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.

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.

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.

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.

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.”

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.

Two established insurers are now squaring off in federal court over a question as old as the industry itself: who pays first?

The Travelers Indemnity Company filed suit against Erie Insurance Company on January 29, 2026, in the US District Court for the Western District of New York. At the heart of the dispute is a construction site injury in Buffalo and a disagreement over which insurer should be covering the defense.

The underlying claim traces back to on or about April 1, 2021, when a worker named Thomas G. Sellitto was allegedly injured at a housing development project at 19 Doat Street in Buffalo. According to the court filing, Sellitto was attempting to maneuver a bin filled with reclaimed hardwood when he sustained multi-level lumbar spine disc bulges/herniations with radiculopathy.

The project involved The Crossroads at Genesee Housing Development Fund Co. Inc. as owner and The Pike Company, Inc. as contractor. Pike had hired Fairway Floor Covering Inc. to handle flooring work, including demolition of the existing hardwood floor and installation of a new floor.

Lexon Insurance is chasing not less than $2.6 million from an Oregon contractor group after a fire district construction project dispute. 

On January 6, 2026, Lexon Insurance Company filed a verified action in the United States District Court for the District of Oregon against Ben Fackler Construction, Inc. and a cluster of related companies and family members tied to the Fackler name. At the center of the dispute is a performance bond backing work for the SW Polk County Rural Fire Protection District on a construction contract. 

Lexon, a corporation organized under the laws of Texas with its principal place of business in Mount Juliet, Tennessee, says it issued the bond on behalf of Ben Fackler Construction as principal, with the fire district as obligee, in a penal sum of $3,493,243.00. According to the filing, the fire district has made a claim on the bond and has alleged that Fackler Construction failed to fulfill its contractual obligations and performed defective work, leaving the district with damages of not less than $2,600,000.00, plus attorney’s fees, costs, and interest. 

The federal case turns on core surety tools: indemnity, collateral, trust funds, and access to books and records. Lexon says it agreed to issue the bond in reliance on a series of General Agreements of Indemnity signed over several years by Fackler-related businesses and individuals. 

n 2016, Ben Fackler Construction, Inc., S. Benjamin Fackler, and Jennifer R. Fackler signed a General Agreement of Indemnity in favor of Lexon. A second agreement, in 2018, was executed by S. Benjamin Fackler, Jennifer R. Fackler, Pro Handyman Services of McMinnville, LLC, and Pro Handyman Services of Spokane, LLC. In 2020, another agreement was signed by S. Benjamin Fackler, Jennifer R. Fackler, Fackler Holding Company, Northwest Security & Automation, LLC d/b/a Innova NW, and James E. Fackler, and in 2021 Fackler Properties, LLC was added by amendment. 

Across these agreements, Lexon alleges that the indemnitors jointly and severally agreed to indemnify, exonerate, reimburse and hold the surety harmless from “any and all liability, loss and expense of whatsoever kind and nature,” including claims, damages, court costs, attorneys’ fees, and interest. The 2016 and 2018 agreements state that amounts due to the surety are payable upon demand, “whether or not the Surety shall have made any payment therefor or established a reserve,” and that vouchers or other evidence of payment are prima facie evidence of the indemnitors’ liability. The 2020 agreement similarly allows Lexon to rely on an itemized, sworn statement of loss as prima facie proof of liability. 

Collateral and access provisions are particularly prominent. Under the 2016 and 2018 agreements, the indemnitors agreed to “deposit with the Surety, as collateral security, immediately upon demand, a sum of money” equal to the surety’s liability, asserted liability, reserve, or other exposure, and acknowledged that failing to do so “shall cause irreparable harm to the Surety” and entitles Lexon to injunctive relief and specific performance. The 2020 agreement requires the indemnitors, upon demand, to deposit collateral “in the form and amount as the Surety in its sole discretion deems necessary or appropriate,” and likewise characterizes failure to post collateral as causing irreparable harm and justifying injunctive relief. 

The agreements also contain trust-fund language. They state that funds due or to become due under contracts covered by the bonds, or bonded contracts, are to be held in trust by the indemnitors for the benefit of those to whom the indemnitors incur obligations in performing the contracts and for the benefit of Lexon for any loss, costs, or expenses. Separate clauses give Lexon “unrestricted access to any and all books, records, trust funds, accounts, documents, or other information” relating to the indemnitors’ financial affairs and operations, at least until the surety’s liability under all bonds is terminated. 

Lexon alleges that, on or about September 25, 2024, the SW Polk County Rural Fire Protection District filed a lawsuit in Polk County Circuit Court, Oregon, Case No. 24CV46386, against Fackler Construction and Lexon, asserting its claim under the bond and seeking not less than $2,600,000.00 in damages, plus attorney’s fees, costs, and interest. Lexon says it has retained outside legal counsel to investigate the claim, defend Lexon in that case, and assist in resolving its bonded obligations, and that it has already incurred and will continue to incur attorney fees and expenses in connection with the claim and enforcement of the indemnity agreements. 

According to the federal filing, Lexon sent correspondence dated May 30, 2025, and July 24, 2025, demanding that the indemnitors indemnify Lexon, discharge it from all potential liability on the bond, deposit cash or other collateral satisfactory to Lexon in an amount equal to the anticipated loss of not less than $2,600,000.00, and provide access to their books and records. Lexon alleges that the indemnitors have not indemnified or exonerated Lexon, have not posted any collateral, and have not permitted the requested access. 

Lexon is asking the court for judgment in an amount to be proven at trial but in any event not less than $2,600,000.00, plus attorney fees, costs, and prejudgment interest at 9% per annum. It also seeks an order compelling the indemnitors, jointly and severally, to post collateral of at least $2,600,000.00, along with additional funds as necessary to cover costs and fees, and injunctions restraining the defendants from selling, transferring, disposing of, or encumbering assets until collateral is posted and Lexon is given unrestricted access to their books and records. 

All of these details come from Lexon’s verified court filing. The court has not ruled on the merits, and the defendants have not yet had their allegations tested in any final decision.

In VanMar Constructors ON 1028 Inc. v Travelers Insurance Company of Canada, 2025 ONSC 6959, the Ontario Superior Court found that a performance bond action by a contractor was commenced after expiry of the bond limitation period, and dismissed the action. While the facts were straightforward, the court's analysis provides important guidance on the interpretation and enforcement of limitation periods under performance bonds.

Background

VanMar Constructors ON 1028 Inc. (VanMar) was a construction manager and general contractor engaged in building a residential complex in Kitchener, Ontario (the Project).

VanMar subcontracted with Global Plumbing & Heating Inc. (Global) for mechanical works for the Project. The subcontract required Global to obtain a performance bond (the Bond) for its scope of work, which was issued by Travelers Insurance Company of Canada (Travelers).

On March 14, 2022, VanMar wrote to Travelers alleging that Global was in default of its obligations to VanMar, was declared to be in default, and that VanMar had performed all of its obligations to Global. However, VanMar did not make a claim on the Bond in this correspondence, and did not make a claim until December, 2022.

On April 1, 2024, VanMar commenced an action against Travelers under the Bond.

Travelers sought summary judgment on the basis that the action was commenced outside the limitation period set out in the Bond, or in the alternative under the Limitations Act. VanMar took the position that such limitation period did not commence until VanMar “formally” made a call on the Bond and required Travelers to take action.

Strict enforcement of bond limitation periods

The Court began by confirming that whether an action is barred by an applicable limitation period is an issue that can be properly resolved on a summary judgment motion.

The Court first noted the express and clear language of the Bond, which provided that:

Travelers’ obligations arose upon three preconditions being met, being:

Global being in default;

VanMar declaring Global in default; and

VanMar not being in default.

“any suit or action must be commenced before the expiration of two years from… the date on which [Global] is declared in default by [VanMar].”

Relying on this express language and the March 14, 2022 correspondence from VanMar setting out the three preconditions to Travelers’ obligations, the Court found that the Bond limitation period begun to run no later than March 14, 2022.

The Court then addressed the positions raised by VanMar, that the Bond should be interpreted to include an implied term delaying the start of the Bond limitation period until “formal notice” of a claim was given to Travelers.

The Court rejected this position, finding that reading in additional language would conflict with the intent of the parties as expressed in the clear and unambiguous language of the Bond. It would also undermine commercial reality, allowing VanMar to extend its claim, potentially indefinitely, by delaying giving a “formal notice” of a claim on the Bond. The Court stressed that the purpose of a contractual limitation period is to provide certainty and finality. Allowing claims to be delayed indefinitely would expose sureties to open-ended liability, impair their ability to assess risk and exposure, and prevent timely investigation of claims, which would not be commercially sensible.

Accordingly, the Court found that VanMar’s action was commenced after expiry of the Bond limitation period and was therefore barred. Given this finding, the Court did not address the limitation period under the Limitations Act.

While the Court’s decision confirms that limitation periods set out in bonds will be strictly enforced, it is important to note different bond forms set out different triggering events for their limitation periods. The Bond at issue in this case (which was a CCDC 221-2002 performance bond) provided that the limitation period began when the Principal was declared to be in default by the Obligee. However, the limitation period in the CCDC 221-2024 performance bond and the Form 32 Construction Act performance bond is tied to the date when the surety receives written notice under the bond, which may be different. Therefore, the specific facts of each case must be addressed to determine when the appropriate limitation period begins to run. This is significant, as such limitation periods will be strictly enforced by the courts.

Conclusion

The express language of a bond remains paramount in determining the rights, obligations, and conditions of the bond, including strict enforcement of limitation periods set out therein. Further, such limitation periods will be interpreted in light of commercial reality and certainty, to allow sureties to properly assess risk and investigate claims, and avoid open-ended and potentially indefinite liabilities.

Travelers was represented in this motion by Borden Ladner Gervais LLP.