“Sureties cannot exercise unilateral election rights that are reserved for the principal of the underlying contract.” Anderson Service Corp. v. Old Republic Surety Company, 2026 WL 61436, *2 (Fla. 4th DCA 2026). This was the holding in a recent case dealing with arbitration.
In this case, a subcontractor entered into a contract with a contractor that gave the contractor the right to elect arbitration in Pennsylvania. A dispute arose and the subcontractor recorded a construction lien. The contractor transferred the lien to a lien transfer bond under Florida law. (The contractor was the principal of the lien transfer bond.) The lien transfer bond surety then moved to compel the subcontractor to arbitration based on the underlying subcontract. The trial court agreed to compel arbitration but this was reversed on appeal.
The lien transfer bond did NOT incorporate the underlying subcontract. Lien transfer bonds don’t do this so the election to arbitrate the dispute was in a separate document between the contractor and subcontractor. It was not in the lien transfer bond and the contractor was NOT a party to the dispute. “Here, as discussed above, the surety bond did not contain an arbitration agreement and did not incorporate the subcontract or the subcontract’s arbitration provision.” Anderson Service Corp., supra, at *2.
The subcontractor knew about the arbitration provision which is presumably why it did not sue the contractor and only sued under the lien transfer bond. The subcontractor did not want to arbitrate and wanted an argument to move beyond that arbitration provision. This was the way to do it by only suing the lien transfer bond surety. Now, if the contractor (principal) intervened and then moved the compel arbitration of a dispute it had with the subcontractor, perhaps that would have created the right argument to compel arbitration or stay the lawsuit involving the lien transfer bond surety pending the outcome of the arbitration. But that did not occur. See generally Anderson Service Corp. at *2 (“Further, [the contractor] is a nonparty which never elected to exercise or waive its right to arbitration under the subcontract.”). Although this case deals with a lien transfer bond surety, the rationale should extend in other scenarios where the arbitration provision is not incorporated into the bond.
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