misc bonds

[stardustnight]

I have a freind who needs a 25,000 bond for his home inspection business and they have asked i be a co indemnitor, here are my questions if any one can or would like to take the time to educate me on this. I turned to this as some of the questions and answers are awesome and there seems to be some real bond experts out there. All help is appreciated. I read the contract Kim and Timm signed, but I have many questions regarding it specifically. I have tried to capture the questions under the specific statement being made below. I mention bond holder and am referring to Timm Johnson and Kim Peek. I am not sure of the correct terminology.

1) In statement 1) it talks about "satisfactory evidence that Surety's liability is terminated". When is Surety's liability terminated? Under what conditions would this become an issue?

2) In statement 2) if a claim is made against the bond, the signer must cover legal fees and expenses in addition to liability, claim, suit, etc. To what extent, exactly, could the legal fees amount to? Why would Surety oppose a claim against the bond? Under what circumstances would there be a need for this statement? To what extent is the total liability against a $25,000.00 bond?

3) In statement 3), what fees would arise out of the issuance of a bond? Why aren't any fees covered in the normal premiums paid by the recipient of the bond?

4) In statement 4) it says that the recipient of the bond would agree to pay interest, at the highest rate, in the event of any payment by Surety? Exactly what does that mean? It is my understanding that the total liability of this agreement is $25,000.00. Is that correct? Why would interest be charged at the highest rate? Why would interest be charged at all? Why would Surety be making payments against the bond? Isn't the premium insuring against the bondholder up to the amount of the bond?

5) In statement 5) Surety maintains exclusive rights to appeal a claim. Why would Surety ever appeal a claim? Why would Surety defend a claim against a bond? What "loss" would Surety incur against a claim? What is the total liability the bond holder could suffer as a result of Surety's rights?

6) In statement 6), Surety talks about amending a bond, altering the conditions of the bond, and/or canceling a bond. What would provoke this any of these actions? How can Surety alter or cancel a bond if the premiums have been made in good faith? So is it possible that someone would make a claim against the bond and Surety would cancel it? Is that happened, what is the liability to the person who believed they were covered by the bond?

7) In statement 7), there is talk of a loss reserve. What is a loss reserve? What is the total liability to the bond holder?

9) In statement 9) the indemnification agreement seems to apply to all continuations, substitutions, and extensions of the suretyship. Does this mean that the contract is never ending? Who decides when the contract is terminated? Does this mean that the co-signer would also agree to the same terms of indefinite liability?

Since I would be co-signing, when would my liability cease to exist? How would my personal information be used? What am I agreeing to? What is the total liability I might face in the event that the main bond holder did not fulfill their contractual agreement?

I am sorry to ask so many questions, but I need to have some degree of comfort that I understand what I am getting myself into. I may have additional questions based on your responses as well.

Thank you again for taking the time with me.

[Surety Guy]

You have some good questions. It is good to hear that some are researching what they are doing rather than just signing whatever is put in front of them.

1) The length of time for the liability can vary depending on bond type. It seems that your friend is in need of a rather standard license bond. In this case, you will want to read the bond form to see how long the liability is there for. Some bond forms will have a "tail", where liability can exist years after the bond has expired.

2) There is no set limit. As an indemnifier, you will be on the hook for $25K + legal fees.

3) You are going to have to be more specific on this one. In what context is this statement made?

4) Make no mistake bonds are not insurance. In the event of a claim, anyone who indemnifies pays for it not the surety. In other words, you and the other indemnifiers will be responsible for up to $25K plus legal fees in the event of a claim. You will want to read the Surety Bond Blog for more about what bonds actually are.

5) Bonding companies do not simply write out checks for claims. They will investigate them to make sure they are valid or if another solution can be implemented. If the the claim is paid the principal and other indemnifiers (you) are responsible to pay the surety for the claim and any legal fees incurred.

6) Most bonding companies will require language to allow them to cancel a bond at any time, for any reason. However, this does not mean they will exercise that right unnecessarily. The most common reasons are: claims, non-payment for renewals, or unsatisfactory file updates when the surety requires them. As stated above, the principal (your friend) is in no way "covered" by the bond, as it is not P/C insurance.

7) You will need to be more specific on the context of this statement.

9) Looks like you skipped 8 The agreement is active as long as the bond has a liability. Once the liability has been released you may ask the surety to return the indemnity agreement.

Since I would be co-signing, when would my liability cease to exist?

When the bond has no liability.

How would my personal information be used?

The surety will check your credit and most likely a personal financial statement to make sure that you can pay a claim if needs be.

What am I agreeing to?

You are personally guaranteeing your friends business per the state's rules and regulations.

What is the total liability I might face in the event that the main bond holder did not fulfill their contractual agreement?

Up to $25,000 plus legal fees.



I hope that helped. Feel free to post further questions if you have any!

[stardustnight]

wow Surety guy, thank you for taking the time for that..Im sure I will think of more questions , but off the top my head, can you give me a breif example of a situation where a bond would pay out, and what the process is...Why do companies, like Electric companies,ect require bonds? Are bond used that much? seems to me that if the business you hired to do a job for you, had a commercial liability policy, the insurance would pay out..I do understand the bond is not insurance, but sometimes hard to type out what Im trying to say...I cant express enough how Impressed I am with you..