What is a Surety Bond?

A bond guarantees the performance of a contract or other obligation. Bonds are three party instruments by which one party promises a second party the successful performance of a third party.

1 The Surety--Is usually a corporation which determines if an applicant (principal) is qualified to be bonded for the performance of some act or service. If so, the surety issues the bond. If the bonded individual does not perform as promised, the surety performs the obligation or pays for any damages.

2 The Principal--Is an indiVidual, partnership, or corporation who offers an action or service and is required to post a bond. Once bonded, the surety guarantees that he will perform as promised.

3 The Obligee--Is an individual, partnership, corporation, or a government entity which requires the guarantee that an action or service w1ll be performed. If not properly performed, the surety pays the obligee for any damages or fulfills the obligation.

The Surety's Job: Protection

The purpose of a surety is to protect public and private interests against financial loss.Therefore, the surety bonding company must be profitable and must have a strong balance sheet. No one is likely to accept the guarantee of a party with a bad name or a weak balance sheet. The surety bonding company guarantees performance. Its good name and its balance sheet back up that guarantee.

Probate bonds, notary public bonds, court bonds, license and permit bonds and public official bonds all guarantee protection of public interests from financial loss.

Why has corporate surety become such a vital part of doing business in today's economic society? Because there is no practical alternative for protecting public and private interests from financial loss.

Some Differences between Surety and Insurance

Although surety companies are often regulated by state insurance departments. surety bonding is different from insurance in some ways.

CNA Surety provides commercial and contract surety bonds in all 50 states through a combined network of over 37,000 independent agencies. The Commercial surety market includes numerous types of bonds categorized as court judicial, court fiduciary, public official, license and permit, and many miscellaneous bonds that include guarantees of financial performance. CNA Surety Companies also write fidelity bonds, which cover losses arising from employee dishonesty and Errors & Omissions liability insurance. Contract bonds guarantee the performance of obligations covered by a written agreement between two parties. The most common types include bid, performance and payment bonds.

If you have questions, or would like additional information regarding CNA Surety, please ACOVA Insurance Agency at (313) 388.0100.