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GLOSSARY OF SURETY TERMS
Administrator
A person legally vested with the right of administration
of an estate.
Applications
A form used to collect information to underwrite
a risk.
Attachment
The legal process of taking possession of a defendant's
property when the property is in dispute.
Balance Sheet
A financial
statement listing assets, liabilities and net worth.
Bank Depository Bonds
Bonds covering the deposit of public funds.
Bankruptcy Trustee
Bonds
Bonds which provide protection to the beneficiaries
of the bankruptcy action that the bonded trustees, appointed in a bankruptcy
proceeding, will perform their duties and handle the affairs according
to the rulings of the court.
Common types of bankruptcies are:
Chapter 7: calls for the "liquidation" of a
business and allows for the sale of the assets to pay outstanding debts.
Chapter 11: calls for the "reorganization" of
a business and the debtor remains in possession of the assets after
the filing of a plan for the reorganization.
Bid Bonds
Bonds which provide financial assurance that
the bid has been submitted in good faith, and that a contractor will enter
into a contract at the amount bid and post the appropriate performance
bonds. These bonds are used by owners to pre-qualify contractors submitting
proposals on contracts.
Blanket Bonds
Bonds which protect against dishonesty of all
of the employees of an entity to the stated amount of the bond.
Blanket Position
Bonds
Bonds which protect against dishonesty of each
of the employees of an entity stated on the bond to the stated amount
of the bond.
Blanket
Public Official Bond
Blanket public official bonds cover all public
employees of the public entity stated on the bond to the stated amount
of the bond.
Blanket
Position Public Official Bond
The blanket position public official bond
covers each public employee of the public entity stated on the bond to
the stated amount of the bond.
Capacity
A term that refers to the
size of a bond which a surety is able to write.
Commercial Bonds
A general classification of bonds that refers
to all bonds other than contract and performance bonds. Commercial bonds
cover obligations typically required by law or regulation. Each bond is
unique to the circumstances at hand.
Commercial Blanket Bonds
These bonds provide a single amount of coverage
to cover dishonest acts of employees, regardless of the number of employees
involved in the loss. In other words, this type of bond covers all employees
to the amount stated on the bond.
Conservator
A person, official, or institution designated
to take over and protect the interest of an incompetent or minor.
Contract
Bonds
A general classification of bonds that provide financial
security and the construction assurance on building and construction projects
by assuring the project owner (obligee) that the contractor (principal)
will perform the work and pay certain subcontractors, laborers, and material
suppliers.
Court and Probate Bonds
Judicial and probate bonds, also referred to
as fiduciary bonds, secure the performance on fiduciaries' duties and
compliance with court order, e.g. administrators, executors, guardians,
trustees of a will, liquidators, receivers, and masters. Judicial proceedings
court bonds include injunction, appeal, indemnity to sheriff, mechanic's
lien, attachment, replevin, and admiralty.
Damages
Term that refers to monetary measures of harm
which may have occurred in a claim.
Defendant
The term that refers to
the person or institution being accused in a court case.
Defendant
Bonds
Defendant bonds counteract the effect of the
bond that the plaintiff has furnished. These bonds are more hazardous
than plaintiff bonds. Often they require the posting of collateral to
be written.
Employee Retirement Income Security Act
The 1974 act that created a requirement
for a bond to be posted, in the amount of ten percent of the funds, on
the fiduciary of pension funds and profit-sharing plans.
Errors and Omissions
Insurance
A policy that provides coverage for an
individual in the event of unintentional mistakes. Errors and Omissions
Insurance, commonly referred to as E&O, covers damages arising out of
the insured's negligence, mistakes, or failure to take appropriate action
in the performance of business or professional duties.
Executor
A person appointed to execute a will.
Fidelity
Bonds
Bonds designed to protect against dishonesty.
Generally, the bond protects against the dishonesty of employees. These
bonds cover losses arising from employee dishonesty and indemnify the
principal for losses caused by the dishonest actions of its employees.
Fiduciary
One who is appointed to act in the best
interests of another. A fiduciary is a person appointed by the court to
handle the affairs of persons who are not able to do so themselves. Fiduciaries
are often requested to furnish a bond to protect against a lack of faithful
performance of their duties.
Fiduciary Bonds
Bonds which protect against dishonest
accountings and a lack of faithful performance of duties by administrators,
trustees, guardians, executors, and other fiduciaries. Fiduciary bonds,
in some cases referred to as probate bonds, are required by statutes, courts,
or legal documents for the protection of those on whose behalf a fiduciary
acts. They are needed under a variety of circumstances, including the administration
of an estate and the management of affairs of a trust or a ward.
Funds Control
A method of taking control of a contract
bond to ensure subcontractors and suppliers will be paid appropriately.
This method may be used when the contractor would not otherwise qualify
for a bond.
Indemnification
The act of guaranteeing another, repayment
in the event of a loss.
Individual Bonds
A term generally used with public official
bonds, which refers to bonds written in the name of the specific public
official.
Large Deductible Plans
A type of insurance program bond in which
the insurer pays all losses, including those that fall within the deductible,
and seeks reimbursement from the policyholder on a monthly or quarterly
basis. The bond protects the insurer in the event the policyholder does
not reimburse the insurer for losses within the deductible.
License and Permit Bonds
License and Permit Bonds are required to obtain
a license or permit in many cities, counties, states or other political
subdivisions. They may be required for a number of reasons, including
the payment of certain taxes and fees or providing consumer protection
as a condition to granting licenses related to selling things such as
motor vehicles or contracting services.
Maintenance Bonds
Maintenance Bonds provide for upkeep of the
project for a specified period of time after a project is completed. These
bonds protect against defective workmanship or materials.
Minor
A person who is not of legal majority. In certain
situations, a person may be appointed as a guardian of a minor.
Miscellaneous Bonds
Miscellaneous Bonds cover performance
of contracts and agreements with private parties and government agencies.
e.g. lost securities, utility deposit, wages and welfare.
Name Schedule Bonds
A type of public official or fidelity
bond that lists the specific names and amounts of each named individual
bonded. Name schedule bonds use one bond, but attach a schedule of individual
names of the bonded public officials. Each name will list a specific dollar
amount for which that individual is being bonded. These may be used to
bond a panel of city council members or similar body of officials.
Name
Schedule Public Official Bonds
Name schedule bonds use one bond, but attach a
schedule of individual names of public officials being bonded. Each name
will list a specific dollar amount for which that individual is being
bonded. These may be used to bond a panel of city council members or similar
body of officials.
Notary Public Bonds
Include bonds that are required by statutes to
protect against losses resulting from the improper actions of notaries.
Obligee
The person or entity for whom or which a surety
provides protection due to a lack of performance of the principal's obligations.
Open Penalty
A term used to refer to the unlimited liability
of the surety on a particular bond.
Ordinance
A municipal regulation.
Payment
Bonds
Payment
bonds cover payment of the contractor's obligation under the contract
for subcontractors, laborers, and materials suppliers associated with
the project. Since liens may not be placed on public jobs, the payment
bond may be the only protection for those supplying labor or materials
to a public job.
Penalty
A term used to refer to the monetary size or limit
of bond.
Pension
A fixed sum of money regularly paid to a person.
Performance
Bonds
Performance
Bonds cover performance of the terms of a contract. These bonds frequently
incorporate payment bond (labor and materials) and maintenance bond liability.
This protects the owner from financial loss should the contractor fail
to perform the contract in accordance with its terms and conditions.
Plaintiff
The person or institution that brings an action
in a court of law.
Plaintiff
Bonds
Plaintiff bonds are required of a plaintiff
in an action of law. They generally protect against damages to the defendant
caused by the plaintiff's legal action, should the court decide for the
plaintiff.
Position
Schedule Bonds
A type of fidelity or public official bond, which
lists specific positions and their corresponding penalty amounts. Position
schedule bonds use one bond, but attach a schedule of positions to be
bonded. Each name will list a specific dollar amount for which that individual
is being bonded. This type of bond may be used to bond certain positions
that have a high amount of turnover. Using a position instead of a name
will reduce the paperwork involved year-to-year.
Premium
A sum of money paid as consideration
for an insurance policy or bond.
Principal
The individual required to be bonded by the obligee.
Public
Official Bonds
Public Official Bonds protect against dishonesty
and lack of faithful performance by a public official. These bonds are
required by statutes and ordinances.
Public Officials
One who holds public office.
Rates
The amount of money per thousand dollars (or percentage)
used to determine the bond premium.
Reclamation Bonds
A bond which provides protection in the event that
a person or entity does not restore land, that it has mined or otherwise
altered, to its original condition.
Replevin
An action of a law used to recover specific personal
property.
Retrospective
Plans
Type of insurance program bond in which the
final premium is a combination of incurred losses and an administrative
charge. Retrospective plans are loss sensitive insurance plans. Since
final loss costs may take years to develop, the bond covers payment of
the final premium amount.
SBA
An acronym for the Small Business Administration.
The SBA has a program to help small and minority owned contracting businesses
obtain surety bonds.
Self-Insurers Retention
Plans
A type of insurance program bond
that is commonly used with Workers' Compensation insurance, General Liability
coverage or other liability coverage where limited coverage is available
or coverage, when available, may not be affordable.
Supply
Bonds
Supply Bonds cover performance of a contract
to furnish supplies or materials. In the event of a default by the supplier,
the surety indemnifies the purchaser of the supplies against the resulting
loss.
Surety
A person or
entity which covers the acts of another.
Surety Bonds
Surety bonds are three-party agreements
in which the issuer of the bond (the surety) joins with the second party
(the principal) in providing protection to a third party (the obligee)
regarding fulfillment of an obligation on the part of the principal. An
obligee is the party (person, corporation or government agency) to whom
a bond is given. The obligee is also the party protected by the bond against
loss.
Surety Industry
The surety industry is composed
of contract surety business and commercial surety business. The products
comprising each are sold through the same type of distribution system --
agents and brokers.
Treasury Listing
A financial rating published by the federal government
that lists the maximum size of federal bond a surety is allowed to write.
Trustee
A trustee is a person named to manage a business'
assets and work with the business creditors.
Work-On-Hand
Reports
A type of financial statements or schedule
which lists a contractor's jobs in progress.
Workers'
Compensation Self-Insurers Bond
Workers'
Compensation laws, at the state and federal level, require employers to
compensate employees injured on the job. An employer may comply with these
laws by purchasing insurance or self insuring by posting a workers' compensation
bond to guarantee payment of benefits to employees. This is a hazardous
class of commercial surety bond because of its "long-tail" exposure and
potential cumulative liability. The "long-tail" exposure stems from the
two statutory bond forms:
Traditional - bond form:
The surety is liable for payment of the principal's workers' compensation
obligations occurring during the time the bond is in force. When the
bond is canceled, the surety continues to have liability for all workers'
compensation claims incurred between the effective date of the bond
and the cancellation date of the bond.
Last surety on - bond form:
The surety assumes all past, present and future liability to pay the
principal's self-insurers workers' compensation obligations. The surety
is released from all accrued liability if the surety cancels the bond
and the principal later posts an acceptable replacement security.
>This glossary attempts to illustrate common
usage of surety industry terms. These brief descriptions do not attempt
legal interpretations. Consult an insurance dictionary or an industry
professional from CNA Surety for more complete information.<
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