Pennsylvania’s bad‑faith statute, 42 Pa. C.S.A. § 8371, permits insureds to recover certain damages in “action[s] arising under an insurance policy … [if] the insurer has acted in bad faith towards the insured ….” In Eastern Steel Constructors, Inc. v. Inter’l. Fidelity Ins. Co., __ A.3d __, 2026 WL 457805 (Pa. Feb. 18, 2026), the Pennsylvania Supreme Court addressed whether § 8371’s proscriptions extend to surety contracts issued by insurance companies. Relying upon the differences between an insurance contract and a surety contract, the Pennsylvania Supreme Court held that § 8371 does not encompass actions under a surety contract.
Eastern Steel arose after Ionadi Corporation (“Ionadi”) defaulted on a subcontract with Eastern Steel Constructors, Inc. (“Eastern”) in connection with the construction of the Millenium Science Center Complex on the Pennsylvania State University’s campus. As Ionadi had secured the subcontract with a surety contract issued by International Fidelity Insurance Company (“Fidelity”), Eastern sought to recover from Fidelity the balance due on the subcontract pursuant to the surety contract. Fidelity paid an undisputed amount to Eastern, but withheld an additional $253,788.08 that Eastern alleged remained unpaid under the subcontract. After securing an arbitration award against both Ionadi and Fidelity, Eastern sought to confirm the award in the Centre County Court of Common Pleas. As part of the confirmation proceedings, Eastern asserted a claim of bad faith under § 8371 against Fidelity. The trial court ultimately dismissed Eastern’s bad‑faith claim, holding that § 8371 did not encompass bad‑faith claims arising from a surety contract. The Superior Court of Pennsylvania affirmed.
On further appeal, the Pennsylvania Supreme Court applied the Statutory Construction Act, which requires courts to ascertain and effectuate the intention of the General Assembly when engaging in statutory interpretation. This requires courts to given effect to all statutory provisions, and to enforce statutory language pursuant to the letter of it, where the statutory language is clear and free from all ambiguity. To this end, courts are bound by a statute’s plain language and are not free to disregard the letter of the law under the pretext of pursuing its spirit.
Turning to the issue at hand, the Pennsylvania Supreme Court contrasted insurance contracts and surety contracts. An insurance policy is generally defined as “[a] contract of insurance, including the insured’s application, the declarations page, the coverage forms, and any endorsements or riders that amend them,” whereas surety contracts are “bond[s] given by a surety to cover any amounts that, because of the general contractor’s default, are not paid to a subcontractor or materials supplier.” The Supreme Court of Pennsylvania also noted differences between an “insurer” and a “surety,” with the former being “[o]ne who underwriters insurance policies and issues them to insureds; esp. a company or association that undertakes to indemnify against losses and to perform other insurance‑related functions.” Sureties, on the other hand, are those “who [are] primarily liable for paying another’s debt or performing another’s obligation.” And, a “suretyship” is “[t]he legal relation that arises when one party assumes liability for a debt, default, or other failing of a second party.”
The Pennsylvania Supreme Court, therefore, concluded that insurance and surety contracts have their own, distinct definitions, and that they operate in different ways – insurance protects the party to the contract, i.e., the insured, and places the risk upon the insurer, whereas surety contracts protect others from the principal’s default and place the risk of loss upon the principal because the surety has a right of indemnification from the principal. Given these distinctions, the Pennsylvania Supreme Court agreed with the United States Supreme Court that “suretyship is not insurance,” and concluded that “Section 8371 clearly and unambiguously does not encompass a surety bond.” Had the General Assembly intended to create a private cause of action for bad‑faith claims arising from surety contracts, the Pennsylvania Supreme Court declared, it could have done so expressly. Section 8371 indicated no such intent.
The Pennsylvania Supreme Court, therefore, affirmed the Superior Court of Pennsylvania because § 8371does not apply to surety contracts or actions of a surety.
