liability is not coextensive with that of Eastern.
Specifically, IFIC contends that it is not liable for an award that included
interest, penalties, attorney fees and arbitration costs, because those items
are not expressly provided for under the Payment Bond that limits claims only
to labor, material and equipment. Our review compels an opposite conclusion.
Although it is true that Section 1 of the Payment Bond provides that IFIC
and Ionadi “jointly and severally” bind themselves to the Owner to “pay for
labor, materials and equipment furnished for use in the performance of” the
Contract, this same limiting language does not appear with respect to
obligations due subcontractor Claimants like Eastern. Section 2 of the
Payment Bond provides that with respect to the Owner, the bond obligation
shall be deemed null and void if the Contractor “[p]romptly makes payment
____________________________________________
need not resolve whether under these circumstances the arbitration award
qualifies as a default judgment in light of our conclusion that the award is
conclusive and binding upon IFIC as surety where it had every opportunity to
defend against Eastern’s claim.
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. . . for all sums due Claimants[.]” Payment Bond, 10/29/08, at ¶ 2. With
respect to Claimants, Section 3 of the Payment Bond obligates IFIC to make
payments for “all sums due” Claimants, and if done so, the bond obligation
shall be deemed null and void. Further support for the non-limiting language
under Sections 2 and 3 is found within Section 9 of the Payment Bond that
provides the Owner shall not be liable for payment of any costs or expenses
of any Claimant under the bond, thereby suggesting that in addition to
bonding labor, materials and equipment, costs and expenses may be within
the surety’s bonded obligations. In Pennsylvania, corporate surety bonds are
construed strictly in favor of an obligee. See Barratt v. Greenfield, 9 A.2d
188, 189 (Pa. 1939) (noting that “in cases of corporate sureties the bond is
to be strictly construed in favor of the oblige[e.]”).
Regardless of how the various terms of the Payment Bond are
reconciled, it is sufficient for our present purposes that Sections 2 and 3 of
the Payment Bond obligate Eastern, and hence, IFIC as surety, to pay “all
sums due” Claimants. By necessity, reference must be made to the
Subcontract to determine what “sums due” are owed from Ionadi to Eastern,
because the Payment Bond does not define the scope and manner of payment
between Ionadi as the Contractor and Eastern as the subcontractor. While
the Payment Bond assures the Owner payment will be made for all “labor,
materials and equipment” for use in the Project, as stated earlier, the Payment
Bond also separately provides that respect to Claimants like Eastern, the bond
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obligation will be deemed null and void if Ionadi promptly makes payment,
directly or indirectly, for “all sums due” to Eastern.
The question naturally arises whether a distinction should be drawn
between Section 1 of the Payment Bond that assures the Owner that payment
will be made for all “labor, materials and equipment”, and Sections 2 and 3
that obligate Eastern and IFIC to promptly make payment to Eastern for all
“sums due”. We believe the answer to this question may in large part be
answered by comparing the principal purposes for which an owner and a
subcontractor are bonded.
Under our Mechanic’s Lien Law of 1963 (“Lien Law”), 49 P.S. § 1101 et
seq., every improvement and the estate or title of the owner in its property is
subject to a lien for the payment of all debts due by the owner to the
contractor or by the contractor to any of his subcontractors for “labor or
materials furnished in the erection or construction, or the alteration or repair
of the improvement.” 49 P.S. § 1301.25 Certainly, it is by no coincidence that
Section 1 of the Payment Bond is written to protect an owner, such as PSU,
from claims that may be lienable against its property under the Lien Law. This
interpretation is consistent with Section 15 of the Payment Bond that
expressly provides that the bond shall include without limitation in the terms
____________________________________________
25Equipment reasonably necessary for performance of work is included within
the definitions of “Contractor”, “Subcontractor”, “Materials”, and “Erection,
construction, alteration and repair” under the Lien Law. See 49 P.S. § 1201
(4) (5) (7) and (12), respectively.
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“labor, materials or equipment”, all other items for which a mechanic’s lien
may be asserted. Sections 2 and 3 however, assure payment for “all sums
due” Claimants, which, by the breadth of this language, extends beyond those
limited items that may be liened against an owner’s property. 26 It makes
commercial sense to include within “all sums due” to a subcontractor all
amounts due under a subcontractor agreement. It is the subcontract that
defines the scope and manner of payment between a contractor and its
subcontractor. A subcontractor as well requires assurance of payment
because it is not paid by the owner, but rather by the contractor who has
contractual privity with the owner who provides payment for all work to the
contractor.27 A payment bond is meant to protect subcontractors from the
risk of non-payment as well. The items for which a contractor must make
payment to its subcontractors may not always be limited to those items that
may be lienable against an owner’s property. Therefore, we conclude that
since Section 1 does not reference the same payment assurance language as
Sections 2 and 3, that the bonded items under these provisions are not
coextensive. While an owner’s interest is protection against liens upon its
____________________________________________
26We do not mean to imply that “all sums due” to a claimant never are the
same as that for which an owner is bonded. A bond could be written to provide
as much, and whether that is acceptable to a subcontractor is a matter left to
the parties.
27 This especially is so for a subcontractor in instances where a lien cannot be
lodged against an owner if an owner already has made full payment to the
contractor. See 49 P.S. § 1301(b) (a subcontractor does not have the right to
a lien with respect to an improvement to a residential property if: (1) the
owner or tenant paid the full contract price to the contractor.”).
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property, a subcontractor’s interest is in getting paid as provided for under its
subcontract. Our conclusion that “all sums due” to Eastern that are assured
under the Payment Bond include those sums due under its Subcontract is
supported further by our case law.
In Fort Pitt Bridge Works v. Continental Casualty Company, 240
A.2d 493 (Pa. 1968), Fort Pitt Bridge Works delivered to A.J. Marsolino
structural steel to be used by him in the erection of a bridge on a state
highway. Marsolino executed a labor and material bond in favor of the
Commonwealth to secure payment of the materials furnished and prosecution
of the work. Continental Casualty Company was the surety on the bond. Fort
Pitt notified Continental that Marsolino defaulted in payment and then made
demand on the surety for the amount due from Marsolino, including interest.
When the surety refused, Fort Pitt sued in the name of the Commonwealth for
the use of Fort Pitt. At trial, a principal issue was whether Fort Pitt could
collect from the surety the amount of interest that accrued prior to notice to
the surety of any default by Marsolino. The surety maintained the bond only
covered amounts due for materials furnished by Marsolino and it could only
be held liable for interest from the date demand was made against it for
payment. The trial court, however, held the surety liable for the entire amount
due, including interest prior to notice and demand. Our Supreme Court
acknowledged that it might seem inequitable and harsh to compel the surety
to pay for interest that accrued prior to receiving notice that its principal
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defaulted, yet such was the obligation the surety contracted to assume. The
bond given by the surety in that case provided:
The principal and surety hereby jointly and severally agree
with the obligee herein that every person . . . who, whether
as subcontractor or otherwise, has furnished material or
supplied or perform labor or rental equipment in the
prosecution of the work as above provided . . . and who is
not been paid in full therefore, may sue in assumpsit on this
Additional Bond . . . for such sum or sums as may be
justly due him, them or it, and have execution thereon.
Id. at 369. (Italics in original, emphasis added). The Court held that the
“sum justly due” Fort Pitt included all interest. The interest was an integral
part of Marsolino’s debt for the material furnished, which material was covered
by the bond. The fact the bond did not specifically refer to interest was not
controlling. What was controlling was that the surety agreed to make good
the “sum justly due” by the defaulting principal. Id. at 370. If the surety
wished to curtail the amount of interest which would accrue, it easily could
have inserted the requirement of notice of the principal’s default in the bond.
Fort Pitt was followed in Roman Mosaic and Tile Co. v. Carney, 729
A.2d 73 (Pa. Super. 1999), wherein the surety argued that the trial court erred
in awarding interest on the ground that the terms of its bond limited its
obligation to “materials furnished, equipment or machinery rented, services
rendered by public utilities, and labor supplied or performed in the prosecution
of the work.” In rejecting this contention, we held that the surety’s assertion
ran counter to well-established case law. Referencing Fort Pitt, we stated
that where a surety bond permits recovery by a contractor for “such sums as
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may be justly due,” pre-judgment interest may be molded into a verdict.
Carney, 729 A.2d at 79. The point being that assurance for payment for “all
sums due” may be more expansive than just assurance for labor, material,
and equipment.
In this case, IFIC’s assurance to provide payment to Eastern for “all
sums due” is to provide payment for all that is due under the Subcontract.
Eastern’s claim for interest, penalties, attorneys’ fees, and arbitration costs
are a part of “all sums due” as these items are included under paragraph 23
of the Subcontract. Specifically, Eastern reserved the right to charge interest
at one and one-half percent (1½%) monthly and to recover any costs
incurred, including any money, or consequential damages, legal fees, and
costs of any kind to pursue Eastern for nonperformance.
Our conclusion also is consistent with analogous cases decided under
the federal Miller Act,28 that have held contractors and their sureties are
obligated to pay amounts, such as interest and attorney fees, if such “sums
due” are included within the subcontractor or supplier contracts. In United
States ex rel. Maddux Supply Co., v. St. Paul Fire Marine, 86 F.3d 332,
334 (4th Cir. 1996), the general contractor Hill Construction Corp., was sued
____________________________________________
28 Under the Miller Act, 40 U.S.C. §§ 270(a), prime contractors for the
construction, alteration, or repair of Federal buildings are required to furnish
a payment bond for contracts in excess of $100,000. Other payment
protections may be provided for contracts between $30,000 and $100,000.
The payment bond is required as security for the protection of those supplying
labor and/or materials in the construction of public buildings. See
https://www.gsa.gov/cdnstatic/miller_brochure.pdf.
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under the Miller Act by a supplier, Maddux Supply Co., relating to a
construction project Hill performed for the federal government. Pursuant to
the Miller Act, the supplier Maddux brought suit against Hill, Chapman Electric
Co., the subcontractor to whom Maddox provided materials, and the surety
St. Paul Fire and Marine Insurance Co., to collect the deficiency of what was
still owed for materials supplied to Chapman and hence, the project. After a
bench trial, the court ordered Hill and St. Paul to pay Maddux $30,225.66,
plus interest and attorneys’ fees. Hill and St. Paul appealed challenging, inter
alia, the award of interest and attorney fees. The Fourth Circuit affirmed the
award to include costs and attorneys’ fees, even though the Miller Act, by its
own terms, does not provide for these items. In affirming, the Court stated:
Several circuits have held, however, that interest and attorney’s
fees are recoverable if they are part of the contract between the
subcontractor and supplier. The rationale of those decisions—that
attorney’s fees and interest may be “sums justly due” under the
Miller Act—is consistent with this court’s rulings that contractors
and their sureties are obligated to pay amounts owed by their
subcontractors to suppliers. Accordingly, if Maddux [supplier]
was entitled to interest and attorney’s fees under its
contract with Chapman [subcontractor], it may recover
interest and fees from Hill [contractor] and St. Paul
[surety].
St. Paul Fire Marine, 86 F.3d at 336. (Citations omitted; emphasis added).
Taken together, our precedent and analogous precedent fully support the
assurance under the Payment Bond for interest and all costs incurred by
Eastern, as provided for under the Subcontract, to pursue all sums due related
to Eastern’s performance under the Subcontract. If IFIC intended to limit
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sums due under its Payment Bond, it could have done so, assuming any such
limitation would not be contrary to applicable law.
In its October 15, 2015 opinion and order deciding IFIC’s motion for
partial summary judgment, the trial court, relying on its previous order of
March 15, 2015,29 citing J.C. Snavely & Sons, Inc. v. Webb M&E, Inc., 594
A.2d 333 (Pa. Super. 1991), concluded that IFIC was not obligated to pay the
1.5% monthly interest charge contained in the Subcontract between Ionadi
and Eastern because IFIC was not a party to that Subcontract. The court
determined its conclusion was consistent with In Reliance Universal, Inc.
of Ohio v. Ernst Renda Contracting Co., 454 A.2d 39, 45 (Pa. Super.
1982), in which we observed that it is the language of the bond that
determines the surety’s obligations to a subcontractor and not the terms of
the subcontract agreement. We find the trial court’s reliance on Snavely and
Reliance to be misplaced.
In Snavely, the subcontractor sought to recover from the contractor’s
surety finance charges and attorneys’ fees as part of the “sums as may be
justly due”30 under the bond agreement. The bond defined a claimant as a
subcontractor who provided labor, material or both for performance of the
____________________________________________
29 This order apparently was dictated into the record on the second day of the
first trial that was aborted. See Trial Court Opinion, 7/1,20, at 3.
30 Apparently not aware of our Supreme Court’s decision in Fort Pitt, the
Snavely court stated that its research failed to uncover any cases in which
the phrase “sums… justly do” had been interpreted within the context of a
surety bond.
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contract, and provided further, that after a period of 90 days after the last of
work or labor was done or performed, or materials furnished, that a claimant
may sue on the bond for those sums as may be justly due the claimant. We
rejected the subcontractor’s claim for finance charges and attorney’s fees
under the bond because the bond did not allow for recovery of those items as
sums justly due. We found that under the language of the surety bond, it only
guaranteed payment for cost of labor and material used. We held that when
viewing the language of the bond in question there was no clear indication
necessitating a finding that plaintiff was entitled to be paid finance charges
and attorneys’ fees under that labor and material bond agreement.
By comparison, IFIC’s surety bond is not as limited in its language as
the bond in Snavely. Here, the Payment Bond not once, but twice obligates
IFIC to pay a claimant for “all sums due” without reference or limitation to
labor, materials and equipment. As we previously stated, a determination as
to all sums due must by necessity refer to the Subcontract. Thus, our
conclusion here is not inconsistent with Snavely and in fact, holds true to the
language of the Payment Bond that assures payment for all sums due. See
St. Paul Fire Marine.
IFIC is bound by the $433,489.42 arbitration award, as confirmed and
reduced to judgment, as that award represents the “sums due” Eastern as
assured under the Payment Bond. Thus, because IFIC was bound by the
amounts established at arbitration, the trial court abused its discretion and
committed an error of law in granting IFIC’s motion in limine precluding
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Eastern from introducing and admitting at trial evidence of the arbitration
award and the resulting judgment that were conclusive and binding upon IFIC.
2. Attorneys’ Fees
We next address Eastern’s claim that the trial court erred in granting
IFIC’s motion for partial summary judgment denying Eastern’s claim for
attorneys’ fees under the Subcontract for its efforts to enforce the arbitration
award and resulting judgment against IFIC.31 Eastern argues that Paragraph
23 of the Subcontract, to which it maintains IFIC was a joint and several
obligor, states that “legal fees, and costs of any kind to Subcontractor for non-
performance, will be the Contractor’s and its sureties [sic] responsibility.”
We review a challenge to the entry of summary judgment as follows:
[We] may disturb the order of the trial court only where it is
established that the court committed an error of law or abused its
discretion. As with all questions of law, our review is plenary.
In evaluating the trial court’s decision to enter summary
judgment, we focus on the legal standard articulated in the
summary judgment rule. See Pa.R.C.P. No. 1035.2. The rule
[provides] that where there is no genuine issue of material fact
and the moving party is entitled to relief as a matter of law,
summary judgment may be entered. Where the nonmoving party
bears the burden of proof on an issue, he may not merely rely on
his pleadings or answers in order to survive summary judgment.
Failure of a non-moving party to adduce sufficient evidence on an
issue essential to his case and on which he bears the burden of
proof establishes the entitlement of the moving party to judgment
____________________________________________
31 Eastern abandons on appeal its demand for attorneys’ fees under Section 6
of the Payment Bond. Eastern states in its reply brief that it seeks attorneys’
fees only under the Subcontract. See Eastern’s Reply Brief at 21-22 (“The
issue as to attorneys’ fees regarding any failure of IFIC to timely respond is
not the issue briefed by Eastern).
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as a matter of law. Lastly, we will review the record in the light
most favorable to the nonmoving party, and all doubts as to the
existence of a genuine issue of material fact must be resolved
against the moving party.
E.R. Linde Const. Corp. v. Goodwin, 68 A.3d 346, 349 (Pa. Super. 2013)
(citation omitted; brackets in original).
“The general rule is that the parties to litigation are responsible for their
own counsel fees and costs unless otherwise provided by statutory authority,
agreement of parties, or some other recognized exception.” Cher-Rob, Inc.
v. Art Monument Co., 594 A.2d 362, 363 (Pa. Super. 1991) (citations
omitted). Thus, if a recognized exception applies, and the trial court denied
a request for attorneys’ fees, then this Court will reverse only if the trial court
abused its discretion. See Hart v. O’Malley, 781 A.2d 1211, 1216 (Pa.
Super. 2001).
At the outset, we must distinguish Eastern’s entitlement to attorneys’
fees incurred to pursue Ionadi’s payment obligation under the Payment Bond
from its claim to recover attorneys’ fees to enforce IFIC’s surety obligation to
pay the arbitration award and judgment against its principal, Ionadi.
Our holding that IFIC is liable for the contractual interest and attorneys’
fees as provided for under Paragraph 23 of the Subcontract and included
within the arbitration award, is based upon our conclusion that IFIC, as a
surety, is jointly and severally liable to Eastern for “all sums due” for Ionadi’s
failure to make payment to Eastern. As we explained earlier, this non-limiting
language includes those sums due under the Subcontract, because IFIC stands
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in Ionadi’s shoes as to Ionadi’s payment obligation to Eastern. This, however,
cannot be conflated with the attorneys’ fees incurred to sue IFIC for breach of
its obligation to provide payment under the bond. While IFIC is jointly and
severally liable to provide payment for Ionadi’s payment obligation as per the
terms of the Payment Bond, this same obligation does not exist as between
Ionadi and IFIC for any default or breach by IFIC, or in simple terms, for IFIC’s
nonperformance. The Payment Bond assured payment by Ionadi to Eastern.
It did not assure against any breaches or defaults by IFIC. If Eastern wanted
to include under the Payment Bond “all sums due” to enforce IFIC’s surety
obligation, it needed to expressly state so in the Subcontract. Had it done so,
fees to enforce the surety obligation may have been included within those
“sums due” under the Payment Bond.32
We find support for our conclusion that Eastern cannot recover its costs
and fees to pursue IFIC to fulfill its surety obligation in analogous case law
regarding indemnity obligations.33 In Boiler Engineering and Supply
Company, Inc. v. General Controls, Inc., 277 A.2d 812 (Pa. 1971), we
____________________________________________
32 We emphasize again that the amounts due under the Subcontract are
included within the amounts assured under the bond, because the bond’s
reference to assuring payment “for all sums due” Eastern is not limited by any
bond language and therefore, the determination of “all sums due” here must
be made by reference to the Subcontract. See St. Paul Fire Marine.
33Although different, an agreement to indemnify is similar to a surety contract
in that an indemnity contract is “an obligation resting upon one person to
make good a loss which another has incurred or may incur by acting at the
request of the former, or for the former’s benefit.” Potts v. Dow Chemical
Co., 415 A.2d 1220, 1221 (Pa. Super. 1980).
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affirmed the entry of judgment by the trial court in favor of Norina G. Burbage,
administratrix of the estate of Edward Burbage, against the Boiler Engineering
and Supply Company, Inc. (Boiler), and in favor of Boiler against General
Controls, Inc. (General) for indemnification. Edmund Burbage (decedent) was
killed when a boiler exploded. The boiler, manufactured by Boiler, contained
a valve manufactured by General. Boiler joined General as an additional
defendant on the alternative theories that General was liable, jointly or
severally to Burbage, or that, in the event Boiler was held liable, General was
liable by way of indemnity to Boiler. The jury returned a verdict against Boiler
and in favor of Burbage in the amount of $70,000.00 and in favor of Boiler
and against General for indemnification in the amount of $70,000.00.
Subsequently, Boiler’s insurance carrier paid $12,500 to Boiler’s legal
counsel for their services in representing Boiler both at the trial and appellate
level. Boiler (on behalf of its carrier) then filed a complaint against General
for indemnification of reasonable counsel fees and costs incurred to pursue
the indemnity obligation owed by General to Boiler. In reversing this Court,34
our Supreme Court acknowledged that the vast majority of jurisdictions
adhere to the rule that a nominal indemnitee may recover attorneys’ fees and
costs along with the actual judgment against the indemnitor, but only those
expenses engendered by the defense litigation and not that portion allocable
____________________________________________
34The Supreme Court disagreed with our disposition that the fees incurred by
the insurance company were not the obligation of the insured and therefore,
could not be pursued in a suit by the insured to recover fees against the
indemnitor.
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to the indemnification litigation may be recovered. The rationale for this rule
was artfully stated by the Second Circuit Court of Appeals as follows:
Indemnity obligations, whether imposed by contract or by law,
require the indemnitor to hold the indemnitee harmless from costs
in connection with a particular class of claims. Legal fees and
expenses incurred in defending an indemnified claim are one such
cost and thus fall squarely within the obligation to indemnify.
Consequently, attorney’s fees incurred in defending against
liability claims are included as part of an indemnity obligation
implied by law . . . and reimbursement of such fees is presumed
to have been the intent of the draftsman unless the agreement
explicitly says otherwise . . . . As stated by the Fifth Circuit, “[t]his
rule simply gives effect to the very nature of indemnity, which is
to make the party whole.” Such reasoning does not apply to
fees and expenses incurred in establishing the existence of
an obligation to indemnify, since such expenses are not by
their nature a part of the claim indemnified against. Rather,
they are costs incurred in suing for a breach of contract, to
wit, the failure to indemnify. As such, fees and expenses
incurred in establishing the indemnity obligation fall within
the ordinary rule requiring a party to bear his own
expenses of litigation[.]
Peter Fabrics, Inc. v. S.S. Hermes, 765 F.2d 306, 316 (2d Cir. 1985)
(citations omitted) (emphasis added). We find the same logic persuasive
here. The fees incurred by Eastern to enforce IFIC’s surety obligation are not
a part of the amounts assured by IFIC under the Payment Bond to step into
Ionadi’s shoes to provide payment for Ionadi’s payment obligations. The fees
now claimed by Eastern are attributable to its efforts to pursue IFIC to
establish its obligation for payment of the arbitration award; fees not assured
under the Payment Bond. We therefore affirm that part of the trial court’s
grant of partial summary judgment rejecting Eastern’s claim for attorney’s
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fees incurred to pursue IFIC for breach of its surety obligation to provide
payment of the arbitration award. We however, reverse that part of the trial
court’s judgment denying recovery of attorney’s fees to Eastern to pursue
Ionadi for all sums due under the Subcontract.
3. Interest
Like its claim for attorneys’ fees, Eastern argues that it is entitled to the
contractually agreed interest rate of 1.5% per month as provided for under
Paragraph 23 of the Subcontract on its award against IFIC and that the trial
court erred in awarding only the statutory prejudgment rate of interest of 6%
per annum. In response, IFIC repeats its position that its liability is dictated
by the provisions of the Payment Bond and not the Subcontract, and that it
was within the trial court’s discretion to determine the amount of time to
award the statutory rate of interest.
We reject Eastern’s claim that it is entitled to contractual interest under
Paragraph 23 of the Subcontract to pursue IFIC for the same reason we
concluded Eastern is not entitled to attorneys’ fees to enforce IFIC’s surety
obligation under the Subcontract. The payment terms of the Subcontract may
determine all sums due Eastern from Ionadi for which IFIC, as surety, is jointly
and severally liable, but the same cannot be said for interest due Eastern to
pursue collection of the arbitration award from IFIC for breach of its surety
obligations. Rather, Eastern’s entitlement to prejudgment interest, as
determined by the trial court, is as provided for under 41 P.S. § 202, that
provides for 6% interest if a rate is not otherwise specified.
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Our review of an award of pre-judgment interest is for abuse of
discretion. Cresci Constr. Servs., Inc. v. Martin, 64 A.3d 254, 258 (Pa.
Super. Ct. 2013). “A court has discretion to award or not award prejudgment
interest on some claims, but must or must not award prejudgment interest on
others.” Id. at 258 (citing Fidelity Bank v. Com. Marine and Gen.
Assurance Co., 592 F. Supp. 513, 522 (E.D. Pa. 1984) (citations omitted)).
The Restatement (Second) of Contracts § 354, which Pennsylvania follows,
reflects this discretion:
(1) If the breach consists of a failure to pay a definite sum
in money or to render a performance with fixed or ascertainable
monetary value, interest is recoverable from the time for
performance on the amount due less all deductions to which the
party in breach is entitled.
(2) In any other case, such interest may be allowed as
justice requires on the amount that would have been just
compensation had it been paid when performance was due.
Cresci, 64 A.3d at 259, citing Restatement (Second) of Contracts § 354(1)-
(2) (1981); see TruServ Corp. v. Morgan's Tool & Supply Co., 39 A.3d
253 (Pa. 2012). “Section 354 distinguishes between interest due on an
obligation to pay a definite sum, which is recoverable as a matter of right
under Subsection 354(1), and interest on losses incurred as a consequence of
a breach of a promise to pay, which is subject to discretion under Subsection
354(2).” TruServ Corp., 39 A.3d at 264-65. Thus, before awarding
prejudgment interest, the court must identify the nature of the breach.
Cresci, 64 A.3d at 259.
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Presently, the trial court exercised discretion and awarded Eastern
prejudgment interest against IFIC from May 5, 2010 through May 28, 2015,
representing the time from when Eastern submitted its claim to IFIC until the
declaration of the mistrial. Although we conclude the trial court applied the
correct rate of statutory interest, we are constrained to hold that the court
erred in its belief that an award of prejudgment interest and the time for which
prejudgment interest would be awarded was discretionary. Eastern’s suit
against IFIC sought to collect the definite sum awarded Eastern against Ionadi
through arbitration, from IFIC, as surety, in the amount of $433,489.42. The
nature of IFIC’s breach was to pay a definite sum; the arbitration award. The
amount awarded Eastern through arbitration was conclusive and binding upon
IFIC. The award represents a definite sum under Section 354(1) making
interest recoverable from the time payment was due as a matter of right, not
within a court’s discretion. As a result, because the amount due was fixed
and unjustly withheld by IFIC, Eastern was entitled, as of right, to collect
prejudgment interest, as damages, on $433,489.42. The trial court erred both
in its belief that an award of prejudgment interest was discretionary and in its
exercise of discretion to award prejudgment interest for the period May 5,
2010 through May 28, 2015.35 Eastern was entitled to be awarded
prejudgment interest at a rate of 6% per annum from the date of the
____________________________________________
35 Were we to conclude the trial court could exercise discretion, we still would
find an abuse of discretion because some of the time for which the trial court
awarded prejudgment interest included time the arbitrator already awarded
contractual prejudgment interest in its arbitration award.
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arbitration award. See Cotterman v. Allstate Ins. Co., 666 A.2d 695, 701
(Pa. Super. 1995) (post-judgment interest runs from the date of the
arbitration award, not from the date on which the award is confirmed and
judgment is entered by a court). We therefore vacate the trial court’s award
of prejudgment interest and remand for a proper determination of the
prejudgment interest amount due.
4. Bad faith
Lastly, we address Eastern’s claim that the trial court erred in granting
IFIC’s motion for partial summary judgment on the issue of bad faith. Eastern
argues that the term “insurance policy” contained in Section 8371 includes
surety bonds.
As we explained earlier, summary judgment is appropriate only when
the record clearly demonstrates that there are no genuine issues of material
fact, and thus the moving party is entitled to judgment as a matter of law.
Yenchi v. Ameriprise Fin., Inc., 161 A.3d 811, 818 (Pa. 2017). When
considering motions for summary judgment, trial courts must construe all
facts and reasonable inferences from those facts in the light most favorable
to the non-moving party. Id. In so doing, the trial court must resolve all
doubts as to the existence of a genuine issue of material fact against the
moving party and may only grant summary judgment “where the right to such
judgment is clear and free from all doubt.” Id. Appellate courts may reverse
a grant of summary judgment only if there has been an error of law or an
abuse of discretion. Id.- 56 -
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When considering issues of statutory interpretation, the applicable
standard of review is de novo and our scope of review is plenary. Trout v.
Strube, 97 A.3d 387, 389 (Pa. Super. 2014) (citation omitted). In
interpreting a statute, this Court is guided by the Statutory Construction Act
(“Act”) of 1972, 1 Pa.C.S.A. §§ 1501-1991, which provides that “[t]he object
of all interpretation and construction of statutes is to ascertain and effectuate
the intention of the General Assembly.” 1 Pa.C.S.A. § 1921(a). “The clearest
indication of legislative intent is generally the plain language of a statute.”
Walker v. Eleby, 842 A.2d 389, 400 (Pa. 2004). Differently put, a statute’s
plain language generally provides the best indication of legislative intent, and
therefore, statutory construction begins with an examination of the text itself.
A.S. v. Pennsylvania State Police, 143 A.3d 896, 903 (Pa. 2016). Section
1903(a) of the Act provides:
Words and phrases shall be construed according to the rules of
grammar and according to their common and approved usage;
but technical words and phrases and such others as have acquired
a peculiar and appropriate meaning or are defined in this part,
shall be construed according to such peculiar and appropriate
meaning or definition.
1 Pa.C.S.A. § 1903(a). “When the words of a statute are clear and free from
all ambiguity, the letter of it is not to be disregarded under the pretext of
pursuing its spirit.” In re S.T.S., Jr., 76 A.3d 24, 30 (Pa. Super. 2013) (citing
to Section 1921(b) of the Act, 1 Pa.C.S.A. § 1921(b)). Only “[w]hen the words
of the statute are not explicit” may this Court resort to statutory construction.
1 Pa.C.S.A. § 1921(c). Indeed, “[e]very statute shall be construed, if
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possible, to give effect to all its provisions.” 1 Pa.C.S.A. § 1921(a). It is
presumed “[t]hat the General Assembly intends the entire statute to be
effective and certain.” 1 Pa.C.S.A. § 1922(2). Thus, no provision of a statute
shall be “reduced to mere surplusage.” Walker, 842 A.2d at 400. Finally, it
is presumed “[t]hat the General Assembly does not intend a result that is
absurd, impossible of execution or unreasonable.” 1 Pa.C.S.A. § 1922(1).
Section 8371 (bad faith statute), relating to actions on insurance
policies, provides:
In an action arising under an insurance policy, if the court finds
that the insurer has acted in bad faith toward the insured, the
court may take all of the following actions:
(1) Award interest on the amount of the claim from
the date the claim was made by the insured in an
amount equal to the prime rate of interest plus 3%.
(2) Award punitive damages against the insurer.
(3) Assess court costs and attorney fees against the
insurer.
42 Pa.C.S.A. § 8371 (emphasis added).
Eastern asks us to construe broadly the term “insurance policy,” as set
forth in Section 8371, to include surety bonds. As Eastern notes, and we
agree, the issue of whether Section 8371 may be extended to sureties has not
been addressed by a Pennsylvania state appellate court.36 IFIC, however,
____________________________________________
36Neither Eastern nor our research reveals any cases in this Commonwealth
where a bad faith claim under Section 8371 was applied or upheld against a
surety.
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urges us to reject Eastern’s proposed interpretation of Section 8371. In
support, IFIC principally relies upon Superior Precast, Inc. v. Safeco Ins.
Co. of America, 71 F.Supp.2d 438 (E.D. Pa. 1999),37 a case decided by the
United States District Court for the Eastern District of Pennsylvania. We find
the decision persuasive. Like the court in Superior Precast, Inc., we too
conclude that the term insurance policy in Section 8371 does not include
surety contracts and that, as a result, a party protected under a surety bond,
such as Eastern, may not bring a bad faith claim against a surety, such as
IFIC.
Preliminarily, we note that Section 8371 contains penal provisions and
because of those provisions, it must be construed strictly. See 1 Pa.C.S.A.
§ 1928(b)(1); see Freeze v. Donegal Mut. Ins. Co., 603 A.2d 595, 598 (Pa.
Super. 1992) (explaining that “when the statute contains penal provisions,
such provisions must be strictly construed.”) (citation omitted), appeal
denied, 615 A.2d 1312 (Pa. 1992). Specifically, as mentioned, Section 8371
provides for punitive damages, attorneys’ fees, and award of prime rate plus
3% on the amount of the insurance claim. See Pavex, Inc. v. York Fed.
Sav. & Loan Ass’n, 716 A.2d 640, 647 (Pa. Super. 1998) (concluding that
____________________________________________
37As indicated earlier, “[w]hile we recognize that federal district court cases
are not binding on this court, Pennsylvania appellate courts may utilize the
analysis in those cases to the extent we find them persuasive.” Braun v.
Wal–Mart Stores, Inc., 24 A.3d 875, 954 (Pa. Super. 2011) (citation
omitted).
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statutes authorizing attorneys’ fees are penal in nature and must be strictly
construed).
Our General Assembly enacted Section 8371 to curtail certain bad faith
acts by insurers. Ash v. Continental Ins. Co., 932 A.2d 877, 885 (Pa. 2007).
Section 8371, therefore, formally imposed “a duty of good faith on insurers”
based on the General Assembly’s “apparent determination that such a
provision was necessary to deter bad faith.” Id. According to the plain
language of Section 8371, it applies only “[i]n an action arising under an
insurance policy.” 42 Pa.C.S.A. § 8371. Our review of the legislative history
of Section 8371 reveals that the General Assembly did not engage in any
discussions on suretyships or whether it intended to include sureties within
the meaning of the term “insurance policy.” Indeed, “insurance policy” is not
defined in Section 8371. Consequently, we must determine and apply its
ordinary meaning and decide whether the meaning is unambiguous and
subsumes surety contracts.
To determine the ordinary meaning of “insurance policy,” we consult
Black’s Law Dictionary, which defines the term as “[a] contract of insurance.”
Black’s Law Dictionary (11th ed. 2019). The term “insurance” in turn is
defined as “[a] contract by which one party (the insurer) undertakes to
indemnify another party (the insured) against risk of loss, damage, or liability
arising from the occurrence of some specified contingency.” Id. (emphasis in
original). An insurer is “[s]omeone who agrees, by contract, to assume the
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risk of another’s loss and to compensate for that loss.”38 Id. Relatedly, an
insured is “[s]omeone who is covered or protected by an insurance policy.”
Id.
Consistent with the foregoing, our Supreme Court endorsed an
understanding expressed by the United States Supreme Court in Pearlman
v. Reliance Insurance Co., 371 U.S. 132, 140 n. 19 (1962), wherein the
Court noted that “the usual view, grounded in commercial practice, [is] that
suretyship is not insurance.” Foster v. Mut. Fire, Marine & Inland Ins.
Co., 614 A.2d 1086, 1099 (Pa. 1992) (emphasis added). As our Sister Court
explained:
Unlike insurance policies, surety bond premiums are not
determined by the insurer on the basis of loss but rather on the
lender’s evaluation of risk.[39] Premiums are paid not by the
lenders but by the investors; they are paid “up-front” and are not
subject to adjustment. The instruments have no fixed terms and
no right of cancellation or renewal. These factors support the
conclusion that the surety bonds are in the nature of commercial
guarantee instruments rather than policies of insurance.
____________________________________________
38It is possible for an insurance company to engage in non-insurance activities
by providing non-insurance products, such as surety bonds. The mere fact
that an insurance company provides non-insurance products does not convert
such non-insurance products into insurance products.
39 A premium to a surety company is the consideration paid to it for certain
risks it assumes. It earns that premium as long as the risk is still outstanding.
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Grode v. Mut. Fire, Marine & Inland Ins. Co., 132. 196, 213, 572 A.2d
798, 806 (Pa. Cmwlth 1990) (emphasis in original),40 aff’d in part,
remanded in part sub nom. Foster, supra.
Given the ordinary meaning of the term “insurance policy,” and our
Supreme Court’s view that suretyship is not subsumed by the definition of
insurance, we must conclude that fundamental differences naturally exist
between contracts involving insurance and suretyship.41 In this regard, we
note that insurance policies are bilateral contracts where an insurer and its
insured share a direct contractual relationship, and the understanding of that
relationship is that the insurer will compensate the insured for loss or damage
upon proper proof of claim and without resort to litigation. Suretyship
contracts, on the other hand, are tripartite in nature where one party, the
surety, agrees on behalf of another party, the principal, to make whole a
protected party for debts incurred by the other party. See 8 P.S. § 1
(providing that all agreements to answer for the debt of another will be
____________________________________________
40 Although the decisions of the Commonwealth Court are not binding upon
this Court, they may serve as persuasive authority. See Petow v.
Warehime, 996 A.2d 1083, 1088 n. 1 (Pa. Super. 2010) (noting that
decisions of the Commonwealth Court may provide persuasive authority and
that “we may turn to our colleagues on the Commonwealth Court for guidance
when appropriate.”), appeal denied, 12 A.3d 371 (Pa. 2010).
41 As more fully explained below, under Pennsylvania law, a contract that
guarantees the debt of another is a suretyship agreement when the creditor
is entitled to seek payment directly from the guarantor/surety without being
required to first seek payment from the principal debtor. See McIntyre
Square Assoc. v. Evans, 827 A.2d 446, 451 n. 7 (Pa. Super. 2003) (citation
omitted).
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considered a suretyship unless the agreement specifically states otherwise).
These differences between insurance policies and suretyship contracts also
have been recognized in legal treatises.
Insurance is the assumption of another’s risk for profit.
Broadly defined, insurance is a contract by which one party, for a
compensation called the premium, assumes particular risks of the
other party and promises to pay to such other party or his or her
nominee a certain or ascertainable sum of money on a specified
contingency. “Insurance” may also be defined as an agreement
by which one person, for a consideration, promises to compensate
or pay money or its equivalent, or to perform some act of value,
to another on the destruction, death, loss, or injury of someone
or something by specified perils.
....
A suretyship is a three-party relationship where the surety
undertakes to perform to an obligee if the principal fails to do so.
The surety stands in the shoes of the principal and must complete
any obligation due the obligee at the time of default. In
suretyship, the risk of loss remains with the principal while the
surety merely lends its credit so as to guarantee payment or
performance in the event that the principal defaults.
....
The issuance of a surety bond creates a contractual relationship
between the surety and its principal; the contract of suretyship
binds the surety absolutely and unconditionally.
....
Suretyship is not generally considered to be insurance. While
insurance contracts are in many respects similar to surety
contracts, there is a wide difference between the two kinds of
contracts—an insurance contract undertakes to indemnify another
against loss, damage, or liability arising from an unknown or
contingent event whereas a contract of suretyship is one to
answer for the debt, default, or miscarriage of another.
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43 Am. Jur. 2d Insurance § 1 (footnotes omitted); 74 Am. Jur. 2d Suretyship
§§ 1-2 (footnotes omitted). As another well-regarded treatise explained:
The role of the surety is different from that of an insurer because:
1. The surety bond is a financial credit product, not an
insurance indemnity product;
2. The surety has a “contractual” relationship with two
parties that often have conflicting interests, causing
the surety to balance these interests when responding
to claims;
3. The surety bond form customarily is written or
furnished by the obligee rather than the surety;
4. The surety customarily is requested to assure
performance of construction contracts that are
sufficiently large to warrant bonding and typically are
entered into by parties with commercial
sophistication, relative parity of bargaining power and
access to ample legal and technical advice;
5. The bond premium usually is paid by the contractor
to the surety out of the contract price, rather than
directly by the obligee to the surety, although it is not
uncommon for obligees to reimburse contractors for
the premium; and
6. The pricing of the premium by the surety is not
based upon risk of fortuitous loss, but assumes
reimbursement to the surety from the principal and
indemnitors for any loss.
Philip L. Bruner and, Patrick J. O’Connor, Jr., 4A Bruner & O'Connor
Construction Law § 12:7 (Westlaw 2021) (footnotes omitted). As can be seen,
suretyship is very different from insurance. Insurers assume risk on the
assumption that insurance premiums paid will exceed any loss sustained,
whereas sureties attempt to be reasonably certain they will not sustain any
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loss. This is reaffirmed by the fact that a surety generally will not issue a bond
to a principal unless the principal executes an indemnity agreement to
indemnity the surety against any losses the surety may sustain as a result of
a claim on a bond.
Thus, applying strict construction and considering the foregoing
principles, special damages for bad faith under Section 8371 would be
appropriate only in the context of insurance where the parties—the insurer
and the insured—share a direct bilateral relationship. Superior Precast,
Inc., 71 F.Supp.2d at 451-52. However, a surety such as IFIC and a protected
party such as Eastern share no such direct contractual relationship by which
IFIC agreed to pay Eastern. Id. at 452. Similar to Superior Precast, Inc.,
here IFIC’s relationship was with Ionadi and IFIC had agreed to answer only
for those debts to any unrelated party for which Ionadi failed to answer. Id.Logically, therefore, special damages would be inconsistent in the absence of
a direct relationship between IFIC and Eastern. If our General Assembly had
intended to bring about an opposite conclusion, it would have ensured that
suretyship was included in the plain language of Section 8371.
Furthermore, Section 8371 is a statutorily-created tort action. Ash, 932
A.2d at 885. It applies only in the context of insurance, excluding claims for
breach of an ordinary contract, such as surety bonds. Id.; see Superior
Precast, Inc., 71 F.Supp.2d at 452. This exclusion is commensurate with
Pennsylvania law where punitive damages are awarded typically only in tort
actions. Ash, 932 A.2d at 881 (citation omitted). Thus, it would be illogical
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to extend a bad faith action to ordinary contracts. Put differently, because a
surety stands in the shoes of its principal, and an obligee could not have
brought a bad faith claim—attendant with a right to seek punitive damages—
against the principal, it follows that such a cause of action also should be
unavailable against the surety.42 Permitting an obligee to recover punitive
damages against a surety would expose the surety to greater liability than its
principal. This would be incompatible with Pennsylvania law, where “it is
axiomatic that the liability of a surety is not greater than that of a principal.”
McShain v. Indem. Ins. Co. of N. Am., 12 A.2d 59, 61 (Pa. 1940). As the
district court in Superior Precast, Inc. reasoned:
[A surety] should not be subject to either a bad faith claim or
punitive damages simply because [an obligee chooses] to proceed
against it rather than against its principal. The term insurance
policy under [Section] 8371 cannot reasonably be construed to
include surety contracts, because such a construction would
subject [a surety] to greater liability than [its principal] might
otherwise have had, in violation of this principal of suretyship law.
Further, to hold to the contrary would 1) provide [an obligee] with
a windfall based solely on its decision to proceed against [a surety]
rather than [the principal] and 2) provide [the obligee] and other
parties protected by surety bonds with a financial incentive to
proceed against a surety rather than against the principal in
attempting to recover for breach of contract. This would be an
unreasonable result, one the state legislature presumptively did
not intend and one that this court must avoid in construing the
terms of [Section] 8371
____________________________________________
42 A surety may assert any defense of which his principal could take
advantage. Gen. Equip. Mfrs. v. Westfield Ins. Co., 635 A.2d 173, 180
(Pa. Super. 1993) (citation omitted), appeal denied, 644 A.2d 1200 (Pa.
1994).
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Id. at 71 F.Supp.2d at 452-53. Thus, to apply Section 8371 to sureties would
bring about an absurd result and would deviate from the requirement that
Section 8371 be strictly construed. See 1 Pa.C.S.A. § 1922(1) (It is presumed
“[t]hat the General Assembly does not intend a result that is absurd,
impossible of execution or unreasonable.”); see also 1 Pa.C.S.A.
§ 1928(b)(1).
In support of its argument that the term “insurance policy” includes
suretyship, Eastern also points out that under the Unfair Insurance Practices
Act (“UIPA”),43 40 P.S. § 1171.1. et seq., the term insurance policy subsumes
suretyship. See 40 P.S. § 1171.3 (“Insurance policy . . . means any contract
of insurance, . . . suretyship . . . issued, proposed for issuance or intended for
issuance by any person.”). Eastern thus claims that Section 8371 and the
UIPA are in pari materia.
Statutes are considered to be in pari materia when they relate to the
same persons or things, and statutes or parts of statutes in pari materia shall
be construed together, if possible. Allstate Life Ins. Co. v. Com., 52 A.3d
1077, 1080–81 (Pa. 2012); see 1 Pa.C.S.A. § 1932. Courts are required, if
possible, to give effect to each provision or subsection of the statute. Id.;
see 1 Pa.C.S.A. § 1921(a). The pari materia canon of construction is triggered
only if the words of a statute are ambiguous. Our Supreme Court has
____________________________________________
43By way of background, Section 8371 in part was intended to undo the
decision in D’Ambrosio v. Pennsylvania Nat’l Mut. Cas. Inc. Co., 431 A.2d
966, 970 (Pa. 1981), where our Supreme Court declined to recognize a private
cause of action against an insurer for bad faith under UIPA.
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explained that like “all other rules of statutory construction, the necessity of
applying the rule as to the construction of statutes in pari materia exists only
where the terms of the statute to be construed are ambiguous.” Oliver v.
City of Pittsburgh, 11 A.3d 960, 965 (Pa. 2010) (citation omitted).
Here, as determined earlier, the ordinary meaning of the term
“insurance policy” does not include suretyship. Additionally, given the general
distinctions between suretyship and insurance, we do not construe as
ambiguous the term “insurance policy,” “so as to invoke the in pari materia
canon.” Superior Precast, Inc., 71 F.Supp.2d at 454. The district court in
Superior Precast, Inc aptly explained:
[W]here a statutory term is specially defined in one statute but
undefined in a later statute, a court must assume that the
omission was intended by the legislature and that the special
definition applies only to the one statute and not to the latter
statute.[44] The General Assembly provided in the UIPA a special,
broad definition of insurance policy, one expressly including within
it contracts of suretyship, but left that term undefined in [Section]
8371. This court will presume that omission was intentional and
that the broader definition of insurance policy is limited to the
UIPA only. Therefore the ordinary meaning of insurance policy,
recognizing the wide difference between insurance and
suretyship, controls the construction of [Section] 8371.
Id. (internal citations and quotation marks omitted; footnote added).
Accordingly, upon careful review of the entire record, viewed in the light most
____________________________________________
44 Where the legislature includes specific language in one section of a statute
and excludes it from another section, the language may not be implied where
excluded. Fonner v. Shandon, Inc., 724 A.2d 903, 907 (Pa. 1999).
“Moreover, where a section of a statute contains a given provision, the
omission of such a provision from a similar section is significant to show a
different legislative intent.” Id.- 68 -
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favorable to Eastern as the non-moving party, we agree with the trial court
that Section 8371 does not apply to suretyships and, without legislative
amendment of Section 8371, we may not reach a contrary result.
B. IFIC’s Cross-Appeal
In its cross-appeal, IFIC raises a single issue: whether the trial court
erred in interpreting the Subcontract for steel reinforcing material installation
services to permit Eastern to recover payment for quantities of this material
without introducing evidence of “actual bar weights as shipped.” This issue
was part and parcel of the arbitration proceedings which resulted in the
$433,489.42 award in favor of Eastern. Because we already have concluded
that this award is conclusive and binding on IFIC, we need not address this
cross-claim further. A common law arbitration award, such as that found in
this case, is not reviewable on the basis of error of law or fact by the arbitrator.
Runewicz v. Keystone Insurance Co., 383 A.2d 189 (Pa. 1978). The
setting aside of an award is proper only on a showing of denial of a hearing or
fraud, misconduct, corruption, or similar irregularity leading to an unjust,
inequitable, or unconscionable award. Id.; 42 Pa.C.S.A. § 7341. Therefore,
IFIC is not entitled to retry this issue in Eastern’s separate suit to enforce
IFIC’s surety obligation. The determination as to how payment was to be
contractually made for bar weight was an issue within the scope of the
arbitration that may not now be contested.
III. CONCLUSION
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In summary, we have concluded that the trial court erred in denying
Eastern’s motion in limine to admit the arbitration award entered in its favor
as conclusive and binding upon IFIC as surety to Ionadi in Eastern’s action to
collect this award against IFIC. The Payment Bond assured payment to
Eastern of “all sums due” under its Subcontract with Ionadi. IFIC, as surety,
is jointly and severally liable with Ionadi for all sums due Eastern and
therefore, was conclusively bound to the arbitration award, as it had full notice
and opportunity to participate in those proceedings. While Eastern may
recover as part of all sums due attorney’s fees incurred in connection with its
action against Ionadi, it is not entitled to an award of attorneys’ fees to pursue
IFIC because the Subcontract did not provide for recovery of fees to enforce
IFIC’s surety obligation and no other authority exists for recovery of these
fees. We further have concluded that the trial court erred in its discretionary
award of prejudgment interest to Eastern on the judgment entered on its suit
against IFIC. The amount due Eastern, the arbitration award, was a definite
sum entitling Eastern to prejudgment interest as of right. Prejudgment
interest is to be awarded at the statutory rate of 6% per annum. We further
affirm the trial court’s entry of partial summary judgment in favor of IFIC
concluding that Eastern may not assert a statutory cause of action for bad
faith under Section 8371, because that statute does not apply to suretyship
contracts. Lastly, IFIC’s cross-claim is dismissed as moot in light of our
disposition of Eastern’s claims.
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The judgment of the trial court is affirmed in part, reversed in part, and
vacated in part. This matter is remanded to the trial court for proceedings
consistent with this Opinion. Jurisdiction relinquished.
Judge Musmanno did not participate in the consideration or decision of
this case.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 09/01/2022
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