National Dictionary Day is observed annually on October 16th, to celebrate the birthday of the father of the American dictionary, Noah Webster. In honor of National Dictionary Day, Goldleaf Surety is defining common surety terms that are not always familiar to individuals or companies when they first start working with bonds
Surety Bond – a surety bond is a three-party agreement between a surety company, an oblige and a principal. The third party (surety company) guarantees to the second party (oblige) the successful performance of the first party (principal). The surety company guarantees that the obligations of the principal to the oblige will be performed in accordance with a contract, statute or regulations.
Oblige – this is the party that requires the Principal to provide the bond. The Oblige is protected from loss by the Surety if the Principal fails to fulfill their obligations.
Principal – this is the person or business who is required to be bonded by the Oblige. The Principal is obligated to the Oblige to pay and/or perform according to a law, ordinance, rule, regulation, contract, license or permit.
Surety – is the insurance company that issues the bond for the Principal. In doing so, they are guaranteeing the obligations of the Principal.
Contract Bond – these are required when an individual or company has a contractual obligation to perform work or provide services to another entity. The bond guarantees that the individual or company will fulfill the terms of the contract. Bid Bonds, Performance and Payment Bonds, Supply Bonds, Subdivision/Site Improvement Bonds and Warranty Bonds are various types of contract bonds.
Court Bond – these guarantee that an individual or organization will fulfill their responsibilities as ordered by a court. There are two types of court bonds – Fiduciary and Judicial Bonds.
Fidelity Bond – these indemnify an employer against financial loss due to dishonesty of an employee or protect a business from certain types of damage caused by employees. There are several types of fidelity bonds, each providing specific coverage – Employee Dishonesty, Business Service, and Commercial Crime Bonds.
License and Permit Bond – these include a wide variety of bonds required by various government agencies throughout the country in connection with regulated professions. These bonds provide indemnification for loss or damage resulting from a license or permit holder’s compliance with a law, ordinance, or regulations.
Indemnity – to indemnify means to make whole. Under common law, the surety company has the right to be indemnified by the principal in the event of a loss. The General Indemnity Agreement (GIA) carries out that right by stating that if the surety suffers a loss while providing a bond to the principal, the principal is obligated to make the surety “whole” by reimbursing any losses and expenses.
Goldleaf Surety is always here to help you navigate the surety world. Licensed in all 50 states and working with more than two dozen surety companies, we have the knowledge and relationships to provide you with a wide range of bonding capacity for all types, sizes and classes of bonds.
