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Bonds

Insurance Services of Michigan

The purpose of a surety bond is to protect public and private interests against financial loss. Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation to another party. There are three parties to the agreement:

  • The principal is the party that undertakes the obligation.
  • The surety guarantees the obligation will be performed.
  • The obligee is the party who receives the benefit of the bond.

What is a Surety Bond?

A surety bond is a written agreement that usually provides for monetary compensation in case the principal fails to perform the acts promised. There are different types of surety bonds, but the two general categories are contract and commercial surety bonds.

  • Commerical Bonds
    A blanket fidelity bond issued in a stated amount on all regular employees of commercial establishments covering against loss from employees’ dishonest acts.
  • License and Permit Bonds
    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 for loss or damage resulting from violations by the licensee of the duties and obligation imposed upon him/her.
  • Public Official Bonds
    A bond that guarantees faithful performance of duty of a public official in a position of trust; also provides for an honest accounting of all public funds handled by him/her. Such bond is given to comply with a statute and, therefore, carries whatever liability the statute imposes.
  • Fiduciary Bonds
    Required of administrators, executors, guardians, committees, etc., guaranteeing faithful performance of duty in accordance with the laws applicable to the trust. Frequently called a probate bond because the bond is customarily filed in a probate court.
  • Court Bonds
    A general term embracing all bonds and undertakings require of participants in a lawsuit permitting them to pursue certain remedies in the courts.
  • Bankruptcy Trustee Bonds
    Provides a guarantee to the beneficiaries of the bankruptcy action that the bonded trustees, appointed in a bankruptcy proceeding, will perform their duties and handle the affairs according to the rulings of the court.
  • Contract Bonds
    A guarantee of the faithful performance of construction contract and usually the payment of all labor and material bills related to it. In those situations where two bonds are required - one to cover performance and the other to cover payment of labor and materials - the former is known as a performance bond, and the latter as a payment bond.
  • Bid Bonds
    Given by a bidder for 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 bond. Default will ordinarily result in liability 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.
  • Payment Bonds
    Guarantees that a contractor will pay suppliers, laborers, and subcontractors (subject to contract terms) for labor and materials
  • Performance Bonds
    A bond which guarantees faithful performance of the terms of a written contractor for furnishing supplies or for construction of all kinds. Performance bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability.
  • Maintenance Bonds
    A bond which guarantees faithful performance of the terms of a written contractor for furnishing supplies or for construction of all kinds. Performance bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability.
  • Supply Bonds
    A bond which guarantees faithful performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety must indemnify the purchase of the supplies against the loss occasioned thereby.

What is a Fidelity Bond?

A fidelity bond is often referred to as “honesty insurance” because a fidelity bond indemnifies the insured for the loss caused by the dishonest and fraudulent acts of its covered employees. In addition, a fidelity bond typically covers the insured against the following:

* Forgery or Alteration
* Loss inside the premises caused by theft, disappearence and destrucation, and robbery and safe burglary;
* Loss outside the premises caused by robbery of a messenger.
These coverages sometime are referred to as Crime Coverage Fidelity bonds :

  • Janitorial Services Bonds
    Protects you and your employees against unjustified allegations of dishonesty, theft, disapperance, etc
  • Employee Dishonest Bonds
    Protects the employer from financial loss due to the fraudulent activities of an employee or group of employees. The loss can be the result of the employee's theft of money, securities or other property of the employer.
  • Pension/Trust (ERISA) Bonds
    Protects the participants and beneficiaries from dishonest acts of a fiduciary who handles the plan assets. It requires every plan to bond any fiduciary and all other persons who handle plan assets.