Mocden Insurance Consultants
Mocden Insurance Consultants
International Insurance Experts
International Insurance Experts

Surety Bonds

A surety bond or surety is a promise to pay one party (the obligee) a certain amount if a second party (the principal) fails to meet some obligation, such as fulfilling the terms of a contract.The surety bond protects the obligee against losses resulting from the principal's failure to meet the obligation.


A surety bond is a contract among at least three parties:


The obligee - the party who is the recipient of an obligation,

The principal - the primary party who will be performing the contractual obligation,

The surety - who assures the obligee that the principal can perform the task. 


Through a surety bond, the surety agrees to uphold - for the benefit of the obligee - the contractual promises (obligations) made by the principal if the principal fails to uphold its promises to the obligee. The contract is formed so as to induce the obligee to contract with the principal, i.e., to demonstrate the credibility of the principal and guarantee performance and completion per the terms of the agreement.


The principal will pay a premium (usually annually) in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred.


If the principle defaults and the surety turns out to be insolvent, the purpose of the bond is rendered nugatory. Thus, the surety on a bond is usually an insurance company whose solvency is verified by private audit, government regulation, or both.


  • Contract Surety Bonds


Contract bonds, used heavily in the construction industry, are a guarantee from a Surety to a project's owner (Obligee) that a general contractor (Principal) will adhere to the provisions of a contract. Included in this category are: Bid Bonds (guarantee that a contractor will enter into a contract if awarded the bid), performance bonds (guarantee that a contractor will perform the work as specifed by the contract), payment bonds (guarantee that a contractor will pay for services and materials), and maintenance bonds (guarantee that a contractor will provide facility repair and upkeep for a specified period of time).


  • Commercial Surety Bonds


These are generally divided into four sub-types: license and permit, court, public offical and miscellaneous.


  • License and permit bonds are required by certain US federal, state, or municipal governments as prerequisites to receiving a license permit to engage in certain business activities. These bonds function as a guarantee from a Surety to a government and its constituents (Obligee) that a company (Principal) will comply with an underling statute, state law, municipal ordinance, or regulation.


  • Court bonds are those bonds prescribed by statute and relate to the courts.


  • Public Official Bonds guarantee the honesty and faithful performance of those people who are elected or appointed to positions of public trust.


  • Miscellaneous Bonds are those that do not fit well under the other commercial surety bond classifications.


If you have a requirement for a Surety Bond please contact us with your supporting information.