SuretyScience - BlogSuretyScience - Bloghttps://www.suretyscience.ai/blogsWed, 08 Apr 2026 13:36:42 -0700http://zoho.com/sites/<![CDATA[AI will transform the future of risk faster than insurers can adapt]]>https://www.suretyscience.ai/blogs/post/ai-will-transform-the-future-of-risk-faster-than-insurers-can-adapt

Futurist Amy Webb

As artificial intelligence reshapes the global economy, insurers face a fundamental shift in how risk is created, measured, and transferred. Speaking at an event hosted by MS Re during Miami Reinsurance Week, futurist Amy Webb outlined why the next decade will demand a new approach to risk.

The session, hosted by MS Re and attended by almost 200 insurance professionals, reflected growing industry focus on how emerging technologies could reshape risk over the coming decade.

Robots with human skin that can feel pain and pleasure, and computers made from human brain cells may sound like something out of a sci-fi movie. But they are already being developed and illustrate how artificial intelligence (AI) could profoundly reshape the insurance industry, according to futurist and founder of FTSG Amy Webb at Miami Reinsurance Week at a talk hosted by MS Re.

As artificial intelligence reshapes the global economy, insurers face a fundamental shift in how risk is created, measured, and transferred. Speaking at an event hosted by MS Re during Miami Reinsurance Week, futurist Amy Webb outlined why the next decade will demand a new approach to risk.

The session, hosted by MS Re and attended by almost 200 insurance professionals, reflected growing industry focus on how emerging technologies could reshape risk over the coming decade.

Robots with human skin that can feel pain and pleasure, and computers made from human brain cells may sound like something out of a sci-fi movie. But they are already being developed and illustrate how artificial intelligence (AI) could profoundly reshape the insurance industry, according to futurist and founder of FTSG Amy Webb at Miami Reinsurance Week at a talk hosted by MS Re.

Webb argued that these convergences could have far-reaching implications for the insurance and reinsurance sector.

The prospect of effectively unlimited labour driven by AI, for example, could undermine demand in labour‑dependent products such as workers’ compensation and employment liability, while accelerating disruption across global reinsurance markets. Insurers must begin to develop products that account for the risks associated with AI and machine-driven labor, transitioning away from models that rely on human workforces.

She also warned of increasing demand for computational power, particularly from AI systems, which creates a strain on resources. Insurers need to start factoring in energy reliability and access to power as key variables in their underwriting models. As locations become critical for AI data centres, understanding the implications for re/insurers is vital for future readiness.

Meanwhile, the emergence of what Webb described as “living intelligence”—systems that blend artificial intelligence with advances in biology—could give rise to entirely new categories of loss, forcing insurers to rethink how responsibility and accountability are defined and to develop frameworks to assess and underwrite these unconventional risks.

Steps to future proof business

Webb urged insurers to take a harder look at their reliance on computing power and factor energy and infrastructure constraints more explicitly into underwriting. She also encouraged reinsurers to start modelling the risks associated with living intelligence, while thinking more broadly about how emerging technologies could reshape their future role in the value chain.

“There are three no-regrets moves you could make right away,” Webb said. “First, partner with reinsurers to begin modelling risk in more experimental ways. You could start codesigning guardrails for emerging technologies. Second, pilot frameworks that evaluate how systems sense, decide, learn, and fail. Third, map the future of your value network.”

]]>Mon, 30 Mar 2026 13:17:23 -0400<![CDATA[Gallagher Expands Wholesale Reach With S Philips Surety Deal And AJG Valuation]]>https://www.suretyscience.ai/blogs/post/gallagher-expands-wholesale-reach-with-s-philips-surety-deal-and-ajg-valuation

The face of the moon was in shadow

Gallagher's Risk Placement Services division has acquired S Philips Surety & Insurance Services.

The deal expands Gallagher's U.S. wholesale brokerage and programs business.

The acquisition strengthens NYSE:AJG's presence in the surety and specialty insurance distribution segment.

For NYSE:AJG, wholesale and program business is an important part of how the company reaches specialty insurance buyers and supports retail brokers. Surety, where S Philips is focused, tends to be relationship driven and often tied to construction and infrastructure activity, which remain key areas for many insurers and intermediaries. This deal reflects a broader industry pattern of large brokers adding specialist wholesalers to broaden product reach and deepen expertise.

Investors watching NYSE:AJG may view this transaction as part of the company’s ongoing use of M&A in core areas rather than a move into entirely new lines. The acquisition adds another distribution platform that may help Gallagher expand its network of client and carrier relationships over time, which is often a focus for brokers aiming to scale specialized segments like surety.

]]>Fri, 27 Mar 2026 14:29:00 -0400<![CDATA[Lexington wins unprecedented $3.9 million fee fight against Great American surety]]>https://www.suretyscience.ai/blogs/post/lexington-wins-unprecedented-3.9-million-fee-fight-against-great-american-surety

It all traces back to a bridge, a termination, and $92 million in claims

An insurer has prevailed over a surety in a first-of-its-kind $3.9 million fight over arbitration defense costs.

The ruling, handed down on March 24, 2026, by Judge Theresa L. Springmann of the United States District Court for the Northern District of Indiana, resolved a question that neither party - nor the court - could find any precedent for: when a liability insurer pays for its insured's defense in an arbitration, and the arbitration panel then awards those same defense costs back to the insured, does the money belong to the insurer or to the surety that also has a claim on the insured's assets?

The answer, at least in this case, is the insurer.

The dispute grew out of the construction of the Cline Avenue Bridge in Lake County, Indiana. Figg Bridge Builders, LLC (FBB) had contracted with Cline Avenue Bridge, LLC (CAB) to design and build the bridge. Great American Insurance Company (GAIC) served as surety on the project, issuing performance and payment bonds on FBB's behalf. Lexington Insurance Company, meanwhile, issued professional liability and general liability policies to FBB covering the same project.

An insurer has prevailed over a surety in a first-of-its-kind $3.9 million fight over arbitration defense costs.

Things went sideways in April 2020 when CAB terminated FBB before the bridge was finished. Over the same period, GAIC had been advancing funds to FBB totaling $14.775 million to support its performance on the project. CAB then filed for arbitration, seeking over $92 million in damages from FBB.

FBB asked Lexington for a defense, and Lexington obliged – retaining two law firms and spending over $4 million defending FBB in the arbitration under a reservation of rights. Lexington drew the line, however, at funding FBB's offensive claims against CAB, taking the position that its policies only covered defense costs. FBB hired its own lawyers for that piece.

The arbitration panel issued its award in July 2022. It found that while FBB had defaulted under the contract, the default did not amount to a material breach – and that CAB's decision to terminate FBB was wrongful. The panel awarded FBB roughly $4.94 million in contract damages and $4.73 million in attorneys' fees. CAB received $3.71 million for defective work and $1.56 million in liquidated damages. After offsetting the two sides, FBB came out ahead with a net award of about $4.4 million.

Here is where it gets interesting for insurance professionals. Of the $4.73 million fee award, $3.91 million represented money Lexington had already spent defending FBB. Both Lexington and GAIC claimed that money was theirs.

GAIC's argument was straightforward: it had a perfected security interest in FBB's rights under the construction contract and in any claims or proceeds arising from it, backed by a UCC filing. It also argued it was entitled to the funds through equitable subrogation as a surety that had advanced millions to its principal. In GAIC's view, its interest came first.

Lexington took a different approach. It argued that the transfer-of-rights provisions in its insurance policies meant that FBB never actually had any right to the $3.91 million in the first place. The policies provided that if Lexington made a payment, it would be subrogated to FBB's rights of recovery. Since Lexington paid the defense costs and the arbitration panel awarded those exact costs back, Lexington was the real party in interest – and FBB was simply the nominal party through which the award flowed.

The court agreed with Lexington. Under both Indiana and Florida law, the entity that actually pays the attorneys' fees for a party to litigation is the real party in interest to any fee award. FBB did not pay the $3.91 million – Lexington did. That meant FBB never had rights in those funds, which in turn meant GAIC's security interest never attached to them. A security interest under the UCC requires that the debtor have rights in the collateral, and FBB simply did not.

The court also found that GAIC's equitable subrogation argument fell short. Every case GAIC cited involved a surety's right to remaining contract funds or retained contract balances – money owed under the construction contract itself. The attorneys' fee award was a different animal. It was not contract funds retained by the project owner; it was a reimbursement of defense costs that Lexington had paid.

GAIC raised several counterarguments on the insurance side. It pointed to the general principle that an insurer cannot subrogate against its own insured, but the court found that inapplicable because Lexington was not seeking recovery from FBB - it was seeking recovery of the arbitration award that FBB had obtained for fees Lexington had paid.

GAIC also argued that Lexington had waived its subrogation rights. The general liability policy did contain a blanket waiver of subrogation endorsement, but it only kicked in where the insured had waived the liability of the party against whom subrogation was sought as part of a written agreement. FBB had not waived CAB's liability - it had, in fact, recovered millions from CAB in the arbitration. The construction contract did require that all insurance policies contain a waiver of subrogation provision, but the actual insurance policies did not contain such a provision, and CAB never enforced that contractual requirement. The court applied the plain language of the policies as written.

On the question of whether FBB had been made whole - a prerequisite for an insurer to exercise subrogation rights under the equitable made-whole doctrine - the court found that FBB had been made whole through the contract damages and the roughly $820,000 portion of the fee award representing fees FBB had paid out of its own pocket. The $3.91 million that Lexington paid was not part of FBB's own recovery.

The court imposed a constructive trust on the $3.91 million held by GAIC, ordering it to convey those funds to Lexington. Allowing GAIC to keep the money, the court reasoned, would amount to unjust enrichment.

Both sides had also accused each other of tortious interference with contract. Neither claim survived. The court found that Lexington was justified in asserting its claim to the fee award given its contractual and legal rights. It also found that GAIC was justified in asserting its own rights given the genuine complexity of the legal questions involved - a tacit acknowledgment that this was a legitimately difficult case, not a frivolous power grab by either side.

Lexington had also asked for prejudgment interest, but the court deferred that question for further briefing, with a schedule running through mid-May 2026. Final judgment has not yet been entered.

The case is worth watching for anyone in the surety or liability insurance space. The core takeaway is that when an insurer pays for a defense and those costs are later awarded back in litigation or arbitration, the insurer - not the insured, and not the insured's surety - may be treated as the real party in interest to those funds, regardless of any competing security interests. That has practical implications for how sureties and insurers structure their agreements and for how they approach recovery when their interests overlap on the same project.

A separate dispute between FBB and Lexington over whether the $1.56 million in liquidated damages is covered by the insurance policies remains pending in federal litigation in Florida, currently stayed for arbitration.

]]>Fri, 27 Mar 2026 14:25:00 -0400<![CDATA[Subcontractor hits Liberty Mutual with bond claim over VA hospital flood]]>https://www.suretyscience.ai/blogs/post/subcontractor-hits-liberty-mutual-with-bond-claim-over-va-hospital-flood

A defective sensor, $414k in damage, and a $7.37 million federal subcontract gone sideways

Liberty Mutual Insurance Company has been named as a defendant in a federal lawsuit tied to unpaid work and flood damage at a San Diego VA hospital.

The case, filed on March 23, 2026, in the United States District Court for the Southern District of California, was brought by ZLM Mechanical, Inc., a Vista, California-based plumbing and HVAC subcontractor. The filing names Liberty Mutual alongside general contractor Shore Herman JV - a joint venture of Herman Construction Group, Inc. and Shore Solutions, Inc. - and Wisconsin-based product manufacturer Badger Meter, Inc.

At the center of the dispute is a $7.37 million subcontract for the Veterans Affairs Hospital Upgrade of Domestic Water project at 3350 La Jolla Village Drive in San Diego. ZLM says it performed the work but was never fully paid, claiming it is still owed $226,685.

Liberty Mutual enters the picture as the surety on a Miller Act payment bond that secured payment to subcontractors and suppliers on the federal project. According to the filing, Liberty Mutual and Shore Herman executed the bond as required under the Miller Act - the federal statute that protects subcontractors on government construction jobs by requiring payment bonds. ZLM alleges the surety has not honored its obligations under that bond.

But the unpaid work is only part of the story.

The filing also describes a product failure that allegedly triggered a flood at the hospital. ZLM purchased an ORP M-Node Sensor manufactured by Badger Meter for use in a water monitoring station at the project. According to the filing, the sensor was properly installed and operating within its intended specifications when it structurally fell apart during normal use. The cause, ZLM alleges, was a manufacturing defect - specifically, a lack of glue and primer in the sensor's joints, which left the device structurally unsound.

The resulting water leak caused $414,863.94 in property damage at the project, according to the filing. Shore Herman has since sought to hold ZLM responsible for that damage under the subcontract, and ZLM in turn is pursuing Badger Meter on theories of strict products liability, negligent products liability, and equitable indemnity. ZLM contends that if it is found liable for the flood damage, Badger Meter should bear 100 percent of the fault.

ZLM is also seeking attorneys' fees from Badger Meter under what is known as the "Tort of Another" doctrine, arguing that the manufacturer's defective product forced ZLM into litigation it would not otherwise have faced.

The case, docketed as No. 3:26-cv-01827, includes six causes of action and a demand for a jury trial. No responsive pleadings or rulings have been entered, and no final determination has been made on any of the claims.

]]>Wed, 25 Mar 2026 14:33:00 -0400<![CDATA[Surety Industry Advances Critical Federal Policy]]>https://www.suretyscience.ai/blogs/post/surety-industry-advances-critical-federal-policy

Washington, D.C., United States, March 03, 2026 (GLOBE NEWSWIRE) -- Largest Legislative Fly-In Brings Industry Message to Congress

The Surety & Fidelity Association of America (SFAA) and the National Association of Surety Bond Producers (NASBP) hosted their most successful Federal Legislative Fly-in to date, bringing a record number of surety professionals from across the country to Capitol Hill to engage lawmakers on the value of surety bonding as a proven safeguard for protecting taxpayer dollars and mitigating risk on federally supported projects.

During meetings with Members of Congress and congressional staff, participants highlighted the proven value of construction surety bonds and focused on building support for the bipartisan Water Infrastructure Subcontractor and Taxpayer Protection Act (S. 570 / H.R. 1285). The legislation would strengthen the Water Infrastructure Finance and Innovation Act (WIFIA) program by requiring appropriate bonding protections for all projects, including public-private partnerships (P3s).

The bipartisan measure was introduced by U.S. Senators Mark Kelly (D-AZ) and Kevin Cramer (R-ND), along with U.S. Representatives Mike Bost (R-IL) and Chris Pappas (D-NH).

Surety professionals held over 155 meetings with policymakers and staff to emphasize the significant cost savings and risk mitigation that surety bonding delivers to taxpayers nationwide. Drawing on data from the Ernst & Young (EY) study, The Economic Benefits of Surety Bonds, industry leaders reinforced that surety bonds safeguard taxpayer dollars; ensure project completion; protect subcontractors, suppliers, and workers; and support long-term economic growth.

“Engagement between SFAA and NASBP members and federal policymakers is central to our advocacy mission, ensuring Congress recognizes the essential role surety bonds play in strengthening and protecting public infrastructure projects,” said Ryan Work, President and CEO of SFAA. “In partnership with NASBP, these discussions on Capitol Hill advance the industry’s priorities and provide lawmakers with clear, actionable insight into the issues impacting the industry.”

“The needs of our nation’s critical infrastructure are clear, and surety bonds provide the guarantee that these projects will be completed while safeguarding taxpayer investments,” said Mark McCallum, CEO of NASBP. “The value of surety is a compelling story—one that every new Congress should understand as it works to advance the country’s infrastructure and economic growth. I appreciate the surety professionals who took the time to share that message directly with their Members of Congress.”

NASBP and SFAA also hosted a briefing featuring insights from U.S. House Transportation and Infrastructure Committee Chairman Sam Graves (R-MO), who outlined Congress’s infrastructure priorities and underscored the indispensable role of surety bonding in delivering projects on time and on budget while protecting taxpayers. In addition, Alex Gleason, SFAA Head of Government Affairs, held a discussion with Nick Christensen, Republican Staff Director of the House Transportation and Infrastructure Committee. The day’s program concluded with a political outlook from Amy Walter, Publisher and Editor-in-Chief of The Cook Political Report, who was introduced by Larry LeClair, NASBP Director of Government Relations.

SFAA and NASBP will continue to engage with Congress, the Administration, and federal agencies to advance policy priorities that strengthen the surety and fidelity industry.

To read the EY report and get additional information on the value of surety, visit www.surety.org/suretyprotects.

The Surety & Fidelity Association of America (SFAA) represents all segments of the surety and fidelity industry. With more than 425 member companies writing 98 percent of surety and fidelity bonds in the U.S., the association promotes the value of surety and fidelity bonding and its vital protections through advocacy, outreach, promotion, and education. SFAA is licensed as a rating or advisory organization in all states, and state insurance departments have designated it as a statistical agent for the reporting of fidelity and surety experience.  www.surety.org

Founded in 1942, the National Association of Surety Bond Producers (NASBP) is the association of and resource for firms employing surety bond producers and allied professionals. NASBP members specialize in providing surety bonds for construction contracts and other purposes to companies and individuals needing the assurance which surety bonds offer. www.nasbp.org

]]>Tue, 03 Mar 2026 20:43:00 -0500<![CDATA[Soft surety markets and rising claims are testing Canada’s infrastructure projects]]>https://www.suretyscience.ai/blogs/post/soft-surety-markets-and-rising-claims-are-testing-canada-s-infrastructure-projects

Soft surety markets and rising claims are testing Canada’s infrastructure projects

Canada’s contractors are gearing up for a flood of federally funded infrastructure work. At the same time, the surety market supporting those projects remains stubbornly soft - even as claims pressure rises.

For Steve Hastings (pictured right), SVP, head of surety for Liberty Mutual Canada, that combination should make brokers and contractors far pickier about whose paper they rely on.

“In times of plenty, we sometimes see some additional surety providers enter the market,” he said. “Some international, some from the US. And these are the ones that you will see… It takes a number of years for the process to play out and for some sizable losses to occur. And they may exit almost as quickly as they came in.”

From the outside, a soft market – more players, more capacity, keener pricing – can look like a win for buyers. Hastings said that view ignores how long it takes for large surety losses to materialize, and how exposed contractors can be when a provider pulls back or leaves the country mid-project.

“It’s currently a tough go for a contractor in Canada,” he noted, pointing to elevated claim activity in the surety sector tied to recent geopolitical and economic uncertainty. “It can be difficult to understand the aggressive facility terms being extended in such a tough environment.”

Aiden Lanzon (pictured left), SVP, Quebec regional leader and construction national practice leader at Liberty Mutual Canada, drew a parallel with other specialty lines that have seen an influx of capacity from players without much loss history.

“These are big projects for insurers,” he said. “At the beginning, you sign the contract. Then the premiums start to flow in. But you’re involved in a project for a long period – six, seven, eight or even nine years. That’s why underwriting is so important.”

In a $115 billion infrastructure cycle, he warned, claims are not a surprise.

“In these large and complex projects, which will likely cost billions, there’re going to be claims,” Lanzon said. “That’s inevitable. But insurers can play a key role in helping prevent the events that cause claims through risk engineering and in effectively managing them.”

When your surety (or insurer) doesn’t go the distance

The risk, Lanzon argued, isn’t just that newer entrants may underprice early projects. It’s that they may not be there when something goes wrong years later – or when a contractor needs to extend or restructure coverage as timelines and costs shift.

“You want to consider whether, as contractors need to understand the pipeline of these projects, you have an insurer who’s going to be there for the long term,” he said. “These projects are so long… A project that says it’s going to take six years is likely going to take seven.”

From the risk‑transfer side, continuity matters when terms need to change.

“Infrastructure projects are long and complex, so they are likely to change as construction progresses. It’s practically a given. That’s why it is so important to work with an insurer committed to the market, with a dedicated and stable team of professionals that can partner with the broker and contractor to refine the risk management program as the project evolves, bringing the right resources and products to bear.”

“Otherwise, you’re introducing a potential risk there,” he added.

He urged brokers and contractors to be “really selective” about which carriers they partner with on multi-year infrastructure work.

“Do they have an established track record of doing big, large projects like this? Because this is big and tempting money,” he said. “A lot of different construction insurers are going to say, hey, I’m willing to do this, I’m willing to do that. The good brokers and the good clients understand who the long-term partners are, the ones who will be able to support them through those projects.”

Claims as an education - if you have the right partner

Lanzon also highlighted the complexity of losses on mega‑projects, where multiple parties, layers of coverage and large dollar figures are the norm.

“The claims process can be arduous, it can be long,” he said. “You want to ensure that you have the insurance companies that are familiar and know how to manage these claims. Because some companies may see an $80 million loss, and start to be concerned.”

By contrast, he noted, Liberty Mutual operates at a global scale.

“Liberty Mutual is a big company. We pay hundreds of millions in claims every single year,” Lanzon said. “Because we play on these large projects around the world, we know how to mitigate and manage the risks associated with them, and how to effectively manage their claims.”

That experience, he argued, turns claims into a learning tool rather than an existential threat.

“As we say on the insurance side, a claim is like an education,” Lanzon said. “Having a dedicated, stable team creates institutional knowledge. Looking across a deep construction book lets your team apply that collective wisdom.”

For Hastings, the message is similar on the surety side: capacity quality matters more than headline price when the cycle turns.

“We’re obviously going to match our construction strategy to our broker partners who share and believe in that same strategy,” he said. “When you get the contractor on board with that as well, it’s a perfect partnership.”

]]>Wed, 25 Feb 2026 23:21:23 -0500<![CDATA[ICISA executive director Wulff set to leave]]>https://www.suretyscience.ai/blogs/post/icisa-executive-director-wulff-set-to-leave

Richard Wulff, the executive director of the International Credit Insurance & Surety Association (ICISA), has said he will leave the organisation at the end of the year. 

“It’s a move made with mixed emotions,” Wulff said in a LinkedIn post. “On one hand, I have a deep love for this business and the people who make it what it is. On the other, I believe the time is right for a fresh perspective to take the helm and continue ICISA’s upward trajectory.” 

He has led the industry association since January 2021, after a long career in the credit insurance sector. 

Wulff got his start in the sector in 1993 with NCM – now Atradius – and later held roles in Germany and India with Munich Re and HDFC Ergo, respectively. 

In 2009 he oined  QBE in Sydney, where he was group general manager for the insurer’s global credit and surety business. 

ICISA, whose membership is comprised of insurers, re/insurers and export credit agencies, celebrates its 100th centenary in 2026.

]]>Tue, 24 Feb 2026 20:22:41 -0500<![CDATA[Surety Bonds Are Not “Insurance” Under 42 Pa. C.S. § 8371; Non-Consenting Sureties Are Not Bound by Subcontract Arbitration Awards]]>https://www.suretyscience.ai/blogs/post/surety-bonds-are-not-insurance-under-42-pa.-c.s.-§-8371-non-consenting-sureties-are-not-bound-by-sub

Surety Bonds Are Not “Insurance” Under 42 Pa. C.S. § 8371; Non-Consenting Sureties Are Not Bound by Subcontract Arbitration Awards

Introduction

Eastern Steel Constructors, Inc. (a subcontractor, “Eastern”) supplied work on a Pennsylvania State University construction project for the general contractor Ionadi Corporation (“Ionadi”). Ionadi furnished a payment bond (the “Payment Bond”) naming International Fidelity Insurance Company (“Fidelity”) as surety and PSU as owner.

A dispute arose over amounts owed to Eastern. Eastern arbitrated against Ionadi under an arbitration clause in their subcontract and obtained an award (the “Ionadi Award”). Eastern then pursued Fidelity under the Payment Bond, raising questions central to modern construction disputes: (1) whether Pennsylvania’s insurance bad faith statute, 42 Pa. C.S. § 8371, applies to sureties; (2) whether an arbitration award obtained against the principal is conclusive and binding against a non-signatory surety; and (3) whether the surety’s bond obligation includes attorneys’ fees and contractual interest embedded in the principal’s subcontract/arbitration award.

The provided text is Justice Brobson’s concurring and dissenting opinion. He joins the Majority only as to the § 8371 issue and dissents as to the arbitration-award, attorneys’ fees, and interest rulings.

Summary of the Opinion

Concurrence: Justice Brobson agrees that 42 Pa. C.S. § 8371 does not apply to surety bonds.

Dissent: He would hold that the Ionadi Award is not conclusive or binding on Fidelity because Fidelity did not agree to arbitrate and the Payment Bond contemplates litigation “in a court of competent jurisdiction.”

Dissent: He would also hold Fidelity is not liable under the Payment Bond for Eastern’s attorneys’ fees incurred in arbitration against Ionadi or for contractual interest at the subcontract rate, because the bond’s obligation is limited to “labor, materials and equipment” (as defined in the bond) and may not be expanded by implication.

Remedy advocated: He would remand for the Superior Court to consider Fidelity’s cross-appeal issue that had been deemed moot once the arbitration award was treated as binding.

Analysis

1) Precedents Cited

Justice Brobson’s analysis is anchored in two lines of Pennsylvania authority: (a) strict construction of surety obligations according to the bond’s text and purpose; and (b) arbitration as a consensual waiver of court access and jury trial.



Suretyship interpretation (bond text controls; no expansion by implication)

Thommen v. Aldine Trust Co., 153 A. 750 (Pa. 1931): cited for the “axiomatic” rule that suretyship contracts are construed according to the parties’ intent, and that liability is enforced “according to its strict terms” and “not to be extended by implication.” Justice Brobson also uses Thommen to emphasize that strict construction is not a license for a “forced and unreasonable construction” aimed at relieving the surety; the aim is fidelity to the instrument’s “true intent and meaning.”

Frederick Inv. Co. v. Am. Surety Co. of N.Y., 169 A. 155 (Pa. 1933): used to support reading the bond in context—“with reference to the circumstances” and any incorporated contract—so that the bond’s purpose is effected without rewriting its obligations.

Commonwealth, to Use of Pa. Mfrs.' Ass'n Cas. Ins. Co. v. Fid. & Deposit Co. of Md., 50 A.2d 211 (Pa. 1947): supplies the key limiting principle: “the obligation of a bond cannot be extended beyond the plain import of the words used,” and courts cannot create obligations “not imposed” by the bond’s terms. Justice Brobson relies on this to reject importing arbitration consequences, attorneys’ fees, or contractual interest into Fidelity’s bond obligation when the bond does not say so.

Arbitration requires agreement; protects the right to jury trial

Lincoln Univ. of Commonwealth Sys. of Higher Ed. v. Lincoln Univ. Chapter of the Am. Ass'n of Univ. Professors, 354 A.2d 576 (Pa. 1976), quoting Schoellhammer's Hatboro Manor, Inc. v. Local Joint Exec. Bd. of Phila., 231 A.2d 160 (Pa. 1967): invoked for the foundational rule that arbitration is a matter of contract; absent an agreement, a party cannot be compelled to arbitrate.

Pisano v. Extendicare Homes, Inc., 77 A.3d 651 (Pa. Super. 2013): cited for the constitutional dimension—compelling arbitration of non-waiving parties infringes jury-trial rights.

Jacob v. Weisser, 56 A. 1065 (Pa. 1904): used to reinforce that an arbitrator’s power must be “clearly given” and that jury trial cannot be taken away “by implication.”

Authorities contested by the Majority (as described in the dissent)

Conneaut Lake Agricultural Association v. Pittsburg Surety Company, 74 A. 620 (Pa. 1909): the Majority (as recounted by Justice Brobson) treats this as supporting binding effect on Fidelity because Fidelity had notice and an opportunity to participate. Justice Brobson rejects that application where the surety is a non-signatory to the arbitration agreement and the bond itself selects a judicial forum.

Commonwealth to Use of Fort Pitt Bridge Works v. Continental Casualty Company, 240 A.2d 493 (Pa. 1968): the Majority (as recounted) uses this to support broad reading of “sums due.” Justice Brobson distinguishes it because the bond language there lacked limiting terms, whereas Fidelity’s Payment Bond expressly limits the surety’s undertaking to “labor, materials and equipment” and defines those terms without including attorneys’ fees or contractual interest.

Eastern Steel Constructors, Inc. v. Int'l Fid. Ins. Co., 282 A.3d 827 (Pa. Super. 2022): discussed to show how the Superior Court deemed Fidelity’s merits challenge moot once it accepted the arbitration award as binding; Justice Brobson’s approach would reopen that merits review on remand.

2) Legal Reasoning

A. The Payment Bond’s text and structure preserve a judicial forum

Justice Brobson reads the Payment Bond as a deliberate allocation of forum and risk. Critical provisions include:

Paragraph 11 (forum selection): “No suit or action shall be commenced by a Claimant under this [Payment] Bond other than in a court of competent jurisdiction in the location in which the work or part of the work is located.” For Justice Brobson, this is an explicit choice of litigation—not arbitration—for disputes under the bond.

Amended Paragraphs 6.1 and 6.3 (right to dispute claims and preserve defenses): Fidelity can challenge disputed amounts and does not waive defenses by failures in claim handling. This, to him, is inconsistent with treating an arbitration award between other parties as automatically conclusive.

Absence of any arbitration language: “The Payment Bond makes no mention of arbitration whatsoever,” so binding Fidelity to arbitration outcomes would extend the bond beyond its plain terms.

Timing and incorporation: The subcontract (with arbitration clause) post-dated the Payment Bond; Fidelity was not a party to the subcontract; and the Payment Bond incorporated the “Construction Contract,” not the later subcontract. Justice Brobson treats these facts as fatal to any “incorporation-by-reference” theory for arbitration.

B. Notice and an “opportunity to participate” cannot substitute for consent

The dissent’s core move is to separate (i) the fairness of providing notice and (ii) the legal necessity of a contractual waiver. Even if Fidelity had notice and could have participated, Justice Brobson would not treat non-participation as a waiver, because Fidelity never agreed that arbitration would be the forum for fixing its bond liability.

He further challenges the Majority’s waiver rationale (as he describes it): the suggestion that Fidelity should have challenged the arbitrator’s jurisdiction or compelled removal to court. Because Eastern and Ionadi undisputedly had an enforceable arbitration agreement, Justice Brobson views it as unrealistic (and unsupported) to expect a third party surety to derail that arbitration. In his framing, the Majority’s approach produces a “no-win” scenario: act or don’t act, the surety loses its bargained-for court forum.

C. Attorneys’ fees and contractual interest are outside “labor, materials and equipment”

Justice Brobson’s damages analysis is textual:

Paragraph 1: Fidelity is “jointly and severally” bound “to pay for labor, materials and equipment furnished for use” in performance of the incorporated Construction Contract. That phrasing, standing alone, does not include attorneys’ fees or contractual interest.

Paragraph 15.1 (definition): the bond defines “labor, materials or equipment” expansively (utilities, rental equipment, architectural/engineering services, and “all other items for which a mechanic’s lien may be asserted”), but still does not mention attorneys’ fees or interest—so the bond’s own definitional expansion stops short of those categories.

Paragraphs 2 and 3 (“all sums due”): Justice Brobson reads these as describing the condition that voids the bond obligation (Ionadi pays what is due), not as expanding Fidelity’s affirmative promise into “everything Ionadi owes under its subcontract,” including fee-shifting and enhanced interest.

Bond’s specific attorneys’ fees provision: the bond provides for attorneys’ fees only in particular claim-response circumstances; because those circumstances are not at issue, he treats the specific clause as evidence that fees are not generally included.

D. Why Fort Pitt Bridge Works is different

Justice Brobson distinguishes Commonwealth to Use of Fort Pitt Bridge Works v. Continental Casualty Company on drafting. There, the surety bond allowed suit for sums “justly due,” and the Court read that unqualified language to include interest, noting the surety could have inserted limiting language. Here, in his view, Fidelity did insert limiting language: liability is expressly for “labor, materials and equipment,” and those terms are defined without fees/contractual interest.

3) Impact

Although Justice Brobson’s discussion of arbitration binding effect appears in dissent, it frames a consequential debate for construction and surety practice:

Forum control in bonded projects: If the Majority’s view governs, sureties may be bound by arbitration outcomes between principal and claimant where notice and opportunity to participate exist. If Justice Brobson’s view were adopted, claimants could not convert a bond dispute into arbitration simply by arbitrating with the principal; the surety would retain its bond-selected judicial forum.

Drafting incentives: The disagreement spotlights how parties may draft bonds/subcontracts to align dispute resolution (e.g., express bond consent to arbitration, or explicit exclusions/inclusions of attorneys’ fees and interest).

Scope of recoverable amounts under payment bonds: Justice Brobson’s approach tends to cabin bond exposure to enumerated categories (here, “labor, materials and equipment” as defined), resisting efforts to import subcontract fee-shifting and enhanced interest absent clear bond text.

Statutory bad faith claims: On the point he joins, the holding that § 8371 does not apply to surety bonds narrows the remedial toolkit against sureties, pushing disputes back toward contract remedies and traditional surety principles rather than punitive/statutory bad-faith frameworks.

Complex Concepts Simplified

Surety bond (payment bond)

A three-party obligation: the principal (Ionadi) promises to pay; the surety (Fidelity) guarantees certain payments if the principal defaults; the obligee (here PSU) is protected, and subcontractors may have rights as “Claimants” under the bond’s terms.

“Joint and several”

The claimant can pursue either the principal or surety (or both) for the covered obligation, but only within the scope the bond actually guarantees.

Incorporation by reference

A bond may “pull in” another document (e.g., the Construction Contract). Justice Brobson stresses that incorporation must be clear; a later subcontract is not automatically incorporated, especially where the bond specifies a different forum and never mentions arbitration.

Arbitration as waiver of jury trial

Arbitration replaces court adjudication. Because it waives access to court and a jury, Pennsylvania cases require a clear agreement; it cannot be imposed on a non-consenting party by implication.

Prejudgment interest vs. contractual interest

“Prejudgment interest” is often a statutory or common-law add-on for delayed payment; “contractual interest” is a rate the parties negotiated (here, 1.5% per month in the subcontract). Justice Brobson would not impose the subcontract’s contractual interest on the surety absent bond language adopting it.

Conclusion

Justice Brobson’s separate opinion agrees with the Court’s conclusion that 42 Pa. C.S. § 8371—Pennsylvania’s insurance bad faith statute—does not apply to surety bonds. He departs sharply, however, from treating a subcontract arbitration award as binding on a non-signatory surety and from expanding bond liability to cover attorneys’ fees and contractual interest not clearly embraced by the bond’s text.

The opinion underscores a broader doctrinal message: surety obligations are enforced according to the bond’s language and purpose, and arbitration consequences cannot be imposed on a surety without a clear, contractual surrender of the surety’s chosen judicial forum and attendant jury-trial protections.

]]>Sun, 22 Feb 2026 18:36:00 -0500<![CDATA[How Ontario’s construction stimulus law impacts surety]]>https://www.suretyscience.ai/blogs/post/surety-bonds-are-not-insurance-under-42-pa.-c.s.-§-8371-non-consenting-sureties-are-not-bound-by-sub2

Province’s Bill 60 lets construction contractors realize profits sooner

Changes to the way construction contractors and subcontractors recognize profits under Ontario’s Bill 60 mean builders can recognize profits sooner, which should reduce their borrowing costs and improve cash flow. Enacted last year, Bill 60 modifies the province’s Construction Act and other Acts and is intended accelerate new home building and other projects.

And that could affect surety needs for construction companies, says Conor Smith, national surety leader for Marsh Canada.

“There are considerable impacts as a result from Bill 60, in particular the rules governing hold back,” he tells Canadian Underwriter. “In the context of surety, the act provides clarity around annual releases of hold back, a critical tool moving forward to support the flow of money and how we deal with non-payment. 

“Bill 60 doesn’t change any of the accounting rules that are established for profit recognition, but it does accelerate…timelines. Contractors can reach the revenue recognition stages earlier.”

Hold backs are a legally required percentage retained by both owners and contractors from every payment as protection against liens and to ensure projects are finished. Before Bill 60, they were typically recognized at completion of a project. But now, under Bill 60, they can take place annually.

So, while the improvements in cash flow will allow contractors to reduce their financing costs (such as lines of credit), a more frequent recognition of revenue can also create a tax hit. 

“That’s where it’s going to be critical for contractors to look at their cash-flow management structure. This is what we’re advising our clients; [they] need to sit down [with] their accounting and surety partners to understand the implications of this, because potentially there could be a shortfall, depending on how revenue has been recognized and retained in the past by contractors,” says Smith.

Related: Rising construction costs could leave properties underinsured

Build times for large projects often exceed 12 months, which means Bill 60 is a help to the subcontractors and suppliers involved with those projects. It lets them access their hold back funds annually “at a reasonable time, particularly when some of these jobs were going to be stretched over five-plus years,” he notes.

And there’s another wrinkle. Bill 60 took effect Jan. 1 for most projects but it’s also keyed to the one-year anniversary date from the start of a project. So, if a construction project got underway Mar. 1, 2025, its anniversary date is Mar. 1, 2026. And builders will need to ensure they set aside sufficient capital to cover those annual hold-back payments in 2027.

“We’re highlighting that…to our clients, to ensure they’re having those conversations today, so that when they are getting [to] that one-year anniversary on the projects that qualify, they’ll be able to move forward with a process in place and the assurances that they have either set aside enough provision for tax liability, in addition to ensuring that they’re in the process of moving the money through to subcontractors and suppliers…in line with the expectations of the Act,” says Smith.

Related: How labour shortages in construction could impact insurers’ profitability

What Bill 60 does not do is amend standard bond requirements in Ontario, which is required for all public projects over $500,000.

“We’re starting to see owners asking for our longer-term warranty provisions; so bonds that will go in excess of the standard one-year, or two-year provision,” says Smith. “Those require underwriters to better understand the operational controls of the company and how they are processing and managing their hold back for themselves, but also for their sub-trades where operating as a general contractor.”

He adds large, complex projects bring a lot of the building industry to the table in the form of subtrades, such as mechanical, electrical and structural subcontractors that are crucial to a building’s critical path during construction.

“These are the folks that it’s hard to move forward without their scope either being completed or to a [certain] place before other contractors can then engage the project,” he adds. “Ensuring that the flow of funds is occurring is essential.”

]]>Sun, 22 Feb 2026 18:36:00 -0500<![CDATA[Pennsylvania Supreme Court blocks bad faith lawsuits against surety bond issuers]]>https://www.suretyscience.ai/blogs/post/pennsylvania-supreme-court-blocks-bad-faith-lawsuits-against-surety-bond-issuers

Court shields sureties from punitive damages but issues stark warning on arbitration participation

Pennsylvania's Supreme Court handed surety companies a major legal win on bad faith claims this week, but warned they must show up to arbitration proceedings.

The state's Supreme Court ruled that Pennsylvania's insurance bad faith statute does not apply to surety bonds, sparing the industry from potential punitive damages and enhanced penalties that insurers can face when they handle claims in bad faith. But in the same decision, the justices made clear that sureties can be held to arbitration awards entered against their principals, even when they choose to sit on the sidelines.

The February 18 decision settles a dispute that has dragged on for 15 years, stemming from a construction project at Penn State University that went sideways when the contractor ran out of money.

Back in 2008, Penn State hired Ionadi Corporation to erect steel for its Millennium Science Center Complex. International Fidelity issued a $10.125 million payment bond to guarantee the project. Ionadi brought in Eastern Steel Constructors to handle the steel reinforcing work. The subcontract spelled out payment terms, including 1.5 percent monthly interest on late payments, attorneys' fees recovery rights, and required arbitration through the American Arbitration Association for any disputes.

Eastern worked on the project from February 2009 through September 2010. Ionadi paid the first five months but then defaulted. By April 2010, Eastern notified Fidelity it was making a claim under the payment bond for $622,182.90. Fidelity paid the undisputed portion, leaving $253,788.08 outstanding.

Eastern filed for arbitration in November 2010, repeatedly notifying Fidelity and inviting its participation. Fidelity declined every time. When Ionadi filed for bankruptcy in October 2011, Eastern got the bankruptcy court to lift the automatic stay. The arbitration proceeded with neither Ionadi nor Fidelity defending. The arbitrator awarded Eastern $433,489.42, including the unpaid work, $68,299.08 in interest and penalties, and $111,404.62 in attorneys' fees. Neither party tried to vacate the award, and the Allegheny County Court of Common Pleas confirmed it in July 2012.

When Fidelity refused to pay, Eastern sued in Centre County, including a claim under Pennsylvania's insurance bad faith statute, Section 8371. After contradictory trial court rulings and appeals, the Superior Court in September 2022 ruled the arbitration award was binding on Fidelity but the bad faith statute did not apply to surety bonds.

Justice Wecht, writing for the Pennsylvania Supreme Court majority, examined Section 8371's text, which refers to insurance policies and actions by insurers toward the insured. It says nothing about surety bonds, sureties, or principals. The court emphasized the fundamental differences: insurance protects the party buying the policy, while suretyship protects third parties from that person's default. An insurer takes on risk and expects to absorb losses, while a surety steps into a debt temporarily with the right to get paid back by the principal.

The court concluded Section 8371 clearly and unambiguously applies only to insurance policies. If lawmakers wanted to include surety bonds, they knew how to do it, as other Pennsylvania statutes explicitly define insurance to include suretyship. The absence of similar language in Section 8371 was telling.

But the court had no sympathy for Fidelity on the arbitration issue. The payment bond obligated Fidelity and Ionadi jointly and severally to pay all sums due to subcontractors. The court said that phrase was key. What was due to Eastern came from the subcontract, which required arbitration to settle disputes.

The court pointed to a 1909 Pennsylvania case establishing that an arbitration award binds a surety that gets notice and opportunity to participate but does not appear. Fidelity was notified, had the opportunity to defend itself, and declined. It cannot complain now about the results.

Fidelity argued Eastern imposed unreasonable conditions on its participation, but the court found that later communications directly invited Fidelity to join with no conditions attached.

On what all sums due includes, the court relied on a 1968 case holding that interest was an integral part of the debt for material furnished, even when the bond did not specifically mention interest. The same logic applies here: every penny Eastern spent recovering damages from Ionadi's breach is a sum due under the payment bond. The subcontract's interest rate and attorneys' fees were integral to the debt.

However, the court drew a line. Fidelity was liable for fees and interest in the arbitration award for pursuing Ionadi, but not for additional attorneys' fees Eastern incurred suing Fidelity itself in court. Similarly, while the arbitration award properly included the 1.5 percent monthly contractual interest rate, interest on Fidelity's debt under the payment bond was the statutory 6 percent annually.

Chief Justice Todd and Justices Dougherty, Mundy, and McCaffery joined the majority. Justices Brobson and Donohue dissented in part.

For surety professionals, the decision offers a mixed bag. The industry dodged a bullet on bad faith liability, but the ruling on arbitration serves as a warning. Sitting out proceedings can mean getting stuck with whatever award comes down. In this case, Eastern's claim for unpaid work was around $254,000, but the final arbitration award reached over $433,000 once interest, penalties, and attorneys' fees were added.

The decision clarifies that all sums due language in payment bonds is not limited to the strict cost of labor and materials. Companies writing payment bonds may want to review their forms and consider whether more specific language is needed to limit exposure. When arbitration looms, showing up matters.

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