On February 18, 2026, the Supreme Court of Pennsylvania brought Eastern Steel Constructors, Inc. v International Fidelity Insurance Company[1] to a close.  Incredibly, this case has its origins in a construction project at Penn State University that started back in 2008!  The payment bond at the center of the decision was issued by International Fidelity Insurance Company (“IFIC”) to the contractor, Ionadi Corporation (“Ionadi”), as principal, on October 29, 2008!  After 15+ years of litigation, the Supreme Court ended this saga with three significant holdings for the construction industry:

1)      There is no cause of action under Pennsylvania’s bad faith insurance against a surety;

2)      A surety who has full knowledge of the proceeding and the opportunity to participate in and defend against arbitration claims is bound by an arbitration award entered and reduced to judgment against its principal; and,

3)      Interest, costs, and attorney’s fee awarded at arbitration under the terms and conditions of the subcontract are within the “sums justly due” for which the surety is jointly and severally bound with its principal to pay the bond claimant.[2] 

The heart of the dispute revolves around IFIC’s decision not to participate in the arbitration brought by Eastern Steel Constructors (“Eastern”) against IFIC’s principal, Ionadi, for non-payment under the subcontract between Eastern and Ionadi.  The subcontract between Eastern and Ionadi required arbitration of disputes, but the payment bond issued by IFIC required claimants to bring lawsuits on the bond in a court of competent jurisdiction.  Accordingly, IFIC took the position through the litigation that it had no obligation to participate in arbitration and could not be held liable for arbitration awards.    

Ionadi failed to defend itself at arbitration and IFIC declined Eastern’s invitation to participate in the arbitration.  An arbitration award was entered against Ionadi and in favor of Eastern for the amounts claimed due.  Interest, costs, and attorney’s fees were awarded to Eastern pursuant to the corresponding provisions of the subcontract providing Eastern the right to such recovery.  The arbitration award was confirmed by the Allegheny County Court of Common Pleas and judgment was entered in favor of Eastern.  IFIC did not lodge an objection or appeal the judgment confirming the arbitration award. 

In August 2011, after IFIC refused to make payment of the arbitration award, Eastern filed a lawsuit against IFIC in the Centre County Court of Common Pleas.  On the motion of IFIC, the trial court excluded the arbitration award and resulting judgement from being presented as evidence at trial.  “The trial court opined that [IFIC] was not contractually bound to participate in the arbitration proceeding and that it was unjust to use the award as evidence against it.”[3]  After an initial mistrial, the matter finally proceeded to a jury trial in February of 2020.   The jury found in favor of Eastern for the full amount claimed due (the same amount awarded at arbitration and entered as judgment against Ionadi) inclusive.   The trial court added statutory prejudgment interest at 6% from date of initial demand to date of the mistrial and entered judgment.  Eastern and IFIC both appealed to the Superior Court of Pennsylvania. 

The Superior Court held that the trial court had errored by excluding the arbitration award from evidence at trial, finding that the arbitration award was conclusive and binding against IFIC.  The Superior Court, looked to the language of the payment bond and determined that Ionadi and IFIC were jointly and severally bound to PSU for all labor, materials, and equipment furnished and that “the obligation to make payment under the payment bond was null and void only if Ionadi made payment to Claimants for ‘all sums due.’”[4]  Because IFIC was jointly and severally bound to for “all sums due”, the arbitration award was conclusive and binding, and was proper evidence of IFIC’s liability that should have been admitted at trial. 

The Superior Court also  rejected IFIC’s argument that the arbitration award was unenforceable against it because it included contractual interest, costs, and attorney’s fees.  The Superior Court determine that interest, costs, and attorney’s awarded to Eastern in arbitration pursuant the subcontract were within “all sums due” to Eastern under its subcontract, and IFIC was jointly bound with its principal, Ionadi, to pay such amounts.  However, the Superior Court also determined that Eastern was not entitled to the subcontract-based interest, cost, or attorney’s fees recovery in connection with its lawsuit against IFIC, because that recovery was not guaranteed under the payment bond.  Finally, noting that the matter was one of first impression, the Superior Court found that the insurance bad faith statute did not apply to sureties because suretyship and insurance are different.[5]    Both Eastern and Ionadi appealed to the Supreme Court of Pennsylvania.  The Supreme Court affirmed the decision of the Superior Court.   

First, the Supreme Court confirmed that the statutory claim for bad faith denial of insurance claims set forth at 42 Pa.C.S.A. § 8371 cannot be brought against a surety.  The Court found that a suretyship relationship is not insurance.  Accordingly, there is no cause of action under the insurance bad faith statute against sureties.[6] 

Second, the Supreme Court held that the surety was bound by the arbitration award entered and reduced to judgment against its principal despite the fact that the surety did not participate in arbitration and the bond specified that lawsuits to enforce the bond were required to be brought in a court of competent jurisdiction.  The Court explained that when a surety has full knowledge of and the opportunity to defend against the claims brought in arbitration against its principal and declines to do so, it cannot complain when an award is entered against its principal.  Because the bond stated that the surety was jointly liable with its principal for “all sums due” to the claimant, it was liable to the claimant, Eastern, for the arbitration award to the full extent that Ionadi was liable.[7]    

Third, the Court affirmed that the interest, costs, and attorney’s fees awarded at arbitration to Eastern, the bond claimant, pursuant to the terms and conditions of its subcontract with Ionadi, the bond principal, were a part of “all sums due” for which the surety was jointly liable.  Notably, the Supreme Court also affirmed the Superior Court’s decision that the surety was not liable for contractually based interest or the claimant’s costs or attorney’s fee expended in enforcing the award against the bond, because they were not within the “all sums due” from Ionadi under the subcontract.  Instead, interest, costs, and fees recovery for Eastern’s lawsuit against IFIC was governed by the terms of the payment bond itself.[8]      

In sum, the Supreme Court’s decision ending 15+ years of litigation provides important guidance to the construction industry on the extent of protection provided by payment bonds.  Sureties can now confidently conclude that they are not subject to claims of bad faith under Pennsylvania’s bad faith insurance statute.  However, this decision is a clear warning to payment bond sureties that they must carefully consider whether their interests are fully and properly protected when claims are brought in arbitration against their principals.  Payment bond sureties must be wary of the potential consequences of their failure to participate in arbitration when they are provided that opportunity because Pennsylvania courts will hold sureties jointly liable to claimants for arbitration awards entered against the bond principals at arbitration. 


[1] E. Steel Constructors, Inc. v. Int'l Fid. Ins. Co., No. 103 MAP 2023, 2026 WL 457805 (Pa. Feb. 18, 2026).

[2] Id., *6-19. 

[3] Id., at *4. 

[4] Id., at *5. 

[5] Id.

[6] Id., at *6-10.

[7] Id., *10-16

[8] Id., *16-19