By: Jack Anderson, President of Goldleaf Surety
This is a continuation for my June 11th blog.
Common Surety Handling Misstep No. 3:
Failure to Deliver Bid Bonds in a Timely Manner or to a Proper Address. Bid bonds sent via regular mail run the risk of being delivered late. Regular mail might be less costly up front, but could end up being very expensive in the long run when a client misses a bid date due to late delivery. This could also result from someone in your office using an incorrect address.
Ways to Avoid Surety E&O Claim: Assure proper and timely delivery of bid bonds by confirming delivery address ahead of time and using a reliable overnight delivery service. Taking steps to assure proper and timely delivery alleviates the possibility that your client will miss a bid deadline. Delivery date and time will be specified and status can be tracked if reliable overnight delivery is utilized.
Common Surety Handling Misstep No. 4:
Failure to Give Proper Advice Regarding Bid Security. A bid bond assures that a performance bond will be put in place by the authorizing surety, while using a cashier’s check as bid security does not. Advising a client to use a cashier’s check might be perceived as expedient, but the amount of the check is ultimately at risk of being forfeited.
Ways to Avoid Surety E&O Claim: Never advise a contractor to us a cashier’s check as bid security in lieu of a bid bond. Notify clients that they must request a bond as soon as they are aware one will be required. If a bid bond cannot be secured in a timely fashion, a cashier’s check should only be used when the surety provides written approval stating that they will support the bid bond. Never assume that the surety will support a bid bond for which a cashier’s check was provided. By verifying that a surety will support the bond, the contractor will avoid the possibility that he/she will be out the amount specified in the cashier’s check, triggering him/her to file an E&O claim against the agent.
Common Surety Handling Misstep No. 5:
Failure to Receive Approval from the Surety. By improperly issuing a bond, an agent exposes him/herself to potential E&O claims from both the carrier and the client. The surety will seek recourse from the agent if the unauthorized bond goes into claim. If the client’s bond program is disrupted as a result of an agent’s actions, the client might have recourse for lost financial opportunity.
Ways to Avoid Surety E&O Claim: Establish a written policy requiring verification of surety approval. Set up guidelines regarding what constitutes authorization from the surety and how it should be documented. All associates within the agency who issue bonds must be notified of this policy and adhere to all requirements prior to delivering bonds to your clients.