Contract Bonds

Contract Bond Insurance

ERIE offers both judicial and fiduciary bonds. Judicial bonds may be required by either the defendant or the plaintiff in connection with litigation. The bonds that are available through ERIE include:

What Is A Supply Contract Bond

Many surety companies have stringent financial reporting requirements for contractors, such as requiring contractors to provide CPA-prepared financial statements. In some cases, Nationwide accepts alternate forms of financial statements, such as in-house prepared statements and income tax returns. For new contract bond submissions, we require the three most recent year-end business financial statements and a current year-end personal financial statement for each owner.

The public official bonds are required by states, counties, municipalities or another political subdivision other than the federal government. They are designed to guarantee the public that the newly elected or appointed official faithfully will perform the duties of that office. The bonds offered are:

The 2nd important distinction is that if the principal fails to perform and the insurance company must pay the obligee the amount of the bond, then the insurance company has the right to sue the principal for the amount of the bond. This is because the surety is guaranteeing the performance of the contract, and is, therefore, guaranteeing the performance of the principal—something over which the principal has direct control. Therefore, the surety has no reason to expect losses, and has the right to recover from the principal if the principal fails to fulfill the contract satisfactorily. For this reason, a bonding company will not provide any more coverage than the value of the liquid assets owned by the principal. The surety's right to sue is subrogated for the obligee's right to sue for the nonperformance of the contract.

“Bonding” is what we call the vetting process for contractors seeking a contract surety bond. Before a contract surety bond is issued, the contractor is evaluated and qualified to assure the project owner that the contractor has the resources and capacity to perform the contract according to its terms and conditions. 

Erie Insurance holds some of the highest honors for financial stability and service year after year. For instance, A.M. Best, a global credit rating agency with a unique focus on the insurance industry, rates ERIE A+ for financial strength. Erie Insurance Company is also Treasury Listed by the U.S. Government. Protection from our reinsurers also enhances our financial strength.  To get personalized advice on what you may need to help protect your business, contact a local ERIE agent. As small business owners, our agents know how important it is to have the right protection.

A fidelity bond (a.k.a. employee dishonesty insurance) is a bond purchased by employers to protect them against the dishonesty, including theft, of their employees. Fidelity bonds are much like surety bonds, in that 3 parties are involved, except that the contractual obligations exist only between principal—the employer—and the insurance company, and the insurance company pays the employer for any loss caused by its covered employees. Banks and other financial institutions have a great need for fidelity bonds—often called financial institution bonds—because they typically require many employees to handle money and other valuable assets.

what is contract insurance bond

Because the surety is guaranteeing, to the obligee, the performance or the integrity of the principal, the surety carefully selects which principals it will insure. For all surety bonds, the surety will consider the integrity of the principal, including the principal's creditworthiness. Because the surety will sue the principal, if it is obligated to pay the obligee on the surety bond, a major consideration will be the financial assets, debts, and working capital of the principal.

License and permit bonds are required by businesses that need a license or a permit to work within a township or other political entity. The bonds guaranteed that the laws that the principal will comply with the law in their work. For instance, a license and permit bond can guarantee that a carpenter, plumber, or electrician has any required permits, and performs the work according to the local building code.

There are also other types of surety bonds, sometimes referred to as miscellaneous surety bonds, that constitute smaller markets. Most of these bonds insure either against loss or theft of money by the principal, such as an auctioneer's bond that guarantees receipts of an auction, or against legal liability by the action of an agent, such as an insurance agent bond that protects the insurer from liable acts of its agents.

contract bond agency

Nationwide specializes in serving the needs of small to medium-sized contractors such as electricians, carpenters, masons, plumbers, painters and landscapers. We can bond contractors for up to $5 million projects. Our bonded contractors are usually supported by bank lines of credit, pay their bills promptly and have good customer references.

Contract Bonds Checklist

Our unique underwriting approach emphasizes personal and business assets, which means we base our underwriting on the total financial strength of a contractor’s business and its owners. For underwriting, our vetting includes calling a contractor’s banker, suppliers and job references to learn more about their business practices. This background check allows us to provide surety credit without strict reporting requirements. 

Some large businesses that are regulated by federal agencies may require a federal surety bond, which guarantees that the principal will comply with the agencies' rules and regulations, and pay required taxes.

There are always 3 parties to a surety bond: principal, obligee, and obligor. The principal is the party that promises to perform the work, or to fulfill certain obligations. In many cases, the principal also purchases the surety bond as a condition for getting the contract. The obligee is the other party to the contract, and is paying money for the principal to perform the work agreed to. If the principal fails to perform the work, then the surety (aka obligor), which is the party, usually an insurance company, that issued the bond pays the obligee if the principal fails to perform as required by the contract.

Contract Bond Underwriter

To promote small business and to promote more competition, which generally leads to lower prices for the project owners, which, in many cases, will be federal, state, or municipal governments, or agencies thereof, the Small Business Administration (SBA) guarantees bid, performance, and payment bonds issued by preapproved surety companies for qualified small businesses through its Surety Bond Guarantee Program. The SBA guarantee is free for bid bonds, but the SBA charges the principal 0.729% of the contract price to guarantee payment or performance bonds, for contracts worth up to $6.5 million. For federal projects that require the SBA guarantee for small businesses, the contract price limit is $10 million. The SBA also charges the surety 26% of the fee charged to the principal by the surety.

Surety And Fidelity Bonds

There are 2 important distinctions between surety bonds and most insurance contracts, and both are related to the fact that there are 3 parties with 3 different relationships to a surety bond instead of just 2. The 1st difference is that the surety's duty is to the obligee, not to the principal, even when the principal pays for the bond. Thus, even if the principal is dishonest and makes false statements on the insurance application, the insurance company is still obligated to the obligee, whereas, with most insurance contracts, material misrepresentations by the insured will generally relieve the insurance company from paying on a claim.

Are Contract Bond

Since many contracts require that the principal be bondable, particularly in the construction industry, the business success of the principal depends on their bondability, so most businesses that must be bonded to be awarded contracts work hard to maintain their bondable status.

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