- Fidelity Bonds
2. Public Official Bonds
These bonds guarantee taxpayers and constituents that a public official will faithfully perform the duties of his or her office. This type of bond goes beyond honesty insurance, because a public official could easily lose public funds without intentionally acting dishonestly. For example, if a public official uses taxpayer money to fund a project that has been poorly designed and proves to be impossible to complete, the taxpayers could now turn to this official for financial restitution of their lost funds. In this example, the official did not intend to abuse taxpayer funds. But ultimately, his or her decisions led to the loss of public funds. A public official bond protects government officials in the event that they did not act dishonestly, but they may have violated their “faithful performance” duty.
3. Judicial Bonds
Judicial bonds are court bonds brought into effect by a lawsuit or other court action. The two basic subtypes of judicial bonds are plaintiff’s bonds and defendant’s bonds. Plaintiffs bonds allow a financially dependable plaintiff to take possession of the property in question prior to the conclusion of the trial, in anticipation of a favorable judgement. This plaintiff’s bond protects the defendant in the event that the court decides the defendant is entitled to the disputed property and the plaintiff was wrong to assume a judgment in his or her favor. Defendant’s bond serve as the inverse of plaintiff’s bonds. Defendant’s bonds can counteract the effect of a plaintiff’s bond when the defendant has posted a collateral amount that protects the surety from loss in the event of a claim. Bail bonds are one example of defendant’s bonds. The defendant posts an amount of cash as a collateral prior to the trial and in anticipation of a favorable judgement to guarantee that he or she will appear at trial.
4. Fiduciary Bonds
A fiduciary is an individual designated to handle the financial affairs of another person once that person is incapable of doing so on their own behalf. This fiduciary is referred to as a guardian or conservator if the represented individual is a minor or an incapacitated adult. If the represented party is deceased, the judiciary serves as an administrator. And if this representative was specifically named in the will, he or she is referred to as the executor. A fiduciary bond guarantees that the representative will faithful perform his or her duties to the party that he or she is representing. This fiduciary bond (such as a probate bond) ensures that the fiduciary appropriately handles and distributes the assets of the represented party. In the event of a loss or a claim against the surety bond, the surety company pays out the losses to any entitled heirs or other beneficiaries.
5. License and Permit Bonds
License and permit bonds guarantee that private contractors and builders conform to government imposed laws and regulations. Prior to completing a public works project, the contractor must obtain a surety bond verifying the contractor’s ability to complete the public works project. Not only does the surety bond guarantee that the government will receive compensation for any damages paid out by the surety, but it also ensures that only qualified contractors will undertake jobs for the government, because surety agencies will only underwrite bonds for capable contractors. These bonds protect the public against damages stemming from unqualified and irresponsible licensees.
6. Contract Bonds
When a contract for a large project is available, each bidder for that contract must post a bid bond guaranteeing that he or she will enter into this contract at their bid price if they are awarded the contract. Once the contractor whom has been awarded the contract enters into the bid contract, the bid bond amount is released. However, if the contractor fails to enter into the contract for the agreed upon bid price, this selected contractor must forfeit the bid bond amount as collateral damage.
Performance and Payment Bonds
Performance and payment bonds are generally issued together as a collective “final” bond. The performance bond guarantees that the agreed upon conditions of a contract are met by the awarded contractor. The payment bond covers the contractor’s payment of labor and materials necessary to complete the contract. These bonds are commonly employed by government agencies that are legally required to award their contracts to the lowest bonded bidder. The performance bond, combined with the screening process which the surety company has performed, guarantees that all of their bidders will be qualified to perform the job. Additionally, the performance bond ensures that the government agency will receive financial compensation if a bonded contractor proves incapable of completing the awarded contract.
7. Miscellaneous and Federal Bonds
It is important to remember that there are unique surety bonds for just about every possible situation involving a contract or an agreed upon future performance. These bonds are designed to guarantee that all contracts are faithfully and adequately performed by the bonded party. Surety bonds can range from adoption bonds to travel agency bonds to wine maker’s bonds just to name a few. Surety bonds guarantee that the bonded party is both qualified to perform their contracted job and backed by the credit and solvency of a respected surety agency.