Understanding a contract is important regardless of its contents. It’s never a good idea to sign your name onto anything that you do not explicitly understand. This is the case for any contract, and it’s especially important in the surety industry. Whether you are a guardian seeking a guardianship bond, a business seeking a licensing bond, an attorney seeking some type of appeals bond, or anyone else, it’s incumbent upon you to fully understand what it means to sign the bond you acquire.
Here is what you need to know about surety bond contracts.
Who is Involved in a Surety Contract?
There are three main parties involved in every surety contract:
- The surety: the company who provides the insurance and pays claims made on the bond
- The obligee: the person or entity who is being covered by the surety bond
- The principal: the person or entity who acquires the surety bond and is required to fulfill the obligations of the bond.
See more information on how surety bonds work here. Regardless of which party you are, make sure that you understand your role in the surety bond process and what will be expected of you.
Understanding the Details of a Surety Bond
There are many different types of surety bonds that cover a variety of things. While most bonds have a specific purpose, no two are the same. Each is carefully written for a specific entity, case, etc., so the most important thing a person can do is read through their surety bond (with an attorney, if possible) in order to fully understand several things:
- The terms of the bond: including what it is promising
- Who the bond is covering and for how much
- The timeframe of the bond and when it can expire or end
- Any exceptions or exemptions of the bond
- What is required to make a claim against the bond
Most importantly, understand what it is you are supposed to be doing underneath the terms of the bond.
The Key is Generally in the Indemnity Agreement
Many, but not all, surety bonds contain an indemnity agreement, which is a contractual agreement between the surety, obligee, and principal. The agreement states that the surety agrees to pay for the losses or damages suffered by the obligee, and caused by the principal. It promises to make whole the obligee (usually an individual or business) for any covered loss, so long as it is included in the bond.