Not Your Average Bond

Construction | 12/17/2021

Written By: Lynne W. Cook

So, your attorney calls to inform you that you are facing a bond requirement. You are confused.  Since you are not in jail, there’s no need for a bail bond, and James Bond is the only other bond that immediately comes to mind! 

Ironically, there are thousands of surety bonds, but most people are unfamiliar with this three-party agreement that is designed to guarantee a principal’s (the #1 party, which is likely you or your business) integrity, honesty, performance, and financial responsibility, as well as compliance with a law or contract.

So, who are the other two parties involved in this three-party agreement and what is it that requires I get a bond? Here are a few of the more common situations that use commercial surety bonds to lessen the risk of loss to the obligee (the #2 party, who is requiring the bond) by the third-party guarantor (the # 3 party, which is a corporate surety company, typically an A-rated insurance company).

  • Have you filed a permit with the county to do construction on your property? If the construction disrupts a road or the landscaping, the county (#2 party) might require a permit bond that guarantees (#3 party) you (#1 party) will repair the road or landscaping to provide adequate sediment control.
  • Has someone you are close to recently passed away, and you have been named the administrator of the estate? The probate court (#2 party) might require a bond that guarantees (#3 party) you (#1 party) will follow the probate laws of that state, which protects the estate from improper distribution of assets.
  • Are you in the process of filing incorporation papers with the state to set up your new business? Many states (#2 party) require a license and permit bond to be submitted along with the filing package. This (#3 party) guarantees your business and you personally (#1 party) will follow the state’s laws and regulations, usually including misappropriation of customer’s money.
  • Did your new hotel set up an account with the local electrical company? Most utility companies (#2 party) require a deposit to ensure your (#1 party) payment of the utility bill. Some of these companies will accept a bond (#3 party) surety in lieu of the cash as a guarantee.

What do I do next? That’s the easy part! Contact an AssuredPartners office that specializes in surety bonds. Our experienced staff will walk you through the process and make sure you get the right bond for your need.