Note: This post originally ran as an article on www.TheSummitMagazine.com and is used here with permission.
Hazana Rivers, CISR, CLCS, of Hylant, is very passionate about minority business enterprises (MBEs) and understands insurance cost can be one of the largest operating expenses for small business owners. She believes it is critical for small business owners to have the basic understanding of insurance contracts, knowledge of the various types of surety bonds along with an understanding of the process of obtaining the appropriate bonds for specific projects.
With the most recent growth in construction opportunities in the Greater Cleveland Area as well as Summit County, Hazana explains below the two types of surety bonds and the process for obtaining a bond.
What Is a Surety Bond?
A surety bond is a promise to be liable for the debt, default, or failure of another. It is a three-party contract by which one party (the surety) guarantees the performance or obligations of a second party (the principal) to a third party (the obligee).
There are two types of surety bonds: contract and commercial (also called miscellaneous).
Contract Surety Bond Types
Bid Bond: Provides financial protection to the owner if a bidder is awarded a contract but fails
to sign the contract or provide the required performance and payment bonds.
Performance Bond: Provides an owner with a guarantee that, in the event of a contractor’s default, the surety will complete or cause to be completed the contract.
Payment Bond: Ensures that certain subcontractors and suppliers will be paid for labor and materials incorporated into a construction contract.
Warranty Bond (Maintenance Bond): Guarantees the owner that any workmanship and material defects found in the original construction will be repaired during the warranty period.
Commercial Surety Bond Types
License and Permit Bonds: Required by federal, state, or local governments as a condition for obtaining a license or permit for various occupations and professions. This may include auto dealer bonds, mortgage broker bonds, contractor license bonds, and surplus lines broker bonds.
Court Bonds (Judicial Bonds): Required of a plaintiff or defendant in judicial proceedings to reserve the rights of the opposing litigant or other interested parties. Court bonds include appeal bonds, supersedeas bonds, attachment bonds, and injunction bonds.
Fiduciary Bonds (Probate Bonds): Required of those who administer a trust under court supervision. Typical such bonds are executor and administrator bonds, trustee bonds, guardian bonds, and conservator bonds.
Public Official Bonds: Required by statute for certain holders of public office to protect the public from
malfeasance by an official or from an official’s failure to faithfully perform duties. Public official bonds included county clerk bonds, tax collector bonds, notary bonds, and treasurer bonds.
Miscellaneous Bonds: Includes a wide variety of bonds, such as warehouse bonds, title bonds, utility bonds, and fuel tax bonds.
The Surety Bond Application Process
1. Contact Hazana Rivers [or your local Hylant office] to request an application. Please be sure you have confirmed which type of surety bond form you need. If you have already completed an application elsewhere, you may send that same application as well.
2. We ask that you complete the application and forward it to our office, along with a copy of your contract agreement and any additional documentation such as financials to help obtain a more competitive quotation. (If you already received a surety bond quote elsewhere, you can forward a copy of the quote to see if we can provide a more competitive quote).
3. We will submit to our markets once we receive your completed applications.
4. Once quotes are received from our carriers, we will provide the most competitive quotes to your office. Upon your approval to do so, we can bind coverage and issue your bond.
Hylant can also assist with additional coverages, such as general liability, cyber, property, directors and officers, errors and omissions, employment practices liability insurance, etc. We want our clients focused on what will make them successful. Hylant will do the rest.
The above information does not constitute advice. Always contact your insurance broker or trusted adviser for insurance-related questions.