Term
| A _____ is a three part agreement. |
|
Definition
|
|
Term
| What are the three parts of a surety bond? |
|
Definition
1. The Surety
2. The Obligee
3. The Principal |
|
|
Term
|
Definition
| A surety bond is an agreement in writing that obligates the surety to hold itself responsible for the nonperformance of an expressed obligation and provides for compensation should there be a failure to perofrm specified acts/obligations within a stated period. |
|
|
Term
| A surety bond is purchased by the _______ for the ___________ benefit. |
|
Definition
1. Principal
2. Obligee's |
|
|
Term
| What is 'Statute of Frauds' |
|
Definition
In 1677 the English Parliament created the passage of the 'Statute of Frauds' which stated that an underlying contract "to answer for the debt, default or miscarriage of another person" would be held valid and binding only if in writing and signed.
*In a nut shell - They're saying if it isn't signed it's in the blind...not valid. * |
|
|
Term
| When did personal guarantees become important? |
|
Definition
Personal guarantees became important as commerce, finance and industry developed and as legal processes became more exacting, the demand for something morestable, responsible and permanent than personal guarantees became important.
*In a nutshell - As the economy grew, those that were providing personal suretyship didn't have enough money to back the promise...aka potentially insolvent* |
|
|
Term
What was the company called that began writing "formal" surety business in 1880?
*Mainly consisting of court and fiduciary bonds* |
|
Definition
| Fidelity and Casualty Company |
|
|
Term
| Why in 1894 did the federal goverment testify the economic unsoundness of personal surety and officially recognize corporate suretyship? |
|
Definition
Because the Federal Government alone had $35,000,000 in uncollectible claims against insolvent individual bondsmen!
|
|
|
Term
| When was the Surety Association of America formed? |
|
Definition
|
|
Term
| What is the purpose of the SAA (Surety Association of America)? |
|
Definition
-Develops rating plans
-Collects and analyzes statistical data
-Establishes standard forms of bonds and policies
-Lobbies on bahlf of its members for favorable legislation and bond forms.
|
|
|
Term
|
Definition
|
|
Term
| Give an example of a Principal. |
|
Definition
- In a Public Official bond the principal is THE PUBLIC OFFICIAL
- In a Court of Fiduciaruy bond the principal is THE ADMINISTRATOR, EXECUTOR, OR GUARDIAN
-In a License and Permit bond the principal is the one to WHOM THE LICENSE IS ISSUED.
- In a Contract Bond the principal THE CONTRACTOR |
|
|
Term
|
Definition
The party who guarantees fulfillment of the principal's obligation to the obligee.
*In a nut shell - US! We provide a guarantee that our principal will perform/supply/satisfy the Obligee. |
|
|
Term
|
Definition
The obligee is the 'third party', it is a person, firm, corporation, or government agency.
The Obligee is the party PROTECTED by the bond.
They are usually the ones requiring the bond OF the principal. |
|
|
Term
|
Definition
A risk transfer method whereby the obligee transfers his risk of the principal's default to the surety.
|
|
|
Term
| What are the 3 Benefits of Surety? |
|
Definition
1. The obligee is assured that the contract will be fulfilled.
2. The principal is able to secure the work based on the backing of the surety.
3. The surety obtains a fee for their underwriting and surety backing. |
|
|
Term
| What exactly is the Surety Bond? |
|
Definition
| Instrument or document that the surety (or authorized agent) issues that guarantees or promises to a second party (the obligee) the successful performance of the third party (the principal). |
|
|
Term
| Who is the surety bond purchased by? |
|
Definition
|
|
Term
| Who does the Surety Bond benefit? |
|
Definition
|
|
Term
|
Definition
The maximum amount of the bond.
*The max. amount that the surety company is held liable for.* |
|
|
Term
|
Definition
| To indemnify or sign an agreement that stipulates that the principal will remiburse us should there be a loss under the bond. |
|
|
Term
| What exactly DOES the Indemnity Agreement do? |
|
Definition
| The indenity agreement helps secure the rights to reimbursement by the surety if a loss occures and we have to pay. It hold the Surety company harmless of all loss and expense. |
|
|
Term
|
Definition
Anything of value pledged to the surety to secure it against loss by reason of default of the principal.
|
|
|
Term
|
Definition
The legal process by which an insurance company seeks from the principal who has caused a loss and is paid under the bond to the obligee.
*This is where the indemnity agreement comes into play. They sign the agreement and give us rights to collect if they do not reimburse us* |
|
|
Term
| How does the Surety benefit from writing surety bonds? |
|
Definition
- Profit the fee's charged
- Providing jobs and taxes to support the economy |
|
|
Term
| What's the difference between Insurance and Surety? |
|
Definition
Insurance Surety
Two party agreement Three party agreement
Cancellable Non-Cancellable
Losses included in premium Premium is for "service fee"
|
|
|
Term
| Suretyship resembles ______ more closely than it resembles insurance. |
|
Definition
|
|
Term
| How does suretyship resemble banking? |
|
Definition
-Viewed as a credit extension
-No losses expected
-Premium charges is in effect a service fee
-Right to subrogate/salvage or draw on collateral. |
|
|
Term
| What does it mean to be 'Joint and several liability'? |
|
Definition
| This means that the obligee may seek recovery from either the principal or the surety, or from both. Each party is equally liable for the entire obligation. |
|
|
Term
|
Definition
- Not desirable from an underwriting perspective.
Examples
*State requiring a sales tax bond only when there is a pattern of late tax payments from the principal.
*A court will only require a probate bond for appointees who they are not comfortable or reside outside their territory.
*A bond is required only for a new business to the territory.
*A utility payment bond is an example where the utility company many only require new business to the servicing region, to posta bond for payment of utilites. |
|
|
Term
| What are the Two main classes of surety bonds? |
|
Definition
-Contract Bonds
-Non-contract Surety bonds |
|
|
Term
|
Definition
| Guarantee the faithful performance of a construction contract. |
|
|
Term
| Define Non-contract surety bonds |
|
Definition
| All other surety bonds consist of non-contract. |
|
|
Term
| What is a License and Permit Bond? |
|
Definition
| -It's a bond required when the public interest demands regulation of certain types of businesses for the protection of citizens and property. |
|
|
Term
| What is an example of License and Permit Bond? |
|
Definition
-Contractor
-Auctioneer
-Insurance Broker
-Motor Vehicle Dealer
-Alcoholic Beverage Retailer |
|
|
Term
| Define Judicial Court Bonds |
|
Definition
| Required of parties who desire an actionin a lawsuite. The bond protects a party in litigation from possible loss suffered as a result of the court's graning a privilege to the other party. |
|
|
Term
| Give example of Judicial Court Bond |
|
Definition
-Replevin
-Appeal
-Attachment
-Injunction |
|
|
Term
| What is a Replevin Court Bond? |
|
Definition
-AKA Garnishment bond
-Filed by the plaintiff where they are asserting ownership to property in the hands of the defendant. The plaintiff obtains posession of the property and the bond guaranties the plaintiff will return the property in the event that the court determines the plaintiff is not entitled to the property. |
|
|
Term
|
Definition
| An amount of money placed in holding while the appeal is being handled/decided. Always posted by the losing party. |
|
|
Term
| Define an Injunction Bond |
|
Definition
| In which the plaintiff is held liable for damages in the event of a false injunction. The objective of the bond is to protect the party who has been wrongfully accused by a plaintiff and suffers financial loss. |
|
|
Term
| Define Fiduciary Court Bond |
|
Definition
| A fiduciary court bond is required of fiduciaries or other entities named to a position of trust appointed by courts to administer funds. |
|
|
Term
| Give examples of Fiduciary Court Bond |
|
Definition
- Guardian/Conservator
-Executor/Administrator
-Receiver
-Trustee in Bankruptcy |
|
|
Term
| What is a Public Official Bond? |
|
Definition
| A Public Official Bond guarantees the faithful performance of duty by the public official who is in a position of trust, as well as an honest accounting of all public funds handled by the official. The bond must comply with the statues and, for this reason, carries whatever liability the statues require. |
|
|
Term
| What is a Miscellaneous Indemnity Bond |
|
Definition
-Lumped together in three groups:
1. Bonds required by the federal government.
2. Bonds required buy governmental bodies other than the federal government.
3. Bonds required by individuals, firms, corporations, associations, or other legal entities. |
|
|
Term
| What are some examples of Miscellaneous Bonds? |
|
Definition
-Lost Instrument (Lost securities)
-Self Insurer Workers' Compensation
-Utility
-Payment Bond
-Union Indemnity/Welfare
-Airline Reporting Corporation
-Concessionaire |
|
|
Term
| What is a Federal Non Contract Bond? |
|
Definition
| These Bonds are a result of Federal Law or regulation enacted to protect various interests of U.S. Citizens. Many of these regulatory requirements are purely economic such as tax obligations. |
|
|
Term
| What are some examples of Federal Non Contract Bonds? |
|
Definition
-Medicare Bonds
-ICC Broker
-Custom
-Distilled Spirits
-Packers and Stockyard Act
-Grain Dealer
-Oil and Gas or Geothermal Lease |
|
|
