4-D: Surety and Fidelity Coverage

Contract Bonds (surety bond)

1. Contract Bonds: most common type of surety bond, guarantees a specific contract (common in construction and supplying goods) these bonds include: -Bid:Principal can complete project if his bid is selected -payment: guarantees payment of contract labor and materials -maintenance: principal will correct any defects after project is done -performance: guarantees completion of a contract -subdivision: contractor will meet all public work requirements -completion: fines that our loan for project will be used only for project

Judicial Bonds (surety bond)

1. Fiduciary bond: guarantees work of someone appointed to take financial responsibility for others 2. Court (a.k.a. litigation) bond: often required of litigants in civil suits to protect opposing parties also include: -Appeal: purchased to postpone payment of damages during the appeal process -Attachment: protects against damage to property taken as part of the litigation process -Injunction: pays damages if a person or business is wrongly affected by court action -Replevin: Assures the return of property to its rightful owner 3. Bail bond: court bond that guarantees appearance of a defendant in court

Insurance Vs. Suretyship

1. Insurance -2 party contract -insurer can't recoup settlement payments from insured -insurer can cancel 2. Suretyship -At least 3 party contract -surety can seek recompense from principal -Surety can't cancel

Financial Institution Bonds

1. Standard form 24(most common): used by banks, truss companies, American agencies for foreign banks, federal reserve banks, savings banks federal home loan banks 2. Standard form 14: used by stock brokers, stock exchanges, security investors, mutual funds, commodity brokers 3. Standard form 15: it's companies who primarily finance paper for in through dealers and those licensed under the small business administration act 4. Standard form 23: for credit unions and national credit union share insurance fund 5. Standard form 25(blanket bond): all types of insurance companies 6. Standard form 28: just with other bonds to provide excess coverage for employee Fidelity

Collateral (surety bonds)

Collateral, which is principles cash or valuable property kept in reserve by the surety. In case of default, it is forfeited to the surety

Public employee dishonest coverage

Covers losses resulting from government employee dishonesty -coverage form O= per occurrence -coverage form P= per employee

Fidelity Bond Coverage Options

Employer buys the bond, and the insurer pays the employer if the employee commits certain acts 1. Scheduled or Blanket coverage 2. Loss sustained: triggered if the actual loss is sustained during a policy period Discover trigger: if the employer makes a claim during the policy period no matter when the loss occurred

Fidelity Bond Covered Acts

Fidelity bond's cover all dishonest acts committed by a covered employee including: larceny, theft, embezzlement, forgery, misappropriation, wrong abstraction, willful misapplication

Indemnitor

Fourth party to a surety bond who agrees to reimburse the surety for losses sustain if the principal defaults

Fidelity Bonds

Guarantee the principal (employee) will NOT do something. Written on employee theft and forgery policy form. Includes: -Principal= employee -Obligee= employer -Surety= the insurer

Faithful Performance of Duty Bond (surety bond)

Guarantees a principal will faithully perform his duties as prescribed by law or the bylaws of the obligee

Customs Bond (surety bond)

Guarantees that an importer/exporter will pay all customs taxes and fees, and obey all regulations and laws

Lost Instrument Bond (surety bond)

Guarantees that an insurer of a copy of a lost financial instrument will not suffer an economic loss if the owner of the instrument later finds and transacts the original

Financial Guarantee Bond (surety bond)

Guarantees that principal and interest will be paid per the terms of the contract or promissory note

Reclamation Bond (surety bond)

Guarantees the health, and safety, and welfare of the public during and after mining operations, and guarantees land will be restored to original condition

Self Insurance Workers Compensation Bond (surety bond)

Pays workers comp claims filed by the self insurers employees when the self insurer itself cannot meet this obligation

Public Official Bond (surety bond)

Protect the public from a public officials lack of performance

Penal Sum (surety bonds)

Specified maximum amount that a surety might have to pay if the principal fails to perform as promised -principal pays the surety an annual premium that reflects the risk the surety is taking and the penal sum

Joint Control (surety bonds)

Surety and principal share control of the bonded project -a surety may reserve the right to regularly audit all disbursements, or even comanage actual work

Surety Bonds

an arrangement between three parties, in which one party promises to perform for another party, and a third-party guarantees that they will fulfill that promise 3 parties include: 1. Principal (a.k.a. obligor): agrees to fulfill an obligation 2. Obligee: party to whom the principal owes the obligation 3. Surety (a.k.a. guarantor): guarantees to pay obligee if principal defaults