The two main categories of surety bonds are contract and commercial. There are many types of commercial surety bonds, and there are often many names for those types. The standard ways to classify commercial surety are license and permit, court and probate, financial guarantee, and other miscellaneous bonds.
License and Permit
License and permit bonds go together with a license or permit. For example, if a principal wants to get a contractor’s license, they may have to get a contractor’s license bond, depending on the state statutes. This bond guarantees compliance with the licensing requirements. It strengthens the laws, ordinances, and regulations, and therefore protect the public.
Court and Probate
Court and Probate bonds are also referred to as judicial and fiduciary bonds. A judicial and court bond is a general term for a bond that is required for a court case or some action of law. A probate bond is also sometimes called a fiduciary bond. The word “fiduciary” means to take care of someone else’s money or assets. A fiduciary bond guarantees the performance and honest accounting of administrators, guardians, and other fiduciaries appointed by the court. A court bond, also called a judicial bond encompasses the other bonds in this category, like indemnity to sheriff bonds, temporary restraining order bonds, and many others.
Bail bonds would fit into the court bonds category but are classified as criminal bonds, and most insurance agents are not licensed to sell these.
Financial Guarantees
Financial guarantee bonds are what their name implies. These bonds guarantee payment will be made. An example of one of these is a tax bond or lease bond to guarantee that payment will be made.
Bonds that don’t fit into these categories are the miscellaneous ones, such as lost instruments or public official bonds.
What is a “Default” in Commercial Surety?
The principal must sign an indemnity agreement that is similar to the indemnity agreement for other surety. An example of a claim for a contractor license bond is if the principal defaults on a contract with a homeowner. The homeowner can go to the surety company and request to make a claim on their bond. The surety company opens an investigation and may pay the homeowner and then look to the principal to be indemnified (reimbursed).
Before payout, a representative of the company will ask the principal what happened and give them the option to pay back to homeowners or perform their obligation.
“Default” in surety means failure to complete an obligation and could mean fraud or misrepresentation. As in our example above the contractor, collecting a deposit, and never showing up again is an example of defaulting. The bond protects the public by incentivizing the contractor to perform or pay back the homeowner.
For more information and answers to any questions, always feel free to reach out to us, or refer to our prior blogs. To follow our company, visit our socials.
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