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Bonds

Bonds often play an important role in a complete business insurance program. Bonds may be necessary in order to obtain licenses and permits. In other cases, bonds are necessary to bid on work that will be awarded based on a competitive bidding process. Bonds may even be used to protect firms against the dishonest acts of their employees.

What is a surety bond?

A surety bond is a contract in which a Surety guarantees the performance of the obligations of the Principal to the Obligee.

  • The Surety is the company that issues bonds and provides financial guarantees
  • The Principal is the party responsible for performing the obligations (typically the Hortica customer)
  • The Obligee is the party who requires a financial guarantee such as a General Contractor, a project owner, or a unit of government

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Types of surety bonds


Contract bonds are a type of surety bond. These include Bid Bonds, Performance Bonds and Payment Bonds.



  • Bid bonds guarantee that if a bid is accepted the successful bidder will enter into a contract to do the work and will provide Performance and Payment bonds as required.



  • Performance bonds guarantee that the Principal will successfully complete the project according to the terms of the contract. If the Principal is unable to complete the project, the Surety will assume the Principal’s responsibility to complete the project.



  • Payment bonds guarantee that the Principal will pay the subcontractor, labor and material bills associated with the project.


Before the contractor begins the job, the owner of the project or the general contractor may require them to get a bond from a surety company. These bonds may be obtained in a high enough amount to cover the entire project if need be.


If your plans include obtaining work through the competitive bidding process Hortica recommends that you seek pre-approval for contract bonding so that you may confidently submit bids as opportunities arise. Establishing a line of bonding authority is much like establishing a line of credit. Bonding lines of authority of up to $350,000 may often be set up based on your credit score. Higher lines of authority require additional documentation and take more time to establish.


Other types of surety bonds include:



  • License and Permit bonds

  • Notary bonds

  • Court bonds

  • Sales Tax bonds

  • Custom bonds


Fidelity bonds


Fidelity bonds are also known as Employee Dishonesty Coverage. This form of coverage protects employers against the dishonest acts of its employees. Spreading accounting responsibilities among several employees helps reduce the risk of an Employee Dishonesty loss, but such losses continue to occur with extremely large losses possible. Most businesses choose to insure against Employee Dishonesty losses.


Types of Fidelity Bonds:



  • ERISA bonds

  • Business service bonds

  • Dishonesty bonds- Two different types:


    • Blanket coverage: includes coverage for all employees for the same amount

    • Scheduled coverage: only includes coverage for certain employees that are either listed or scheduled by position.



Businesses with plans subject to ERISA regulation, such as 401k plans, are required to maintain Employee Dishonesty insurance to protect the assets of the plan.


You don’t have to become a bond expert yourself, so that is why Hortica agents have bond-specific product knowledge as well as quick access to a variety of bond companies. Hortica stands ready to guide you through every step of the bonding process.