What is a Claim for a Surety Bond?
A surety bond claim is an assertion that in essence states that the Principal (bond holder) has not fulfilled his obligations or has infringed on legal requirements. The obligee, that is the person requiring the bond, or any aggrieved party can file a claim if he believes that the so-called principal did not fulfill the duties that rightfully existed.
Claims may arise due to failure on the part of the obligor to honor the contract, or they may stem from simple misunderstandings. Other bonds, such as Lost Title Bonds, allow individuals to challenge title ownership to a vehicle, thereby potentially invalidating a bonded title.
How Does a Surety Bond Claim Work?
When a claim gets filed, the surety expects the principal to handle the claim. Under the indemnity agreement signed at the onset of the bond procurement process, the principal is responsible for paying for and resolving the claims. This website provides more details on how the indemnity agreement works and what it means for the principal’s responsibilities.
Investigatory Process:
- A claim backed by no merit: If the claim was deemed to be that of no merit, then the surety would take no action whatsoever; however, the principal may be required to absorb the cost of the investigation.
- A valid claim: Once a claim has been verified, the surety notifies the principal of their obligations and expects to see that they get resolved, either by negotiation or by legal means.
- Surety payout: If the principal is not willing to do so, it is possible for the surety to pay the claim. Contrary to an insurance policy, the principal has the duty to reimburse in full the surety for any payment made, inclusive of attorneys’ fees.
How To File A Claim on Surety Bond
- The surety company must be identified – Searching through contracts or licensing board records will reveal the bonding company’s name.
- Contact the surety’s claims department – Inform the company of your problems and ask how to file the claim.
- Submit documentation – Enclose copies of contracts, invoices, or other legal documents in support of the claim.
- Keep in touch – Throughout the investigation, make contact with the surety.
- Claim Investigation & Resolution – If the claim was found legitimate, the surety would allow a reasonable time for the principal to resolve the claim; if the principal does not resolve the claim within a reasonable time, the surety may take action and seek ultimate reimbursement from the principal.
Types of Surety Bond Claims
- Payment Bond Claims
- Subcontractors or suppliers have not been paid.
- Contractor License and Performance Bond Claims
- Late or unfinished work
- Over budget
- Quality of work is poor
- Motor Vehicle Dealer Bond Claims
- Failure to deliver vehicle titles.
- Selling stolen vehicles.
- Not reporting sales or paying taxes.
- Fidelity bond claims
- Employee theft or fraud.
- Mortgage Bond Claims
- Fraud, discrimination, or illegal fee manipulation.
- Court Bond Claims
- Lack of prudence in handling estate assets or trust funds.
- Lost Title Bond Claims
- Title disputes on vehicles or claims on stolen vehicles.
Conclusion
Surety bond claims serve as a basis for holding principals to account regarding their obligations. Should the claim be found to be valid, it is incumbent upon that principal to either remedy the situation or reimburse the surety for any related payments made. An understanding of the claims process and requirements necessitated under the bonds will be beneficial to both parties in avoiding unpleasant financial and legal hurdles.