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According to the Eight Circuit Court of Appeals, a bond’s incorporation by reference of a contract containing an arbitration agreement does not constitute an agreement to arbitrate bond-related disputes by the surety.
In Liberty Mut. Ins. Co. v. Mandaree Public School District #36, No. 06-3957, 2007 WL 2935805 (8th Cir. Oct. 10, 2007), Mandaree and contractor Tooz entered into a contract for the remodeling and expansion of a school. The contract contained a clause providing that all related disputes would be resolved through arbitration. To secure Tooz’s performance, Liberty Mutual issued a performance bond, incorporating this construction contract by reference.
A dispute arose between Tooz and Mandaree, and Tooz requested arbitration. Mandaree then attempted to assert a claim in arbitration against Liberty Mutual as to the bond. Liberty Mutual refused to arbitrate, and Mandaree moved to compel Liberty Mutual to join the parties’ pending arbitration.
The Court denied Mandaree’s motion to compel, holding that the bond’s mere incorporation by reference of the construction contract did not bind Liberty Mutual to arbitrate bond-related disputes.
The Court was persuaded by the specific language in the bond contemplating resolution of disputes in court, and by the original construction contract language stating it was not to be construed as a contract between anyone but Mandaree and Tooz. Also, according to the Court, precedent in the Eighth Circuit specifically held that an incorporation provision did not reflect “a mutual intent to compel arbitration of all disputes between [a] surety and [an] obligee under [a] bond.”
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