You may wonder why surety companies are so strict and by the books when it comes to writing surety bonds. When a surety company is considering a company for a bond, they need to determine the stability and dependability of the company because the surety is backing every bond they write. Should a company do the surety wrong by not following the rules, causing a claim and mysteriously disappear after the fact, the surety will have to pay the price; this is what recently happened to a surety costing them thousands of dollars.
The US Government has lost about $1MM in unpaid import duties and penalties and has filed a suit against the seafood importer, Country Flavor Corporation, who deceitfully branded its seafood products in order to avoid “antidumping” duties. The El Monte, California-based fish importer brought back 13 entries of fish fillets from Vietnam during May and June of 2006. A laboratory of the US Customs and Border Protection ran genetic tests on the fish and discovered that 11 of the 13 entries were a completely different fish than advertised in order to avoid the duties. As a result, the US Customs and Border Protection demanded that Country Flavor Corporation pay the duties that they owed and the company answered back swiftly by dissolving its operations instead of taking care of their responsibilities. Now the US Government is looking to the surety who wrote the custom bonds, International Fidelity, to recoup about $268,000 of the $1MM. Once International Fidelity pays the claims on the bonds they wrote, they will go to the individuals of the company who avoided paying the claims in the first place. The surety company is the one backing the custom bonds that Country Flavor Corporation obtained which as you can see puts the surety on the line financially.
Surety companies need to look in to a company’s financial wellbeing because they are financially backing the bonds; they’ll do this by looking at personal credit, personal and business financials. They try to make an educated decision on whether the company in consideration for a bond is reliable and responsible; the bond is guaranteeing that the company will follow a contract (for contract bonds) or rules set by the state or government; this specific case with the custom bonds are considered commercial. Since the surety obviously can’t get to know the company owner’s characters, they use their financial health as a gauge of how they conduct their business.
Sureties can be strict when it comes to qualifying someone for a bond but rightfully so since they are taking a risk when writing the bonds. Just like the case with Country Flavor Corporation, if a claim goes out on the bond and the bonded doesn’t pay the claim, the surety has to bite the bullet. As strict as sureties can seem with their requirements, sometimes it’s still not quite enough to avoid devious organizations and causes problems for everyone involved.