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Can a surety be liable for violation of the bad faith statute in Pennsylvania?

4/20/2016 | Construction Blog

The issue of whether a surety can be liable for violating Pennsylvania’s bad faith statute is one that often comes up in construction cases. Aside from the fact that bonds – and thus sureties – are most commonly found in construction cases, the remedy of treble damages and attorneys’ fees (mostly the second part) are attractive to litigants. Although there is very limited case law on the issue in the Pennsylvania courts, the answer to the question is presently no.

For a careful analysis of the matter, you can read the opinion of the United States District Court for the Eastern District of Pennsylvania in Upper Pottsgrove Township v. International Fidelity Insurance Company here. Summarized succinctly though, the Court held that surety bonds and insurance policies are not the same things and are designed to cover different risks (for more on the distinctions, you can check out our previous blog post on the subject). Because the bad faith statute is designed to cover insurance policies and the claims against them, the bad faith statute does not include the very different world of sureties.

Bad faith claims – as opposed to common law claims for breach of the duty of good faith and fair dealing – tend to be statutorily based. While the statutes in other states may have different definitions and therefore broader interpretations available to litigants, Pennsylvania’s statute is narrow enough that there is not likely a way to make a bad faith claim against a surety. The only way this could be changed would likely be by amending the current statute or adding a new one. Without that though, claimants will likely not see any success on bad faith claims against a surety in Pennsylvania.