Surety Bond Blog

Surety bond claims are as widely varied as the myriad bond forms, obligations, jurisdictions, parties and fact patterns one can imagine. They can be as simple as a parking ticket or as complex as the college football rankings or this year’s delegate counts

The process ultimately self-adjusts according to the individual case, but this entry should provide some general help and basic orientation. The most important aspects involve communications: immediate, concise, thorough and frequent contact with surety claims personnel; the complete disclosure of information; and continuous, real-time status updates. Surety claims persons are expected and required to treat all parties fairly, ethically, thoroughly and within legally prescribed time frames and in a courteous, professional manner. Give them all the information they request, in addition to what you would like them to have, and do it as soon as possible. Never be afraid to ask questions throughout the process. Like you many, if not most surety claims professionals had never heard of this obscure subject matter until shortly before they got involved with it. So, they are typically tolerant of what you may feel are “stupid” questions.

Search the Internet for situations similar to your own. Talk to your peers to the extent possible. Browse and ask questions here, you may find an answer if you seek only basic information. Oftentimes, the bond obligee, agent, broker or underwriter can help as well, especially with finding the correct claims contact at the surety. If a statutory bond is involved, often the governmental entity requiring the bond can assist.

Depending on the ramifications of the outcome of the claim, you may need to obtain highly-specialized surety claims experts, e.g., legal, accounting or construction consultants. This may not be the time for old buddy who went to law school, but to get on the search engines. Most find that this is money well spent. Look at it this way: Four Minute Oil Change is not the place for the 90,000 mile tune-up, no matter how well-intentioned. Sometimes, you have to go back to the dealer, who put the thing together. If you are facing a tough situation, you should be aware that others involved may consider it routine. Prepare accordingly.

There is a fair amount of printed matter available on the law of surety claims, but much of it concerns complex construction and is prepared for the benefit of the surety itself. These books tend to be weighty tomes, nationwide in scope, written by and for specialists. But they may also be very helpful orienting the layperson and should not be overlooked. Despite the fact these are “law books” mostly written by surety attorneys, these
American Bar Association (ABA) publications - scroll down to “Fidelity and Surety Law” may be worth your while.

For construction contract surety claim matters, a concise (and free) resource is available, An Overview of the Contract Surety Bonds Claims Process thanks to the Associated General Contractors of America (AGC) and the Surety Information Office (SIO.)

If your surety claim involves highly technical construction issues, in addition to legal ones, you will have to search accordingly. For example, often construction contract surety claims may involve liquidated damages (LD) due to delays. Books like: Construction Scheduling: Preparation, Liability and Claims by Wickwire et al, Guide to Construction Contract Surety Claims Schwartzkopf et al., are excellent points of reference. Internet searches within bookseller sites of may yield similar titles.

Unfortunately, surety bond claims happen. Typically, they are not painless, nor are they insurmountable. The above resources can give some guidance and a rough template of how to proceed.

Guest Author: Surety Insider, LLC

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As an agency, we focus the majority of our marketing efforts on the Internet. The web has been a great source of new business for our agency, but not for all lines of business. For instance, construction performance bonds are the #1 premium generator for our industry and yet we saw minimal increases even though we are the top ranking agency in all major search engines for the term. Commercial surety bond volume boomed from the Internet, but relatively few seemed to be searching for performance bonding to guarantee construction via the web. There are a couple of reasons why…

Geographical location - Sureties often are not interested in backing a principal that is too far away from the agent.
More complex underwriting - A contract bond line is much more involved to set up than a simple commercial bond.
People are set in their ways - Most are accustomed to getting their performance bonds from the same agency that does their insurance

Fortunately for all, the times are changing. In 2007 we saw our first year of significant growth for performance bonding from clients finding us online. Why the changes? The world moves at a faster pace now and many sureties want to keep up! Geographical locations are still important, but some forward thinking sureties allow agents to write business anywhere they are licensed. Credit-only based contract programs are expanding their capacity allowing for easier contract underwriting, in some cases more simplistic than commercial bonding. Lastly, many contractors are finding that their old insurance agent simply does not have the markets or experience necessary in the specialized field of suretyship. This forces the contractors to search for an agency that is a better match for them, which often leads them online.

It is clear that the growth of the world-wide-web is not going to stop any time soon. Therefore, it is only natural to assume that the world of online performance bonding only has room to grow!

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The term “bond” can be applied to many different financial products, but what is “business bonding”? To be bonded means that an insurance carrier is guaranteeing the performance of your business. This is not be confused with a corporate bond, which is a financial instrument used to raise capital. When a business gets bonded it does not raise capital, but does bring security to any work performed by said business.

How does business bonding work?
When a company is bonded, there are three parties involved. The first one is the company itself, referred to as the principal. The second party is the bonding company, also referred to as the surety or carrier. The third party is called the obligee. The obligee is the party that requires the business to be bonded. Here are two examples…

Example #1: The Contractor - A contractor wants to do work for a local school. The Miller Act is a law that requires the contractor to post a bond to guarantee the work. If the contractor defaults, the surety would pay another contractor to finish the work.

Example #2: The Auto Dealer - An auto dealer wants to obtain a license to sell vehicles in the state that he resides. The state licensing department requires that the auto dealer post a bond to guarantee that he will follow the states rules and regulations for selling vehicles. If the dealer were to be fraudulent, the victim could make a complaint to the state and the state could then file a claim on the bond to help the victim re-coop any moneys lost.

Some common bonding misconceptions
Getting your business bonded helps protect it - Not true, getting your business bonded actually protects your clients! If a claim arises, the surety will look to your company for repayment.

Everyone qualifies for bonding - Not everyone qualifies for surety bonding. True surety underwriting makes it so that only the most financially sound and responsible companies qualify for bonding (However, most do these days with the variety of programs available).

Everyone gets the same rate - Rates can vary greatly and can be changed due to your credit score, company’s financial strength, or what the bond is actually guaranteeing.

If you are in need of a bond, you may want to read our last article, How To Become Bonded. It highlights some of our best articles to tell you how to get the best rate for your bond and what you need to do to ensure you qualify.

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Today we are going to get back to the basics of bonding. We will go over what it means to be bonded and more importantly how to become bonded. We have gone over everything you need to know about surety bonding in previous articles. Therefore, we will highlight these standout articles rather than try to reinvent the wheel.

What Is A Surety Bond? - Learn what a surety bond actually is. You may be surprised to find out that they do not protect you whatsoever, but are a guarantee that is a form of credit.

How To Qualify For A Surety Bond - Not everyone qualifies to be bonded. Learn what you can do to ensure you are “bondable”. Reading this article will not only ensure that you get bonded, but also that you get the best possible rate!

Surety Companies: How To Choose The Best One For You - Bonding companies can vary on rates and underwriting practices. Find out what differences there are and how to go about finding the right carrier for your needs.

The process of becoming bonded is pretty strait forward:

1. Find out bond requirements
2. Apply for bond
3. Get approved
4. Sign indemnity agreement
5. Pay premium
6. Sign bond and send to obligee

If you read all of the articles above you will be well on your way to knowing what you need to do to become bonded. If you have further questions, feel free to ask them on our free surety bond forums.

When you are ready, you can apply for the bond type you need.

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In this week’s article we will review what makes a good surety company, and more importantly, what makes a good surety company specifically for you. Before we get started, I should mention that pairing you up with the right bonding company is really your bond producer’s job (see: What Makes A Good Bond Producer?). The reason we are writing this article is for the people that like additional comfort that their agent is doing their job properly. So lets get started in learning why some surety companies are better than others and how subtle differences can make a big difference to your company.

A.M. Best Ratings
A.M. Best is a well established credit rating system that grades the stability of surety companies. This is extremely important, as sometimes a bond will not be accepted by an obligee if the surety’s grade is too low. Typically a B+ grade or higher is accepted, but you will want to find out if the obligee has any specific requirements. Most bonding companies do not offer refunds on the first year’s premium, which would mean you purchased an expensive piece of paper!

Department of the Treasury’s Listing of Approved Sureties
The Treasury Department’s Circular 570 lists what bonding companies are certified to bond Federal projects. If you are in need of a bond to meet a government requirement, you will want to make sure the surety is on this list. Purchasing a bond from non-T-listed company could also result in a useless bond!

Turnaround Time
Not all sureties have the same turnaround time. With bonds being such a crucial part of your business, you need to make sure that your agent and the carrier have fast enough turnaround time (within reason). If you are getting everything your agent requested of you in a prompt manor, the agent and the carrier he/she set you up with should respond in an expeditious manor as well. Unfortunately, there is not much you can do to avoid this and you may need to do some trial and error. Your agent should know what markets are particularly slow or fast in their region. Keep in mind many sureties have branches and not all branches have the same turnaround time. This means you will need to mainly rely on the knowledge of your agent.

File Updates
All bonding companies are going to ask for file updates from time to time (with the exception of smaller commercial bonds). Typical file requests are updated business and personal financials at year end and sometimes mid-year for larger accounts. It is rare, but sometimes a surety will get a bit out of hand with the amount of updates requested in comparison to other carriers. If you feel they are consistently asking for too many updates, then talk to your agent about it. If your agent agrees that you are being required to send an abnormal amount of information then you may want to further discuss finding a new bond carrier. Once again, this is something where you will heavily need to lean on the knowledge of your agent, as you do not want to change sureties unnecessarily.

Rates
When it comes to commercial surety bonds, rates can vary dramatically. Contract surety bonds do not vary quite as much, but are typically larger bonds, so a small rate change can make a big difference when it comes to the premium. Talk to your agent about what carriers would consider you and what their filed rates are. Do not try to compare your situation to someone else’s, as each applicant is different and comparing rates from one to another simply does not make sense.

Indemnification Requirements
It is rare, but there are a small amount of bonding companies willing to bond companies without personal indemnification. Obviously, Fortune 500 companies are regularly written without personal or spousal indemnification, but what about the mid-sized companies? If the issue is very important to you, your agent may be able to get your bond approved without the regular surety indemnification requirements. However, you should know, it is extremely rare these days (a company must be very financially strong) and will often result in the compromise of something else (e.g. a higher bond rate).

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