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).

About Stan Martin

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Stan Martin holds a law degree and an undergraduate degree in architecture. He has been involved with the construction industry for more than 45 years, working in construction prior to law school and beginning his construction law practice. Over the course of his career, he has served on boards and committees for organizations including the Associated General Contractors of Massachusetts, the Boston Society of Architects, and the Massachusetts Building Congress.

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