Cpcu 551 Chapter 13

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surety bond

Back 1

written contract that expresses one party's promise to answer for another party's failure to do something as promised

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principal

Back 2

party to a surety bond whose obligation or performance the surety gurantees

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obligee

Back 3

party to a surety bond that receives the surety's guarantee that the principal will fulfill an obligation or perform as promised

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surety

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party (usually insurer) to a surety bond that guarantees to the obligee that the principal will fulfill an obligation or perform as required by the contract

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4 characteristics of surety bonds v insurance policy

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1. three parties to the contract are surety, obligee and principal. insurance policy has two

2. principle is liable to the surety for losses paid by surety. insurance cannot subrogate

3. surety should not sustain any losses.

4. surety bond coverage period is indefinite

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statutory nature of surety bond

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surety bonds are required by municipal ordinance or federal or state regulations

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penalty in surety bond

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set limit of surety bond

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suretyship

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obligation of one entity to answer for the debt, default, or miscarriage of performance of duties by another entity

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contract bond

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surety bond guaranteeing the fulfillment of obligations under construction contracts or other types of contracts

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bid bond

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contract bond guaranteeing that a contractor bidding on a construction contract will enter into the contract and will provide a performance bond if the bid is accepted.

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performance bond

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contract bond guaranteeing that a contractor's work will be completed according to plans and specifications

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payment bond

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contract bond guaranteeing that the project will be free of liens

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maintenance bond

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a contract bond guaranteeing that the work will be free from defects in materials and workmanship for specified period after the project is completed.

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subdivision bond

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a contract bond guranteeing a local governmental authority that a subdivision developer will complete the subdivision in accordance with approved proposals and at the developer's expense

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supply contract bond

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contract bond guaranteeing that a supplier will perform the designated supply contract according to specifications

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license and permit bond

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surety bonds that provide payment tot he obligee for loss or damage resulting from violations of the duties and obligations imposed on the licensee or permit holder

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public official bond

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commercial surety bond guaranteeing that a public official will perform his or her duties faithfully and honestly

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court bonds

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classification of surety bonds guaranteeing that a person or an organization will faithfully perform certain duties prescribed by law or by a court or will demonstrate financial responsibility for the benefit of another until final outcome of a court's decision

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attachment bond

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judicial bond guaranteeing that if the court decides against a plaintiff who has requested attachment of the defendent's property the defendant will be paid any damages that result from the property attachment

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release of attachment bond

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bond that guarantees that the insured will pay any damages and court costs if the court should decide in the claimant's favor

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appeal bond

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judicial bond guaranteeing that a plaintiff who appeals an adverse decision to a higher court will pay all court costs of the appeal

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defendent's appeal bond (susperdeas bond)

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judicial bond guaranteeing that a defendent who appeals an adverse decision to a higher court will pay the entire judgment, plus court costs and interest, should the higher court sustain the initial judgement for the plaintiff.

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fiduciary bond

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court bond guaranteeing that a person appointed by a court to administer the property or interest of others will faithfully perform his or her duties

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miscellaneous bond

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any bond that does not fit well under the other primary categories of surety bonds formulated by the surety and fidelity association of america

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reasons bidding contractor may refuse to enter contract

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- contractor determines contract is impossible to fulfill

- economic conditions change

- contractor discovers mistake was made in preparing the bid

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what options are available if contractor defaults under a performance bond

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- complete project with existing contractor

-complete project with different contractor

- allow owner to arrange for completion of the work with surety paying additional cost to penal amount

- pay penal amount of the bond

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what situations does miller act require contractor to provide performance and payment bond

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when contracts for public buildings or work for federal government exceed $100,000

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compliance only bonds

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guarantee that the principal will comply ith the laws that apply to the activity for which the principal is licensed

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compliance bonds with third party liability

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bonds that guarantee the principal will comply with the laws that apply to the activity for which the principal is licensed and pay damages to third party that suffers a loss bc of the principal's failure to comply

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forfeiture bonds

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guarantee that the surety will pay the entire bond penalty if the principal fails to complete the bonded obligation

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tax or fee bonds

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guarantee that the principal will properly account for and remit taxes or fees collected

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merchandising and dealer bonds

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guarantee the principal will conduct merchandising activities according to teh law and will properly account for any funds held in trust and transfer them to the appropriate party

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reclamation and enviromental protection bond

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guarantee that the principal will restore land to its original state after its operations are completed and clean up spills that pollute the land

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public official bonds

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guarantee honesty and faithful performance

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guardian

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fiduciary who legally has the care of a person or property or both bc the person is unable to manager own affairs

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executor

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fiduciary named in a will to administer a deceased person's estate

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administrator

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fiduciary that court appoints to settle the estate of person who has died without a will

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lost securities bond

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guarantees that the principal will indemnify the obligee for any financial loss it suffers bc of duplicate securities it issues to the principal

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hazardous waste removal bond

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guarantee that teh principal will comply with the environmental protection agency and state law for closure and post closure of hazardous waste facilities

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credit enhancement financial guaranty bond

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guarantee that the principal will pay interest to investors as promised and return the principal at maturity of a debt instrument