Fidelty & Surety Bonds

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Author:
jmck5266
ID:
270205
Filename:
Fidelty & Surety Bonds
Updated:
2014-04-11 13:07:22
Tags:
Insurance
Folders:
Insurance
Description:
Lesson 42
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  1. Bonds
    involve a three-party relationship in which one party agrees to indemnify a second party for loss caused by the failure of a third party.
  2. Fidelity Bonds
    deal with the employer-employee relationship, and they usually indemnifythe employer for loss resulting from an employee’s dishonest acts
  3. Surety Bonds
    a contract under which one party (the surety) guarantees the performance of certain obligations of a second party (the principal) to a third party (the obligee).
  4. Financial Institution Bonds
    Financial institution bonds provide a combination of crime coverages designed to meet the special needs of banks, savings and loans, credit unions, and other financial institutions. Essentially, they cover loss from employee dishonesty, forgery, and counterfeit currency, plus loss of money and securities from almost any cause. Damage to personal property in connection with a burglary or robbery is also covered.
  5. Fidelity Insuring Agreement
    The fidelity insuring agreement is the key coverage of the bond. This insuring agreement covers loss resulting from certain types of dishonest acts of an employee, whether acting alone or in collusion with others. For coverage to apply, the employee must have intended to cause the insured financial institution a loss. For loss resulting from trading, the employee also must have received an improper financial benefit. For loss resulting from loans, the employee also must have been in collusion with a party to the loan transactions and must have received an improper financial benefit with a value of at least $2,500. Salaries, bonuses,commissions, etc., do not qualify as an improper financial benefit.
  6. On-Premises Insuring Agreement
    responds for bank robbery, fire, windstorm, or explosion.
  7. In-Transit Insuring Agreement
    The in-transit insuring agreement covers loss of or damage to covered property (notably, money and securities) while in transit in the custody of an employee, or in the custody of a transportation company in an armored car or truck.
  8. Bond Agreement
    Unlike an insurance policy, a bond is not the first recourse to pay a loss. The bond guarantees that the public official will be able to pay any losses up to the face amount of the bond. The bond will only pay instead of the official when the public official is financially unable to meet his or her obligations.
  9. Bond Period
    Public officials bonds usually cannot be canceled while the official is in office; the bond terminates only when successors have been elected or appointed. A new bond should be furnished by the new official.
  10. Bid Bond
    A bid bond is commonly required in competitive bid situations. Submitted with the bid, the bid bond guarantees that, if the contractor is awarded the job, it will agree to perform the work at the price quoted. If the contractor declines to enter into a contract to perform the work at the agreed upon price, the surety that issued the bid bond will reimburse the obligee (owner or upper-tier contractor) the difference between the defaulting contractor's bid and the next lowest bid, up to the bid bond penal amount.Bid bonds are written as a percentage of the amount bid, typically ranging from 5 to 20 percent.
  11. Performance Bond
    A performance bond guarantees that the contractor will perform the work in accordance with the construction contract and related documents, thus protecting the owner from financial loss up to the bond limit in the event the contractor fails to fulfill its contractual obligations.
  12. Payment Bond
    guarantees that suppliers and subcontractors will in fact be paid for materials and labor furnished to the contractor. The ultimate purpose of the payment bond is to guarantee the owner delivery of a project that is free of liens.
  13. Fiduciary Bond
    guarantees that the individuals or legal entities appointed by the court to oversee the property of others will perform their duties in good faith and be accountable for any deficits that may occur.

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