Surety Bonds *Unit 11* Quiz

Which type of fiduciary bond is designed for those who administer estates of deceased persons?

Probate Bond

What is a customs bond?

A customs bond may be required of those who import or export goods. The bond guarantees that customs required by law will be collected, reported and paid.

What is a recovery against those who default called in a suretyship?

A default on obligations recovery, is called salvage.

Describe a payment bond.

A payment bond guarantees that all labor and materials for the project will be paid by the contractor upon the completion of the work, which also guarantees there will be no mechanic's liens or similar problems after completion.

Describe a permit bond.

A permit bond is like a license bond except it deals with the requirement to get a permit for a specific function rather than a continuous operation (i.e. an athletic event, an exhibition, to move a building or to cut down a tree).

Describe a license bond.

A public body for a variety of reasons may require a license bond. Such a bond may simply guarantee the licensee will operate in conformity with general laws. Others may be for the purpose of protecting the public against harm from unfair business practices. The bond may guarantee the proper collection of payment of taxes.

Describe an indemnity bond.

An indemnity bond is a type of license bond, which holds a governmental body harmless from any injuries or damage caused by the principal's activities.

Which type of court bond would be required of a defendant to guarantee their appearance in court?

Bail Bond

A man wanted to have a building erected at a competitive price, completed within a specified time, with workmanship guarantee for one year. Which bonds are required?

Bid Bond, Performance Bond, Payment Bond, and Maintenance Bond

Which type of bond is required of investment companies guaranteeing against misrepresentation of securities and defrauding the public generally?

Blue Sky Bond

What are the three underwriting characteristics for bonds?

Character, capital, and capability

Under a Surety Bond, valuable property held by Surety for the life of the bond is called?

Collateral

Which type of fiduciary bond is designed for those who are appointed to manage and preserve property other than estates of decedents, such as those appointed as guardians of minors or incompetents?

Conservation Bond

What is the general underwriting process before issuing a surety bond?

Depending upon the nature of the guarantee, the surety will wish to satisfy itself on (1) the character of the principal (dependable reputation to warrant the surety's trust) (2) the principal's financial resources (capital) and (3) the experience or capabilities of the principal to perform.

Which type of bond is one that guarantees the performance of a person appointed by a court, or named in a will or deed of trust to take possession of property, collect assets, make investments, pay debts, sell assets, carry on business, etc?

Fiduciary Bond

Which type of bond may be required by a public body when it awards a franchise?

Franchise Bond

Which type of license bond holds a governmental body harmless from any injuries or damage caused by the principal's activities?

Indemnity Bond

Which type of fiduciary bond is required by persons appointed to conserve remaining assets and protect creditors?

Insolvency Bond

Which type of bond may be required by a public body for guaranteeing the licensee will operate in conformity with general laws or for the purpose of protecting the public against harm from unfair business?

License Bond

Which type of bond allows an issuing company to reissue a lost stock certificate, bond or similar instrument?

Lost Instrument Bond

What is a public official bond?

Many public officials both appointed and elected must provide bonds for their terms of office. The bond guarantee is specified in the law, which requires the bonds. Generally these bonds guarantee the principal will uphold the oath of office and faithfully perform the duties of the office.

Which bond guarantees indemnification to the obligee for any losses resulting from the principal's failure to complete the contract work in accordance with specifications?

Performance Bond

Who are the three parties to the suretyship?

Principal - the one who undertakes to perform; Obligee - the one who is to be guaranteed that the principal will perform; Surety- the one who guarantees the performance of the principal to the obligee ("the bonding company").

Which type of bond may be required by a public official for their term of office?

Public Official Bond

Which bond guarantees to a permitting authority that promised streets, sidewalks, sewers, streetlights and other required improvements would be installed?

Subdivision Bond

Which bond guarantees delivery at an agreed price for purchasing goods from another?

Supply Bond

What kind of companies provides surety bonds?

Surety bonds may be written through companies specializing in that field, but most business is written in multiple line companies, which maintain specialty departments for servicing surety bonds.

What kind of insurance are surety bonds?

Surety bonds or Suretyship is not insurance. Although suretyship is transacted within the structure of the property and liability insurance business, there are important differences.

Under what conditions would the bonding company usually require of an indemnitor?

The surety may require an indemnitor if able to satisfy itself that the principal has the capabilities to perform the obligation, but is lacking the necessary financial resources to carry it safely through to completion.

Identify the type of bond (general classification and sub-classification, if applicable) that would be indicated for the following situation: "A court has appointed a person to wind up the affairs of a bankrupt company"?

The type of bond would be Court- Fiduciary - Insolvency.

Can the bonding company refuse to issue a surety bond?

They will refuse to give a guarantee on behalf of one thought to be unable to fulfill the obligation, and if called upon, the bonding company would have the right of recovery against the defaulter.

What is a U.S. Internal Revenue bond?

This type of bond is required of those who collect and must report taxes for certain control commodities (i.e. distilleries, winemakers, brewers and manufacturers of tobacco products).

Describe court bonds.

Type of bond furnished by both the plaintiffs and defendants in litigation to protect the opposing party from loss in the event the principal fails to show a legal entitlement to the remedy sought. Some additional examples of use are; to protect the defendant against wrongful loss; and one seeking a writ of attachment against another, to prevent that person from disposing of the property in question.

What are contract bonds in a suretyship?

Contract bonds are the greatest emphasis in suretyship, which are to provide a guarantee for the fulfillment of a contractual obligation, particularly, an agreement for construction and for supplying goods.

Describe a performance bond.

Guarantees indemnification to the obligee for any losses resulting from the principal's failure to complete the contract work in accordance with specifications.

Define one difference between suretyship and insurance?

Please compare your answer to the correct answer: A surety bond, or suretyship, is one wherein the fulfilling of an obligation by one party to another is guaranteed by a third party, a three-party contract, rather than two (insurer and insured).

What is a blue sky bond?

This bond is required of investment companies guaranteeing against misrepresentation of securities and defrauding the public generally.

Describe insolvency bonds.

Type of fiduciary bond, required by persons appointed to conserve remaining assets and protect creditors. They are required of receivers and trustees for bankruptcy and insolvency proceedings, or for one who petitions a court to place another in bankruptcy (to guarantee reimbursement of expense to the alleged bankrupt party if ultimately found not to be insolvent).

What if the one who was to perform fails?

If the one making the guarantee is called upon to pay because of default by the one who was to perform, the right of recovery exists against the non-performer. In this sense, the one making the guarantee is only lending its credit to the transaction..

Describe a supply contract bond.

One who is purchasing goods from another may require this bond, which guarantees delivery, at an agreed price.

Describe a bid bond.

This form of bond is required to accompany a bid for a contract, which will require a bond. The bid bond guarantees that if the bid is accepted, the bidder will enter into the contract and will be able to obtain a contract bond for the job.

Describe a probate bond.

This is a type of fiduciary bond, which is designed for those who administer estates of deceased persons. Such persons are required to collect the assets, file an inventory, give notice to creditors, pay the debts in proper order, distribute the balance to those entitled under the law, and account to the court.

Describe conservation bonds.

A type of fiduciary bonds for those who are appointed to manage and preserve property other than estates of decedents, such as those appointed as guardians of minors or incompetents.

What is the difference between surety ship vs. insurance?

A. Insurance policies are cancelable and nonrenewable; a surety bond is non-cancelable B. Insurance pays to or on behalf of insured; in surety ship the one making the guarantee is called upon to pay because of the default by the party who was performing the obligation. *C. All of the answers are correct Correct D. A surety bond, or surety ship, is one wherein the fulfilling of an obligation by one party to another is guaranteed by a third party, a three-party contract, rather than two parties (insurer and insured).

Other than the use of an indemnitor, are there any other special underwriting tools for surety bonds?

Collateral - If the bond contains a financial guarantee(a given amount at some date or on the happening of some contingency etc.), the surety may require that the bond be collateralized by the deposit of cash or other valuable property to be held by the surety for the lifetime of the bond, subject to return when the principal has fulfilled his obligation. Another tool to protect against loss is "joint control" wherein the surety and the principal exercise joint control over assets and disbursements.

Which type of bond is furnished by both the plaintiffs and defendants in litigation to protect the opposing party from loss in the event the principal fails to show a legal entitlement to the remedy sought?

Court Bond

Under what conditions would the bonding company usually require an indemnitor?

The surety satisfying itself that the principal has the capabilities to perform the obligation, but is lacking the necessary financial resources to carry it safely through to completion.

Identify the type of bond (general classification and sub-classification, if applicable) that would be indicated for the following situation: " A developer is planning a major housing development on a large tract of land, and is seeking a permit from authorities to undertake the project"?

The type of bond would be Contract - Subdivision.

Identify the type of bond (general classification and sub-classification, if applicable) that would be indicated for the following situation: "A large company has negotiated an arrangement with a concrete company to provide concrete for its new home office building".

The type of bond would be Contract - Supply Contract.

Identify the type of bond (general classification and sub-classification, if applicable) that would be indicated for the following situation: "A contractor wishes to regain use of his equipment by a creditor who has secured a writ of attachment against the equipment"?

The type of bond would be Court - Court - Defendants.

Describe a subdivision bond.

This bond may be required by a permitting authority to guarantee that promised streets, sidewalks, sewers, streetlights and other required improvements would be installed.

Describe a maintenance bond.

This bond may be required, if by specifications or operation of law, and if the principal is responsible after completion and acceptance to correct faulty work or replace defective materials; it guarantees such obligations will be met.

Describe a franchise bond.

This type bond is a variation of a license or permit bond which is required by a public body when it awards a franchise (i.e. a TV cable system, a transportation system or an electric, gas or telephone company).

Describe a fiduciary bond.

This type of bond is one that guarantees the performance of a person appointed by a court, or named in a will or deed of trust to take possession of property, collect assets, make investments, pay debts, sell assets, carry on business, distribute property to heirs, or any combination of these related tasks, honestly, faithfully and make good to the court for any deficiencies found in the performance.

What is a self-insurance bond?

This type of bond is provided to an authority as evidence of compliance with an insurance requirement. For example, a large employer who is self-insured for worker's compensation or auto liability may provide the bond to show compliance with state law and guarantee financial responsibility to respond to obligations of the law.

Describe a bail bond.

This type of court bond would be required of a defendant to guarantee their appearance in court.

What is a lost instrument bond?

When a person has lost a negotiable instrument such as stock certificates, bonds or similar instruments, the issuing company generally requires a bond before the issuing company will reissue the document. The bond guarantees to hold the issuer harmless from any losses growing out of the lost instrument. If another party finds the lost instrument, the issuer may have to honor it for its face value. The issuer may specify an amount for the bond called a fixed penalty bond, or may require a guarantee of payment without limit called an open penalty bond.