Bonds

& What They Include

• Coverage Options
• 11.15.2024

By Sheryl Homer

They say there are always three sides to a story: your side, their side, and the truth. With commercial bonds, the truth is set in stone from the start, meaning there is only one side. Surety bonds are performance-oriented, a specialized form of insurance designed to guarantee the fulfillment of contractual obligations. We also offer Fidelity bonds, which are all about individuals and offer protection against employee misconduct.

Surety Bonds: Who is Involved?

A surety bond involves three parties:

• The principal: the party required to perform a task or uphold a commitment
• The obligee: the party that requires the assurance of performance
• The surety: the entity that issues the bond and guarantees the principal’s performance

Examples of Commercial Surety Bonds

Commercial surety bonds often range from:

• Court Fiduciary Bonds, License and Permit Bonds
• Lost Instrument Bonds
• Notary Public Bonds
• Public Official Bonds

Examples of Contract Surety Bonds

With contract surety bonds, you’re able to support safe, successful contract completion.

You might opt for a Contract Surety Bond for the following services:

• Bid
• Maintenance
• Performance
• Payment
• Service
• Site Improvement
• Supplies

Key Components of Surety Bonds

• Bond Amount: This is the maximum amount the surety will pay if the principal fails to meet their obligations. It is determined based on the risk associated with the principal’s performance and the specifics of the contract or agreement.
• Obligee Protection: The bond ensures that the obligee is protected financially if the principal defaults. The surety will compensate the obligee up to the bond amount, covering losses or damages resulting from non-performance or breach of contract.
• Principal’s Obligation: The bond outlines the principal’s commitment to fulfilling the terms of the contract or agreement. It includes details on the scope of work, deadlines, and other performance criteria.
• Surety’s Role: The surety not only guarantees the bond but also provides support to the principal to help them meet their obligations. This can include offering guidance or financial assistance in some cases.
• Claim Process: If the principal fails to meet their obligations, the obligee can make a claim against the bond. The surety investigates the claim, and if valid, pays the obligee up to the bond amount. The principal is then responsible for reimbursing the surety for any amounts paid.

Fidelity Bonds: Who is Involved?

Fidelity bonds are a class of surety bonds, and commercial entities often add fidelity bonds to indemnify the business against fraudulent or dishonest acts by team members. In some cases, these dishonest acts will benefit a specific employee or group of team members, while other fraudulent activities are designed to create losses for the insured business. As such, fidelity bonds are typically offered as 1st party or 3rd party coverages.

The following are a few types of fidelity bonds:

• Business and/or Janitorial Services Bonds
• ERISA Bonds
• Employee Dishonesty Bonds
• Blanket (position/name schedule) Fidelity Bonds

Why are Surety & Fidelity Bonds Necessary?

In essence, these bonds are designed to protect the obligee and ensure that contractual obligations are met, while also holding the principal accountable for their commitments. Now there is only one side to the story: an agreement between you, them, and the bond.