Bonds

Bonds are not an insurance product. The risk is with the principle, not the insurance company. It is a form of credit. It pays the obligee if things don’t go as planned. The surety company will pay, and the principal has agreed to pay the surety company back.

The best way to understand bonds is to understand the terminology first:

Obligee:  The entity protected by the bond.

Principle:  The entity promising performance.

Surety Company:  The insurance company guaranteeing the principal’s performance.

WRC Agency can provide the following bonds:

Commercial Bonds guarantee financial performance. Types of bonds include:

  • License & Permit Bonds – Required to obtain a license or permit in many cities, states, or other political reasons. They may be required for the payment of certain taxes, providing consumer protection as a condition of granting licenses or related to selling things such as selling motor vehicles or contracting services.
  • Public Official Bonds – Protect against dishonesty and lack of faithful performance by a public official. Statutes and ordinances require them.
  • Court & Probate Bonds: Secure the performance of fiduciaries’ duties and compliance with a court order.
    • Judicial and Probate Bonds: Needed for: Administrators, executors, guardians, trustees of a will, liquidators, receivers, and masters.
    • Judicial Proceedings Court Bonds: Needed for Injunction, appeal, indemnity to sheriff, mechanic’s lien, attachment, replevin, and admiralty.

Miscellaneous & Federal Bonds:  Cover performance of contracts and agreements with private parties and government officials. Ex:  Lost securities, utility deposit, wages, and welfare.

Fidelity Bonds cover losses arising from employee dishonesty and errors & omissions liability Insurance. Types of bonds include:

  • Janitorial Service Bonds: Employees have access to customers’ assets, equipment, supplies and personal belongings. This bond specifically protects the client’s customers.
  • Employee Dishonest Bonds: Guarantees that the bonded employee(s) will handle their employer’s money and property with fidelity.
  • Pension Trust (ERISA) Bonds: Appointed individuals (plan fiduciaries) manage pension plans and profit sharing programs. The Pension Reform Act of 1974 states that they must post a bond for 10% of the amount of funds handled.
  • Notary Public E&O: Protects the notary should they make an innocent mistake and are brought into a lawsuit. Notaries verify that the person signing the document is indeed the person they state they are.
  • Signing Agent E&O: Designed for notaries who assist with loan signings.  It covers such things as getting all other signatures and initials, correctly dating the documents, completing the signing in the time period specified, and promptly returning the signed documents.
  • Tax Preparer E&O: Covers losses due to errors and omissions of persons who prepare tax returns for others for a fee, including incorrect or incomplete preparation of forms and calculation errors.

Contract Bonds guarantee the performance of obligations covered by a written agreement between two parties. The most common types of bonds are:

  • Bid Bonds: Used to pre-qualify contractors submitting proposals on contracts. If the contractor is awarded the contract, they will provide a performance and payment bond.  If they do not, within the time specified, the bond will typically pay out the difference between the amount of the principle’s bid and the next lowest bidder.  (Up to the amount of the bond).
  • Performance Bonds: It protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.
  • Payment Bonds: It protects those supplying labor or materials to a job as it states that the contractor will pay for certain labor and materials used in the work he is obligated to perform under the contract.

There are many more bonds available and different states may have different requirements.

Be sure to read the policy carefully to understand all coverages, limitations, and exclusions.