Payment Bond Surety Cannot Compel Subcontractor to Arbitrate

A Maryland federal court judge has reminded a payment bond surety that it cannot compel arbitration with the subcontractor making a claim under the bond.

Baltimore Steel Erectors filed suit against Hanover, the payment bond surety for ARGO Systems on a construction project at Fort Meade. When Baltimore Steel wasn’t fully paid, it sued Hanover under the Miller Act, but did not include ARGO as a defendant. Hanover sought to stay the lawsuit pending arbitration based on an arbitration clause between Baltimore Steel and ARGO. The court rejected the request.

Citing other federal court decisions, the judge stated that Hanover “cannot enforce an arbitration agreement between the subcontractor and contractor in this circumstance.” Thus, Hanover will have to defend on the merits, perhaps in a situation where its bond principal is not aiding the cause. The case is United States ex rel. Balt. Steel Erectors v. Hanover Ins. Co., 2019 U.S. Dist. LEXIS 122445 (July 23, 2019).