*Each month AssuredPartners NL will answer common insurance questions faced by our clients. To submit questions for consideration, contact us.
Surety bonds are often added to construction contracts to provide additional coverage throughout the course of the job. As a three-way agreement, surety bonds provide assurance to the contractor (known as the principal), the group that has evaluated the contractor’s willingness and abilities to complete the job (known as the surety), and the beneficiary of the project (known as the oblige). If the principal is unable to perform the job, the beneficiary will reimburse the obligee. The AssuredPartners NL team of surety bond professionals can help you identify the right bond coverage for your next construction project. Read on to learn the answer to three common questions relating to surety bonds for businesses:
How is a surety bond underwritten?
Surety companies will evaluate financial information, detailed credit history of the business and it’s principal owners, along with management’s experience. Based on the surety company’s expert decision making ability, they will not only be able to assess a principal’s ability to pay or perform an agreement, but the surety will be able to determine the principal’s willingness to fulfill their promise.
What is indemnity?
The indemnity agreement is the legal document that fully discloses the principal’s obligations in a surety relationship, and allows the surety the right to recover any losses paid out on behalf of a principal. The principal is the primary responsible party under the bond, and must agree to reimburse the surety for any claims or expenses they incurred because the principal has not lived up to their agreement.
What happens if a claim is filed against my bond?
The surety’s claim department will conduct an investigation as quickly as possible to avoid any further damages and mitigate their exposure. It is important to note as the principal under a bond, that a pending claim does not necessarily mean there will be a financial loss incurred since the dispute may not even be legitimate. If the surety does determine through their examination that the claim is valid, the principal will be reminded of their obligations under the indemnity agreement and given the opportunity to satisfy the claim first. If the principal fails to respond, the surety will arrange settlement with the obligee, and implement collection proceedings against the principal.
If you have questions about adding surety bonds to your construction project, our team of dedicated specialists can help. To learn more about surety bonds, check out part one of this series here, or visit: AssuredPartners NL construction insurance.Share This: