Bonding Company Bound by Arbitration Provision
Kegler Brown Construction Newsletter May 1, 1994
There has been considerable debate in Ohio as to whether or not bonding companies must go to arbitration if there is an agreement to arbitrate between their principal (i.e., general contractor) and the claimant. If bonding companies were not forced to arbitrate and bound by the result, there would be considerable disadvantage to claimants against the bond, whether they be owners or subcontractors, in that first they would have to prevail in an arbitration against the contractor, then later sue the bonding company in a separate action to collect - adding to the time and expense necessary to recover on a claim. A recent Miami County Court of Appeals case, Piqua v. Ohio Farmers (1992), 84 Ohio App. 3d 619, has answered this question and determined that a bonding company was required to arbitrate because the language of the bond incorporated the owner/contractor contract.
As similar language incorporating the contract appears in the bond form adopted by the State and many political subdivisions, bonding companies providing bonds on Ohio's public work will be bound to arbitrate when arbitration is included in their principal's contract.
With respect to bonded private work in Ohio, bonding companies will have to arbitrate only if their performance bond form incorporates the principal's contract by reference.