On August 29, 2014, in Hanover Insurance Company v. Atlantic Drywall & Framing LLC, the US Court of Appeals for the Eleventh Circuit held that because the parties were interconnected and the contracts related to the same subject matter, indemnitors could compel arbitration despite not being signatories to the agreement containing the arbitration clause (579 F. App'x 742 (11th Cir. 2014)).

The University of Alabama hired Brice Building Company (Brice) as the general contractor for the development of a student housing complex. In March 2011, Brice entered into a subcontract, which contained an arbitration clause, with Atlantic Drywall and Framing (Atlantis) for work on the project. Atlantis then secured payment and performance bonds from Hanover Insurance Company (Hanover) as required under Alabama law. This required indemnification from Atlantis and other indemnitors, who entered into an indemnification agreement in May 2011. The indemnification agreement did not contain an arbitration clause nor did it expressly incorporate any other document.

When Atlantis later defaulted and the indemnitors failed to indemnify, Hanover filed a complaint in district court. The indemnitors moved to compel arbitration under the Federal Arbitration Act (FAA). The district court denied the motion, finding that Hanover did not agree to arbitrate and the indemnification agreement did not incorporate any other contract, either expressly or as a single transaction.

The Eleventh Circuit reversed the district court and held that the indemnitors could force Hanover to arbitrate under the arbitration clause in the subcontract. The court listed the limited circumstances in which the indemnitors could compel arbitration:

The court concluded that the indemnification agreement, bonds and subcontract could be viewed as a single transaction. As a result, because the contracts related to the same subject matter and all of the parties were aware that the issuance of bonds depended on indemnification, the parties were interconnected enough to be considered part of the same transaction. The district court therefore erred when it declined to view the various documents as a single transaction merely because the parties differed.

Counsel should be aware that courts will require a signatory to an arbitration clause to arbitrate with non-signatories disputes related to the agreement containing the arbitration clause. For more information, see Article, Joining non-signatories to an arbitration.