• August 21, 2021

A Quick and Simple Explanation of Surety Bond Indemnity

A Quick and Simple Explanation of Surety Bond Indemnity

A Quick and Simple Explanation of Surety Bond Indemnity 1024 682 Patrick J. Thomas Agency

Indemnity is one of those words that gets thrown about when it comes to surety bonds. It’s important, but also often misunderstood. What is indemnity? Better yet, what is an indemnity agreement? And how does it work when it comes to a surety bond? 

Find out what you need to know about surety bond indemnity agreements and how they may affect your bond. 

Why Indemnity is Important to Surety Bonds 

Indemnity is the backbone of many surety bonds. In short, indemnity compels a party to compensate another party. Regarding a surety bond, this means that the obligee has the legal right to collect from the surety if the principal of the bond fails to uphold their end of the bond. If you are uncertain about the way surety bonds work, find out the difference between a principal, surety, and obligee here. 

When a claim is filed against the bond, it’s the surety who pays the obligee. The surety can then use the indemnity written into the bond to collect from the principal. Keep in mind that these agreements can include additional costs. 

Is Indemnity Required for Surety Bonds?

Technically, no. But most surety bonds will have indemnity written into the bond. Each surety will have different language for their indemnity agreement. This is usually in the form of an indemnity clause or paragraph within the bond. It’s rare that surety bonds do not have some sort of indemnity written into them, but it’s not entirely unheard of. 

If you are obtaining a surety bond, make sure you understand the ways in which the bond might pay out and if the risk is high. Sureties tend to require that some form of indemnity be written into the bond for the purposes of risk management. If you are going to be acting as a principal for a surety bond agreement, always make sure you understand the bond, its terms, and what you will be responsible for financially should a claim be made against the bond. 

Have Questions About Indemnity?

The indemnity clause within a bond can be complex, which is why it’s important to work with an attorney alongside a trusted surety bond agency. Our experienced agents at The Patrick J. Thomas Agency can help you understand everything that goes into your bond and how it can be applied to your case. Need help getting a bond? Get in touch with us today.

Disclaimer: this is for informational purposes only and is not intended to be legal advice. If you need legal counsel, please contact an attorney directly.