Chapter 4-D: Surety Bonds and Fidelity Coverages

Which of the following statements regarding scheduled fidelity bonds is FALSE? A. All employees are bonded for the same aggregate amount. B. A limit of liability is defined for each employee or position. C. Employees can be bonded for different amounts. D. They are applicable to only select employees or positions.

A. All employees are bonded for the same aggregate amount.

A fidelity bond provides a guarantee that an employee will NOT perform certain acts, such as theft or fraud. Who is the obligee in a fidelity bond? A. The employer B. The customer C. The insurer D. The employee

A. The employer

ABC Park Construction recently won a bid to reconstruct the town park. They secure a suretyship from Parker Sureties and begin work on the project. Parker Sureties occasionally comes by to check on the progress of the project, and to make sure things are staying on schedule and on budget. Parker Sureties is exercising: A. joint control. B. fidelity stewardship. C. micro-management. D. surety stewardship.

A. joint control.

In a surety bond, the maximum amount a surety is required to pay is known as a: A. penal sum. B. top rate. C. maximum allowance. D. contract fee.

A. penal sum.

Jack has been appointed to manage Margaret's financial estate, but Margaret requires Jack to be bonded. What kind of bond might Jack seek? A. A performance bond B. A fiduciary bond C. A payment bond D. A license or permit bond

B. A fiduciary bond

All of the following are examples of court bonds, EXCEPT: A. Replevin bond B. Financial Guarantee bond C. Attachment bond D. Injunction bond

B. Financial Guarantee bond

A reclamation bond: A. guarantees that principal and interest will be paid per the terms of the contract or promissory note. B. guarantees the health, safety, and welfare of the public during and after mining operations, and guarantees land will be restored to its original condition. C. guarantees a principal will faithfully perform his duties as prescribed by law or the bylaws of the obligee. D. guarantees that an issuer of a copy of a lost financial instrument will not suffer an economic loss if the owner of the instrument later finds and negotiates the original.

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

As a requirement for getting his California adjuster license, Danny is required to submit proof of bonding with his application. He purchases a surety bond from PBJ Bonds. In this contract, Danny is considered the: A. guarantor. B. obligor. C. indemnitor. D. obligee.

B. obligor.

The Employee Retirement Income Security Act (ERISA): A. safeguards medical patient privacy and establishes rules about how patients' personal information should be treated. B. requires that every fiduciary of an employee benefit plan and every person who handles funds or other property of those plans must be bonded. C. regulates how insurance companies collect, use, and share personal information about their policyholders. D. regulates how financial institutions collect, share, and use consumers' personal and financial information.

B. requires that every fiduciary of an employee benefit plan and every person who handles funds or other property of those plans must be bonded.

Which of the following BEST describes a contract bond? A. A contract bond guarantees an employee will perform his duties faithfully. B. A contract bond guarantees that all principal and interest will be repaid in compliance with a contractual agreement or promissory note. C. A contract bond guarantees that a party will fulfill certain terms of a specific contract. D. A contract bond protects an employer from losses resulting from employee dishonesty.

C. A contract bond guarantees that a party will fulfill certain terms of a specific contract.

Which fidelity bond form provides coverage against public employee dishonesty? A. Standard Form 28 B. Standard Form 15 C. Standard Form 25 D. Coverage Form O

D. Coverage Form O

Which of the following statements is TRUE about a suretyship? A. An indemnitor is always responsible for indemnifying the principal. B. A surety bond requires two or more parties. C. An obligee always guarantees the work of the surety. D. If a principal fails to meet the terms of the contract, the surety is responsible for completing the contract for the obligee.

D. If a principal fails to meet the terms of the contract, the surety is responsible for completing the contract for the obligee.

Which financial institution bond is designed for all types of insurance companies? A. Standard Form 15 B. Standard Form 24 C. Standard Form 23 D. Standard Form 25

D. Standard Form 25

ABC Insurance decides to take on the role of a surety, guaranteeing the performance of Gradient Industries in the construction of a new shopping complex. ABC Insurance wants to provide themselves a safety net in case Gradient Industries fails to deliver and ABC Insurance ends up on the hook for millions of dollars. ABC Insurance turns to a fourth company, who agrees to indemnify ABC Insurance in the event Gradient Industries fails to perform. This fourth party would be considered a/an: A. principal. B. trust. C. obligee. D. indemnitor.

D. indemnitor.

Acme Construction enters into a contract to build a shopping mall for XYZ Associates. Having never worked with Acme Construction before, XYZ Associates demands a surety bond to guarantee the work of Acme Construction. ABC Insurance Company agrees to underwrite the bond. In this example, XYZ Associates is the: A. insurer. B. principal. C. surety. D. obligee.

D. obligee.