Chapter 12 short answer

What options are usually available to the surety if the contractor defaults under a performance bond (4):

1.) Complete the project using the existing contractor. 2.) Complete the project using a replacement contractor. 3.) Allow the owner to arrange for completion of work with the surety paying the additional cost up to the penal amount of the bond. 4.) Pay the penal amount of the bond to the obligee.

Describe the parties in whose custody property must be in order to be covered under Insuring Agreement C- In transit of Bond Form 24

1.) Custody of a "messenger" 2.) custody of a transportation company and being transported by an armored vehicle

Identify and describe the roles of 5types of fiduciaries who are frequently bonded:

1.) Guardian- a fiduciary who legally has the car of a person or a person's property because of the inability of that person to manage his or her own affairs. 2.) Executor- a fiduciary in a will to administer a deceased person's estate. 3.) Administrator- a fiduciary that a court appoints to settle the estate of a person who has died intestate (without a will) Receiver or trustee in a bankruptcy proceeding

Summarize the 2 exposures included under the Combination safe Depository Policy, Loss of Customer's Property- Premises Damage coverage agreement

1.) Loss of customers' property by actual or attempted burglary robbery or destruction (regardless of the insured's liability" 2.) Damage to the insured's premises and all furnishings, fixtures, fittings, equipment, safes, and vaults therein resulting from actual or attempted burglary or robbery, or vandalism or malicious mischief.

What are common reasons for a bidding contractor to refuse to enter into a contract to perform work (4):

1.) The contractor determines that the contract is impossible to fulfill at the quoted price. 2.) Economic conditions change, increasing the contractor's cost to perform the work. 3.) The contractor discovers a mistake was made in preparing the bid. 4.) Pay the penal amount of the bond to the obligee.

What are four characteristics of surety bonds that distinguish them from most insurance policies:

1.) Three parties to the contract are the surety, obligee, and the principal. 2.) The principal is liable to the surety for losses paid by the surety. An insurer cannot subrogate against its own insured) 3.) The surety should not sustain any losses on any surety contracts. 4.) The surety bond coverage period is indefinite Surety bonds terminate after the principal has fulfilled obligations. (Insurance policies usually have a definite policy period of one year or less.)

What does a bid bond guarantee:

A bid bond guarantees that a contractor bidding for a contract will (if the bid is accepted) enter into a contract and furnish other necessary contract bonds.

Summarize the guarantee provided by each of these: Credit enhancement financial guaranty bond:

A credit enhancement financial guaranty bond guarantees that the principal will pay interest to investors as promised and return the principal at maturity of a debt instrument.

What do fiduciary bonds guarantee?

A fiduciary bond guarantees that persons entrusted with the care of property belonging to others will exercise their duties faithfully, account for all property received, and observe all directives of the court.

Summarize the guarantee provided by each of these: Hazardous waste removal bond

A hazardous waste removal bond guarantees that the principal will comply with Environmental Protection Agency and state laws for closure and post closure care of hazardous waste facilities.

Summarize the guarantee provided by each of these: Lost securities bond

A lost securities bond guarantees that the principal will indemnify the obligee for any financial loss it suffers because of the duplicate securities it issues to the principal

What does a maintenance bond guarantee

A maintenance bond guarantees that a contractor will remedy any faulty work or defective materials discovered within a specified period of time (usually one year after project completion).

What does a payment bond guarentee

A payment bond guarantees that bills incurred by a contractor for labor and materials will be fully paid at the completion of the project, so that the property will be free of liens.

What does a performance bond guarantee?

A performance bond guarantees that the obligee will be indemnified for any loss resulting from the failure of the principal to perform work according to the contract, plans, and specifications.

In what situation is a supply contract bond required, and what does it guarantee:

A supply contract bond is required when an agreement for furnishing and delivering materials at an agreed price is made. The bond guarantees that the supplier will execute the designated supply contract according to specifications.

Name two corresponding types of judicial bonds, and summarize the guarantee made by each:

An attachment bond guarantees that, if the court decides against the plaintiff, the plaintiff will pay any damages sustained by the defendant as a result of having property attached. A release of attachment bond guarantees that, if the court decides in the plaintiffs favor, the defendant will return the property and pay any damages and court costs. (An appeal bond guarantees that the plaintiff will pay all required court costs on appeal. A defendant's appeal bond guarantees that, if a higher court sustains the initial judgement, the defendant will pay the entire judgement plus court costs and itnerest.

Messenger

An employee in possession of the insured's property away from the insured's premises or any other person acting as custodian of the property during an emergency arising out of the incapacity of the employe messanger

Summarize the guarantees made in these types of license and permit bonds: Compliance bonds with third-party liability

Compliance bonds with third party liability bonds guarantee that the principal will comply with the laws that apply to the activity for which the principal is licensed and pay damages to any third party that suffers a loss because of the principal's failure to comply.

Summarize the guarantees made in these types of license and permit bonds: Compliance only bonds:

Compliance only bonds guarantee that the principal will comply with the laws that apply to the activity for which the principal is licensed.

If a contractor needs to construct a building and is required to purchase a performance bond what are the parties:

Contractor is the principle, the person or organization that they are building the building for is the obligee, and the insurer or bonding company furnishing the bond is the surety.

Summarize the guarantees made in these types of license and permit bonds: Forfeiture bonds

Forfeiture bonds guarantee that the surety will pay (forfeit) the entire bond penalty if the principal fails to complete the bonded obligation

Explain what is excluded under the loan exclusion of Bond Form 24

If the insured advances funds to a borrower with the expectations of repayment in the normal course business, but such repayment is not made, the bond excludes coverage for the resulting loss.

Who generally needs to provide a subdivision bond, and what does it guarantee

Land developers need to provide a subdivision bond to guarantee local governmental authorities that they will complete the subdivision in accordance with approved proposals and at the developer's expense.

Summarize the guarantees made in these types of license and permit bonds: Merchandising or dealer bonds

Merchandising and dealer bonds guarantee that the principal will conduct merchandising activities according to the law and, on many bonds, will properly account for any funds held in trust and transfer them to the appropriate party.

Describe the coverage provided by mortgage guarantee insurance

Mortgage guaranty insurance covers the amount of the loan, interest on the loan, and taxes and insurance costs that the insured advanced to a borrower in connection with the loan transaction, and certain other expenses.

What are the two guarantees made in public official bonds:

Public official bonds guarantee honest and faithful performance.

Summarize the guarantees made in these types of license and permit bonds: Reclamation and environmental protection bonds:

Reclamation and environmental protection bonds guarantee the the principal will restore land to its original state after its operations are completed and clean up spills or runoff that pollute the land or water in the area of operation.

Describe the statutory nature of surety bonds:

Surety bonds are often required by municipal ordinance or federal or state regulations or statutes, the provisions of such bonds, and thus the obligations of the three parties to the bond, are spelled out in the law.

Summarize the guarantees made in these types of license and permit bonds: Payment of tax or fee bonds

Tax or fee bonds guarantee that the principal will property account for an remit taxes or fees collected.

Describe the coverage provided by the Computer Systems Fraud insuring agreement of the Computer Crime policy:

The Computer systems fraud insuring agreement covers loss caused by someone who has managed to enter or change electronic data or computer programs in the insured's computer system.

Describe the coverage provided by Insuring Agreement G- Fraudulent mortgages of Bond Form 24

The Fraudulent Mortgages insuring agreement covers loss resulting from the insured's good faith acceptance of a mortgage or deed of trust that proves to be defective because the signature on the mortgage or deed was obtained through fraud or false pretenses.

In what situations does the Miller Act require contractors to provide performance and payments bonds:

The Miller Act requires contractors to provide performance and payment bonds when contracts for construction or repair of public buildings or public buildings or public work for the federal government exceed $100K.

Summarize how the definition of "employee" in Bond Form 24 differs from the definition used in commercial crime forms:

The definition of "employee" is broader than that used in commercial crime forms in that is includes (1) attorneys and their employees retained by the insured while performing legal services for the insured and (2) Corporations or partnerships and their employees performing data processing of checks or other records for the insured.

What does the "penalty" mean in reference to surety bond?

The set limit of a surety bond is sometimes called "the penalty"