By: Craig F. Martin of Lamson, Dugan & Murray, LLP There are fundamental differences between insurance and surety bonds and knowing the difference will help you avoid making mistakes, should claims arise. This blog will discuss the differences between insurance and surety bonds. Insurance An insurance policy is a two party contract between an insurer and the insured. The policy is intended to protect the insured. The cost of insurance is calculated by the insurer based on … [Read more...]
Importance of Providing Notice to the Surety Company
By: Craig F. Martin of Lamson, Dugan & Murray, LLP A recent case out of Missouri emphasizes the importance of providing notice to a surety when a bonded subcontractor is in default. When the question of whether a surety is obligated under the bond is in the balance, notice is crucial. In CMS v. Safeco Insurance Company, Safeco provided a performance bond to a subcontractor for the benefit of CMS. The bond specifically provided: PRINCIPAL DEFAULT. Whenever the Principal … [Read more...]
Surety Bonds and Bank Letters of Credit Comparisons
By: Jack Anderson, President This is the 3rd post in a series exploring surety bonds and bank letters of credit – what each is, their differences, and advantages and drawbacks to each. What is the expected cost of each instrument? For a surety bond, cost is generally 0.5% to 2% of the contract price. A bond is project specific and covers the duration of the contract. The cost of the bond is included in the contractor's bid price. For a bank LOC, the cost is generally 1% of the … [Read more...]
Surety Bonds and Bank Letters of Credit Comparisons
By: Jack Anderson, President This is part 2 in a series of blog posts where we will continue to explore surety bonds and bank letters of credit – what each is, their differences, and the advantages and drawbacks with each. How is each obtained? The contractor obtains the bond through a surety bond agency or a surety bond producer such as Goldleaf Surety Services. The contractor obtains the LOC through a banking or lending institution. What is your borrowing capacity with … [Read more...]
Surety Bonds and Bank Letters of Credit Comparisons
By: Jack Anderson, President Over the next several blog posts, we will explore surety bonds and bank letters of credit – what each is, their differences, and the advantages and drawbacks to each. Let’s start with a basic definition for each. A surety bond is a three-party agreement between the surety company, the oblige (project owner), and the principal (the contractor). A performance bond protects the owner from non-performance and financial exposures should the contractor … [Read more...]