Monthly Archives: October 2005

Insurance Issues

General Liability / Spectator Liability

[Contact Jack Condon via email or phone (1-800-921-1008) to find out about solutions for your specific coverage needs. And visit the website at http://www.bfbond.com/specialevents/]

Often referred to as CGL, or spectator liability this policy provides broad protection for situations in which a business (i.e. your special event) must defend itself against lawsuits or pay damages for personal injury or property damage to third parties. This policy also gives protection to the venue and or sponsors of the event by adding them to the policy as an additional insured.

Insurance Issues

What is Special Events Liability coverage?

Special Events Liability coverage is one of our most popular products, and for good reason. Liability coverage is essential for any major or minor event, to protect the organizer from litigation and other such damages. Special events bring together so many different groups’ property and so many people, that they can pose a serious liability risk. For the next few entries we will discuss different general types of coverage. Contact Jack Condon via email or phone (800) 921-1008 to find out about solutions for your specific coverage needs. Or visit the website at http://www.bfbond.com/specialevents/.

Insurance Issues

What do I need to know about commercial claims?

Depending on the type of loss your business experiences, the duties and responsibilities required by you in a claim can be numerous. It is important to remember that your broker-agent can assist you throughout the claims process. In many cases your broker-agent will be your first point of contact when filing an insurance claim. Whether you contact your broker-agent or the insurance company directly when filing a claim, you are required under the insurance contract to report all claims in a timely manner. This allows the insurance company to process the claim and conduct their investigation as quickly as possible.

Since commercial claims tend to be more complex, it is important for the company to assess the claim quickly in order to mitigate any situation that may have the potential for increased loss. This is especially crucial in liability claims, as there can be high dollar amounts at stake. When claims are not controlled early in the claims process, litigation from third parties can arise. Litigation can be expensive and often ends in a judgment much higher than if an experienced claim representative had handled the claim from the beginning. This is why it is necessary to turn all claims over to your broker-agent or insurance company as soon as you are made aware of the claim. Trying to handle the claim yourself violates your duties under the insurance contract and can be costly to you in the long run.

Most business owners are aware that claims loss experience is reflected in the rating formula and directly effects premium costs. By following the duties outlined in your contract regarding claims, you are a partner with your insurance company in helping to keep claims costs to a minimum, which in turn helps keep your premium costs down. The better your claims experience, the greater modification allowed to lower your premium. When you first receive your policy, contact your broker-agent to discuss all the duties and responsibilities required by you under the contract.

Insurance Issues

Introduction to Commercial Insurance

Whether you are contemplating starting a new business, are a new business owner, or have owned a business for many years, commercial insurance can be one of the most important ongoing financial investments you make in the life of your company. Operating a business is extremely challenging without having to worry about suffering significant financial loss due to unforeseen circumstances. Commercial insurance can protect you from some of the most common losses experienced by business owners such as property damage, business interruption, theft, liability, and worker injury. Purchasing the appropriate commercial insurance coverage can make the difference between going out of business after a severe loss or recovering with minimal business interruption and financial impairment to your company’s operations.

Probate Bonds

Administrator bond amount

The reason the bond amount is based on the size of the personal property is that in most states, administrators have nothing to do with the handling of real estate, unless there are not enough funds or personal property to pay claims. Real estate cannot be conveyed without authorization to post additional bond by the court, based on the expected proceeds from the sale of real estate.  Then the courts will establish the amount of the Administrator Bond.

Bond Issues, Insurance Issues

Another look at the difference between insurance and surety

Clients are often confused about surety bonds and insurance and how they differ. Very simply, the difference is that you must qualify for a bond, and you must purchase insurance. This is why the surety or bond company will ask so many financial questions and will require financial statements and verifications of funds shown on those statements. Bonding is very much like getting a loan from a bank.

An insurance policy is a way to transfer the risk to the insurance company. The insurance company considers the risk and recognizes that a certain percentage of claims will occur. The premium you pay for the policy is partially based on the occurrence of those claims or losses and they charge accordingly.

In bonding, there are 3 parties involved: the Principal, the Obligee and the Surety. The Principal or contractor doing the work retains the risk. The bonds provide protection for the Owner of the project, or the Obligee, that the contract will be completed. The premiums paid for bonds are actually “fees” to use the insurance companies financial assets to back your job. The bonds state that the contract will be completed and that the subs and materials used on the job will be paid. In the event they are not, the bond company may step in and take over the completion of the contract up to the amount of the bonds.

Not everyone will qualify for surety. Lately it is becoming more and more difficult because of the stricter requirements being placed by the sureties due to recent losses. Every claim on a surety bond has an impact on the industry since no losses are assumed in surety. Premiums paid are not based on the losses occurring in the industry, but rather, they are a “fee” to be charged for having the surety back you financially on your project.

When you are asking for a bond you should expect to supply the following and any other pertinent information that may apply to your specific situation: CPA Prepared Fiscal Year End Financial Statements on your Business, Personal Year End Financial Statements, Copy of a Bank Line of Credit, Current Work on Hand Report, Contractor’s Questionnaire giving information about your company, and a copy of the Contract to be bonded.

You, as owner of your company, will be required to personally sign an Indemnity Agreement to set up your bonding. This means that in the event of a claim, you personally will repay or make the bond company whole. This is very different than insurance where claims are not repaid.

We have professionals trained to handle all your bonding needs. If you have questions or would like to be set up for Contract Bonding we will be happy to assist you. Call us at (800) 921 1008 or (212) 566 1881.

Bond Issues

Are letters of credit a suitable substitute for surety bonds?

The direct answer is No! Surety bonds offer the best way to guarantee a contractor’s performance. Surety bonds differ considerably from letters of credit even though they are both types of guarantees. In the case of default, the surety bond company has duties and responsibilities to both the contractor and the project owner based on the underlying contract. The surety bond company strives to be equitable to all parties to successfully ensure the completion of projects. This role contrasts sharply with a letter of credit whereby the bank simply pays over a sum of money on demand to the project owner. The bank assumes no role in arranging for completion of the work, and the letter of credit is usually for a smaller amount which is often insufficient to cover all of the project owner’s additional costs in the event of contractor default.

Bond Issues

What are surety bonds used for?

Different surety needs are met by different types of surety bonds. Surety bonds are a risk transfer mechanism whereby the risk of non-performance by the principal is shifted from the obligee to the surety company. Federal, provincial and local governments often require surety bonds to guarantee that business owners and individuals will comply with various laws protecting public funds. Contract bonds protect taxpayers and private construction owners by guaranteeing that projects will be completed properly, on time and without liens. Many commercial surety bonds protect and secure public funds and private interests.

There is a need to protect taxpayer dollars and private owners’ investment capital. Construction is a very risky business. Many contractors fail every year, leaving behind unfinished private and public construction projects – and billions of dollars in losses. Surety bonds offer the best way to protect against the risk of contractor failure. Essentially, they guarantee a contractor’s performance, assuring that construction projects will be built on time and that certain material suppliers and subcontractors will be paid.

Bond Issues

What is the role of the Surety Agent?

The role of the Surety Agent is to assist the Surety in writing profitable surety business. Typically, the agent maintains the direct contact with the contractor and serves as an intermediary between the contractor and the Surety. The agent usually handles all bid and final bond requests from the contractor and gathers miscellaneous information as requested by the Surety for underwriting purposes. Furthermore, the agent is typically responsible for the processing and delivery of all bid and final bonds.

Bond Issues

What does it take to get set up with a surety company?

Ideally, the Surety Company wants to see three years of Reviewed, CPA prepared business financial statements along with Work in Progress Schedules, Accounts Payable and Accounts Receivable Schedules, Company & Contractor Histories, Bank References and thoroughly completed questionnaire (often, surety support is established with less). The Surety Agent’s job is to retrieve this information from the contractor, verify its completeness, evaluate the provided information and submit it to the Surety Company that will best match up with the contractor’s needs and capabilities. As indicated above, a few sureties have a simple single page application for contracts around $100,000 or less. Surety for these small contracts is based solely on the established credit of the applicant.