There are three parties involved in a surety bond. If one of them needs to make a claim on the bond, the other two have an obligation to respond. How does this process work? Who pays who?
The surety claims process works much like an insurance claim. However, there are key differences as well. Always play your part in honoring your part of a bond claim.
How Do Bonds Work?
If you make a contract with another party, they might want you to enroll in a surety bond. The bond is essentially a guarantee that you will repay them if you cannot honor the contract.
Surety bonds are, in many ways like insurance. The bond comes with a financial sum attached to it. It applies to your obligations to a client. If you fail to complete your work, for any reason, the client stands to lose out. Therefore, they can file a claim on the bond to request that you repay them.
There are some key differences to bonds as opposed to insurance. Under a bond, you only guarantee your client that you will repay them. You won’t be able to use an insurance settlement to do it. Therefore, you’ll have to work with both the client and the surety provider to reach a settlement.
Making a Claim on a Bond
There are three parties in a bond claim:
- The principal is the group who carries a bond. That’s usually you or your business.
- The obligee is the person requiring you to carry the bond. In other words, that is your client.
- The surety company is the entity that issues and maintains the bond.
How do these parties interact when the obligee makes a claim on the bond.
- If you are the principal, you’ll usually do very little in the initial claims process. However, you’ll need to provide the client with the information of the surety company. That will let them know who to call in case of problems.
- Obligees will usually need to contact the surety provider. They’ll start the claims process. Obligees will have to submit qualifying evidence to support their claim.
- The surety bond company will then contact the principal. They’ll let you know what you owe the obligee. In some cases, what you owe might depend on the stipulations of the contract.
- Sometimes, the surety company will pay a claim on the client’s behalf. However, you still might have to repay them for their settlement.
Surety bond claims might take time. However, they will prove beneficial to those affected. Make a bond a part of your contractual claims right now.
Also Read: Is a Surety Bond a Type of Insurance