Administrator
A person or entity legally vested with the right of administration
of an estate.
Applications
A form used to collect information in order to underwrite
a risk.
Attachment
The legal process of taking possession of a defendant's property
when said property is in dispute.
Balance Sheet
A financial statement listing assets, liabilities and net
worth.
Bank Depository Bonds
Bonds guaranteeing the deposit of public funds.
Bankruptcy Trustee Bonds
Bonds which provide 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.
Common types of bankruptcies are:
Chapter 7: calls for the "liquidation"
of a business and allows for the sale of
the assets to pay outstanding debts.
Chapter 11: calls for the "reorganization"
of a business and the debtor remains in
possession of the assets after the filing of a plan for the
reorganization.
Bid Bonds
Bonds that guarantee that a contractor will enter into a contract
at the amount bid and post the appropriate performance bonds.
These bonds are used by owners to pre-qualify contractors
submitting proposals on contracts. These bonds provide financial
assurance that the bid has been submitted in good faith and
that the contractor will enter into a contract at the price
bid.
Blanket Bonds
Bonds that guarantee the honesty of all of the employees of
an entity to the stated amount of the bond.
Blanket Position Bonds
Bonds that guarantee the honesty of each of the employees
of an entity stated on the bond to the stated amount of the
bond.
Blanket Public Official Bonds
Blanket public official bonds cover all public employees of
the public entity stated on the bond to the stated amount
of the bond.
Blanket Position Public Official
Bonds
The blanket position public official bond covers each public
employee of the public entity stated on the bond to the stated
amount of the bond.
Capacity
A term that refers to the size of a bond that a surety is
able to write.
Commercial Bonds
A general classification of bonds that refers to all bonds
other than contract and performance bonds. Commercial bonds
cover obligations typically required by law or regulation.
Each bond is unique to the circumstances at hand.
Commercial Blanket Bonds
These bonds provide a single amount of coverage to cover dishonest
acts of employees, regardless of the number of employees involved
in the loss. In other words, this type of bond covers all
employees to the amount stated on the bond.
Conservator
A person, official, or entity designated to take over and
protect the interest of an incompetent or minor.
Contract Bonds
A general classification of bonds that are designed to guarantee
the performance of obligations under a contract. These bonds
guarantee the obligee that the principal will perform according
to the terms of a written contract. Construction contracts
constitute most of these bonds. Contract bonds protect a project
owner by guaranteeing a contractor's performance and payment
for labor and materials.
Court Bonds
Refers to bonds required in some action of law.
Damages
Refers to monetary measure of harm or injury asserted by a
claim.
Defendant
The term that refers to the person or entity being accused
in a court case.
Defendant Bonds
Defendant bonds counteract the effect of the bond that the
plaintiff has furnished. They often require the posting of
collateral to be written.
Employee Retirement Income
Security Act (ERISA)
The 1974 federal legislation that created a requirement for
a bond to be posted, in the amount of ten percent of the funds,
on the fiduciary of pension funds and profit-sharing plans.
Errors and Omissions Insurance
A policy that guarantees coverage for an insured in the event
of unintentional mistakes. Errors and Omissions Insurance,
commonly referred to as E&O, covers damages arising out
of the insured's negligence, mistakes, or failure to take
appropriate action in the performance of business or professional
duties.
Executor
A person or entity appointed to execute a will.
Fidelity Bonds
Bonds designed to guarantee honesty. Generally, the bond guarantees
honesty of employees. These bonds cover losses arising from
employee dishonesty and indemnify the principal for losses
caused by the dishonest actions of its employees.
Fiduciary
One who is appointed to act in the best interests of another.
A fiduciary is a person or entity appointed by the court to
handle the affairs of persons who are not able to do so themselves.
Fiduciaries are often requested to furnish a bond to guarantee
faithful performance of their duties.
Fiduciary Bonds
Bonds that guarantee an honest accounting and faithful performance
of duties by administrators, trustees, guardians, executors,
and other fiduciaries. Fiduciary bonds, often referred to
as probate bonds, are required by statutes, courts, or legal
documents for the protection of those on whose behalf a fiduciary
acts. They are needed under a variety of circumstances, including
the administration of an estate and the management of affairs
of a trust or a ward.
Funds Control
A method of taking control of a bonded project's cash flow
to ensure subcontractors and suppliers will be paid appropriately.
This method may be used when the contractor would not otherwise
qualify for a bond.
Indemnification
The act of holding another harmless in the event of a loss.
Individual Bonds
A term generally used with public official bonds, which refers
to bonds written in the name of the specific public official.
Large Deductible Plans
A type of insurance program bond in which the insurer pays
all losses, including those that fall within the deductible,
and seeks reimbursement from the policyholder on a monthly
or quarterly basis. The bond guarantees the policyholder will
reimburse the insurer for losses within the deductible.
License and Permit Bonds
A general class of bonds required of a person or entity to
obtain a license or a permit in any city, county, or state.
These bonds guarantee whatever the underlying statute, state
law, municipal ordinance, or regulation requires. They may
be required for a number of reasons, for example the payment
of certain taxes and fees and providing consumer protection
as a condition to granting licenses related to selling real
estate or motor vehicles and contracting services.
Maintenance Bonds
Bonds that provide for the upkeep of the project for a specified
period of time after the project is completed. These bonds
guarantee against defective workmanship or materials. These
bonds may occasionally include a guarantee of "efficient
or successful operation" or other obligations.
Minor
A person who is not of legal majority.
Miscellaneous Bonds
A term used to refer to bonds that do not fit any of the other
well-recognized categories of bonds.
Name Schedule Bonds
A type of public official or fidelity bond that lists the
specific names and amounts of each named individual bonded.
Name schedule bonds use one bond, but attach a schedule of
individual names of the bonded public officials. Each name
will list a specific dollar amount for which that individual
is being bonded. These may be used to bond a panel of city
council members or similar body of officials.
Name Schedule Public Official
Bonds
Name schedule bonds use one bond, but attach a schedule of
individual names of public officials being bonded. Each name
will list a specific dollar amount for which that individual
is being bonded. These may be used to bond a panel of city
council members or similar body of officials.
Notary Public Bonds
Include bonds that are required by statutes to protect against
losses resulting from the improper actions of notaries.
Obligee
The person or entity for whom or which a surety guarantees
the performance of the principal's obligations.
Open Penalty
A term used to refer to the unlimited liability of the surety
on a particular bond.
Ordinance
A municipal regulation.
Payment Bonds
Payment bonds guarantee payment of the contractor's obligation
under the contract for subcontractors, laborers, and materials
suppliers associated with the project. Since liens may not
be placed on public jobs, the payment bond may be the only
protection for those supplying labor or materials to a public
job.
Penalty
A term used to refer to the monetary size or limit of bond.
Pension
A fixed sum of money regularly paid to a person.
Performance Bonds
Performance bonds guarantee performance of the terms of a
contract. These bonds frequently incorporate payment bond
(labor and materials) and maintenance bond liability. This
protects the owner from financial loss should the contractor
fail to perform the contract in accordance with its terms
and conditions.
Plaintiff
The person or entity that brings an action in a court of law.
Plaintiff Bonds
Plaintiff bonds are required of a plaintiff in an action of
law. They generally guarantee damages to the defendant caused
by the plaintiff's legal action, should the court decide for
the plaintiff.
Position Schedule Bonds
A type of fidelity or public official bond, which lists specific
positions and their corresponding penalty amounts. Position
schedule bonds use one bond, but attach a schedule of positions
to be bonded. Each name will list a specific dollar amount
for which that individual is being bonded. This type of bond
may be used to bond certain positions that have a high amount
of turnover. Using a position instead of a name will reduce
the paperwork involved year-to-year.
Premium
A sum of money paid as consideration for an insurance policy
or bond.
Principal
The individual required to be bonded by the obligee.
Public Official Bonds
A type of bond that guarantees a public official will act
with honesty and/or faithful performance. These bonds are
required by statutes and ordinances.
Public Officials
One who holds public office.
Rates
The amount of money per thousand dollars (or percentage) used
to determine the bond premium.
Reclamation Bonds
A bond that guarantees that a person or entity will restore
land that it has mined or otherwise altered, to its original
condition.
Replevin
A legal proceeding used to recover specific personal property.
Retrospective Plan Bonds
Type of insurance program bond in which the final premium
is a combination of incurred losses and an administrative
charge. Retrospective plans are loss sensitive insurance plans.
Since final loss costs may take years to develop, the bond
guarantees payment of the final premium amount.
SBA
An acronym for the Small Business Administration. The SBA
has a program to help small and minority owned contracting
businesses obtain surety bonds.
Self-Insurers Retention Plan
Bonds
A type of insurance program bond that is commonly used with
Workers' Compensation insurance, General Liability coverage
or other liability coverage where limited coverage is available
or coverage, when available, may not be affordable.
Supply Bonds
Bonds that guarantee performance of a contract to furnish
supplies or materials. In the event of a default by the supplier,
the surety indemnifies the purchaser of the supplies against
the resulting loss.
Surety
A person or entity that guarantees the acts of another.
Surety Bonds
Surety bonds are three-party agreements in which the issuer
of the bond (the surety) joins with the second party (the
principal) in guaranteeing to a third party (the obligee)
the fulfillment of an obligation on the part of the principal.
An obligee is the party (person, corporation or government
agency) to whom a bond is given. The obligee is also the party
protected by the bond against loss.
Surety Industry
The surety industry is composed of contract surety business
and commercial surety business. The products comprising each
are sold through the same type of distribution system –
agents and brokers.
Treasury Listing
A financial rating published by the federal government that
lists the maximum size of federal bond a surety is allowed
to write.
Trustee
A trustee is a person or entity named to manage a business'
assets and work with the business creditors.
Work-On-Hand Reports
A type of financial statement or schedule that lists a contractor's
jobs in progress.
Workers' Compensation Self-Insurers
Bond
Workers' Compensation laws, at the state and federal level,
require employers to compensate employees injured on the job.
An employer may comply with these laws by purchasing insurance
or self-insuring by posting a workers' compensation bond to
guarantee payment of benefits to employees. This is a hazardous
class of commercial surety bond because of its "long-tail"
exposure and potential cumulative liability. The "long-tail"
exposure stems from the two statutory bond forms:
Traditional – bond form:
The surety is liable for payment of the principal's workers'
compensation obligations occurring during the time the bond
is in force. When the bond is canceled, the surety continues
to have liability for all workers' compensation claims incurred
between the effective date of the bond and the cancellation
date of the bond.
Last surety on – bond
form:
The surety assumes all past, present and future liability
to pay the principal's self-insurers workers' compensation
obligations. The surety is released from all accrued liability
if the surety cancels the bond and the principal later posts
an acceptable replacement security.
This glossary attempts
to illustrate common usage of surety industry terms. These
brief descriptions are not intended as legal interpretations.
Consult Druml Group for more complete information.
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