Surety Bond Definitions
A bond given by a bidder for a supply or construction contract to guarantee that the bidder, if awarded the contract within the time stipulated, will enter into the contract and furnish the prescribed performance and/or payment bond. Default will ordinarily result in liability to the obligee for the difference between the amount of the principal’s bid and the bid of the next low bidder who can qualify for the contract. In any event, however, the liability of the surety is limited to the bid bond penalty.
COMBINATION CRIME POLICY
A policy providing various crime coverage’s for mercantile or governmental entities. Designed in easy-to-read language, the policy is under the joint jurisdiction of The Surety Association of America and Insurance Services Office. Several optional Crime Coverage Forms are available under the policy, each of which insures against specific exposures. The policy can be tailored to fit the insurance needs of the insured by attaching only the Coverage Forms desired. The Combination Crime Policy is also referred to as the Commercial Crime Policy.
A general term embracing all bonds and undertakings required of participants in a lawsuit permitting them to pursue certain remedies in the courts.
These bonds guarantee the payment of import duties and taxes, and compliance with regulations governing the entry into the United States of merchandise from foreign countries.
EMPLOYEE RETIREMENT INCOME SECURITY ACT OF 1974 (ERISA)
This Act, which replaced the Welfare and Pension Plans Disclosure Act of 1962, requires employee benefit plans, subject to the Act, to be bonded by acceptable surety companies (as listed by the U.S. Treasury Department), for the protection of plan funds against loss by acts of fraud or dishonesty on the part of those persons handling such funds. E.R.I.S.A. also requires the disclosure and reporting of financial and other information concerning the operation of employee benefit plans.
A bond which indemnifies the insured for loss caused by the dishonest or fraudulent acts of its employees. It can be written on a blanket, individual or schedule basis. Also known as Dishonesty Insurance.
LICENSE & PERMIT BOND
Used interchangeably with the term “permit-bond” to describe bonds required by state law, municipal ordinance or regulation, to be filed prior to the granting of a license to engage in a particular business or a permit to exercise a particular privilege. Such bonds provide payment to the obligee or, in some instances to third parties, for loss or damage resulting from violations by the licensee of the duties and obligations imposed upon him or her.
LOST INSTRUMENT BOND
A bond given by the owner of a valuable security (stock, bond, promissory note, certified check, etc.) which is alleged to have been lost or destroyed. The bond protects the issuer of the security against loss which may result from the issuance of a duplicate or, in some instances, payment of cash value thereof.
A bond given by a contractor to guarantee payment to certain laborers and suppliers for the labor and material used in the work performed under the contract. This liability may be contained in the performance bond, in which case a separate labor and material bond (payment bond) is not given.
A bond which guarantees performance of the terms of a written contract. Performance bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability.
A bond that guarantees an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors and other fiduciaries. So called because such bonds are customarily filed in a probate court.
Covers defense costs for errors and omissions made by employees or the company.
A bond guaranteeing to construct and complete improvements such as streets, sidewalks, curbs, gutters, sewers and drainage.
A bond which guarantees performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety must indemnify the purchaser of the supplies against the loss occasioned thereby.
A written agreement providing for monetary compensation to be paid by the surety should there be a failure by the person bonded to perform specified acts within a stated period.
Refers to obligations to pay the debts of, or answer for, the default or miscarriage of another. It is a legal relationship based upon a written contract in which one person or corporation (the surety) undertakes to answer to another (the obligee) for the debt, default or miscarriage of a third person (the principal) resulting from the third person’s failure to pay or perform as required by an underlying contract, permit, ordinance, law, rule or regulation.