Monthly Archives for June 2020

13 Unusual Surety Bonds

There are over 11,000 different types of surety bonds, which anyone from a general contractor to the federal government could be required to purchase. Some bonds are well-known and quite common such as a bid bond, motor vehicle dealer bond, or probate bond. However, there are many less unknown bonds and in fact, anyone can create their own surety bond requirement. Here are just a few of the unusual surety bonds available:

  1. Wisconsin Moped Dealer Bond – Required by the Wisconsin Department of Transportation in order to obtain and maintain a license to sell mopeds.
  2. Private Detective Bond – Required by various states in order for private detectives or private detective agencies to obtain a license.
  3. Alabama Dog Bite Bond – On March 8th, 2018 Alabama signed Emily’s Law. Emily’s law requires owners of dangerous dogs to purchase a surety bond of no less than $100,000.
  4. Buying Club Bond – Operators of buying clubs must purchase a type of financial guarantee bond to protect clients of the club from damages resulting from illegal activity.
  5. Car Wash Bond – In various states, owners of car washes or car spa establishments must purchase a surety bond to ensure proper wages are paid to their employees. This bond is required by state labor departments.
  6. Bingo Bonds – Various states require entities operating bingo games to purchase a surety bond to ensure that all taxes, revenues, and payouts are paid.
  7. Boxing Promoter Bonds – Various states require boxing event promoters to purchase a surety bond in order to ensure that participants are paid.
  8. Driving School Bonds – Third-party administrators of driving schools must purchase a surety bond in order to obtain a business license. Driving school bonds are also known as third party administrator bonds and are required in various states.
  9. Cannabis & Marijuana Bonds – While cannabis and marijuana may not be federally legal, numerous states have now legalized both medical and recreational sales and use. Various states and cities require retailers and manufacturers to purchase license bonds and excise tax bonds to ensure business owners pay their taxes and abide by regulations.
  10. Dog Breeder Bonds – The state of Ohio requires dog breeders to purchase a bond to ensure that all regulations and laws are followed. A customer of the breeder may make a claim on the bond if they find the business has violated any laws or made any misrepresentations.
  11. Amusement Enterprise Bond – Amusement parks in Louisiana must obtain a surety bond to ensure they keep their carnival rides safe and abide by all state regulations and laws.
  12. Florida Venomous Reptile Bond – The Florida Fish and Wildlife Conservation Commission requires individuals possessing or entities who exhibit venomous reptiles to purchase a $10,000 surety bond. This bond is required to ensure that venomous reptiles are captured and exhibited properly.
  13. Cemetery Bonds – Owners of property that is used as a cemetery must obtain a bond to ensure the property is maintained and that nothing happens to the graves. These bonds are required in various states and vary in bond amounts.

The Three Parties of Surety Bonds

Working with surety bonds involves using unique terminology. Despite surety being lumped into the insurance sector, even insurance agents need a translator to navigate through the bonding process. The three parties to a surety bond are the Obligee, Principal, and Surety.

Obligee

This is the entity that is requiring the principal to be bonded. Often times this is a government entity, such a Department of Motor Vehicles for commercial bonds or a general contractor for contract bonds.

Example: A cosmetology school must be bonded. Halfway through the semester the cosmetology school goes bankrupt and must close. The bond protects the students and their pre-paid tuition. Students can make a claim on the bond to be reimbursed. The surety will pay the claim and then look to the individuals who own the business to be made whole on the full amount of the bond claim.

Principal

The person or business required to be bonded by the obligee. The Principal must purchase a bond from a licensed insurance agent or surety bond broker and abide by the obligations stated on the bond form. The Principal is in a position where their decisions may cause harm to consumers of their business or to entities required to maintain oversight and regulation – such as a state or local government. Therefore they are required to be bonded.

Example: Cosmetology schools, car dealers, contractors, mortgage brokers, freight brokers, health studios and even an executor of a will are examples of bond principals.

Surety

The Surety is an entity providing a line of credit guaranteeing the compliance or performance of a specific obligation, contract, or law. The surety underwrites the principal during the application process to ensure zero losses. Unlike insurance, surety bonds are written with the expectation of zero losses. Also unlike insurance, if a claim is made the surety will pay the claim if proven valid. The surety will then look to the principal to reimburse the surety for the full claim amount. This is why indemnities require a signature from the business and a signature from the business owners.