Surety bonds are required for a myriad of reasons, but most often must be purchased prior to obtaining a business license or permit. While technically considered an insurance product, a surety bond does not protect the individual or entity purchasing the bond, but rather the obligee (entity requiring the bond). As such, claims against a surety bond result from actions that directly harm the obligee. So what actions can constitute bond claims? Well, that depends on the type of bond you purchase. Each surety bond is unique, and you should ensure you carefully read the bond form to gain a better understanding of what causes claims. To help make your life easier, we’ve broken down what actions will result in claims based on the most common types of surety bonds.
Business License and Permit
To avoid claims against a business license or permit bond, you will need to follow all licensing requirements and adhere to all relevant regulations. Generally speaking, claims against a business license or permit surety bond occur when you engage in acts of fraud, breach contractual obligations made with consumers, and fail to pay all required taxes and fees.
Contract bonds are a unique type of surety bond that contractors must purchase prior to beginning work on a construction project. To avoid claims against a contract bond, contractors must ensure that they complete all work they have been paid for, pay all employees and labourers, and ensure that their work meets the quality standards specified in the construction contract.
Probate bonds are required for court-appointed fiduciaries who manage the estate of a deceased or incompetent individual. To avoid claims against a probate surety bond, you should ensure that you always perform your fiduciary duties for the benefit of the estate trustees. Violations of fiduciary duties will result in claims being made against a probate bond.
Financial guarantee bonds encompass a myriad of different surety bonds. The term “financial guarantee bond” includes all surety bonds stipulating some sort of payment obligation to the obligee. To avoid claims being made against a financial guarantee bond, you should fulfil all payment obligations on time.