- November 16, 2022
- Posted By:hmvreeland
A surety bond in California is a contract between three parties – the principal, the obligee, and the surety. The principal is the contractor, the obligee is the project owner, and the surety is the bonding company. The surety guarantees the obligee that the principal will fulfill their contractual obligations. If the principal fails to fulfill their duties and the obligee suffers a loss, the surety compensates them. Three common types of surety bonds include payment bonds, bid bonds and performance bonds.
The Difference Between Surety and Insurance
Many people wrongly consider surety bonds as a type of insurance. The most basic difference between insurance and surety is that the former is a two-party agreement, while the latter is a three-party agreement. The surety does not assume the primary obligation and steps in only if the principal fails to satisfy a claim. The claim amount plus any legal expenses is still recovered from the principal. An insurer, on the other hand, cannot expect the insured to reimburse them after a claim is satisfied.
The Surety Bond Claims Process
Once the obligee files a claim against the principal’s surety bond, the surety starts an investigation to determine if the principal is really at fault. If the obligee is found to have a valid claim, the surety compensates them for the loss. The surety company then expects the principal to reimburse them for the claim amount plus any legal costs incurred by them.
How to Make a Surety Bond Claim?
The first step in filing a surety bond claim is to find out which company provided the surety bond and establish contact with them to share details regarding the claim. Most surety companies require obligees to submit a letter discussing important information about their claim and supporting documentation such as payment proofs, a copy of the contract and a detailed accounting of the circumstances surrounding the violation.
The principal should stay in contact with the surety throughout the claim handling process and provide any additional information requested by the surety company to ensure proper processing of their claim. If the principal is not satisfied with the manner in which their claim was handled, they can consult with their state’s insurance department to discuss their options.
How to Prevent Surety Bond Claims?
A surety bond claim can negatively affect your business. It can result in increased financial burden, tarnish your business reputation and hurt your credibility.
Make the effort to understand contract language before signing on the dotted line. If a claim is filed against your surety bond, cooperate fully with the surety bonding company and provide all the information requested by them.
H.M. Vreeland is a reliable surety bond company in California. Our surety bond specialists bring years of experience to the table. Their know-how enables them to create customized solutions to meet the unique bonding needs of individuals and businesses. To learn more, call 415-566-3401.