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GLOSSARY OF SURETY BOND TERMS<\/strong><\/span><\/p>\n SURETY BOND:<\/strong><\/span>\u00a0An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. ACCOUNTING METHODS: For construction or building contractors, the two methods of accounting, both realistic and preferred by surety companies, are (a) the Completed Contract method, and (b) the Percentage-of-Completion method.<\/p>\n ADMINISTRATOR<\/a>:<\/strong><\/span>\u00a0A fiduciary appointed by a probate court to manage or distribute the assets of an estate of a person who died without leaving a will.<\/p>\n ADMINISTRATOR CUM TESTAMENTO ANNEXO OR WITH WILL ANNEXED<\/strong>:<\/span> One appointed by a probate court to administer the estate where the deceased left a will but failed to name an executor or the one named as executor fails to qualify.<\/p>\n ADMINISTRATOR, CUM TESTAMENTO ANNEXO, DE BONIS NON:<\/strong><\/span>\u00a0One appointed by a probate court to succeed an executor who has died, resigned, or been discharged before the administration is complete.<\/p>\n ADMINISTRATOR DE BONIS NON:<\/strong><\/span>\u00a0One appointed by a probate court to succeed an administrator who has died, resigned or been discharged before the administration is complete.<\/p>\n ADMINISTRATOR PENDENTELITE:<\/strong><\/span>\u00a0One appointed to preserve the assets of a decedent’s estate where the will is contested or other circumstances occur which delay qualification of an executor if there is a will or the appointment of an administrator if there is no will.<\/p>\n ADVANCE PAYMENT BOND<\/a>:<\/strong><\/span>\u00a0Guarantees repayment or liquidation by the principal of moneys advanced in connection with a construction or supply bond or other type of contract.<\/p>\n AGGREGATE LIABILITY CLAUSE<\/strong>:<\/strong><\/span>\u00a0A clause in a third party license bond which limits the surety’s liability to the bond penalty regardless of the number of claims made against the bond.<\/p>\n ALCOHOL BOND<\/a>:<\/strong><\/span>\u00a0A general term describing a bond given in compliance with federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol for beverage or non-beverage purposes. Where the alcohol is intended for beverage purposes, the bond is frequently referred to as a liquor bond or intoxicating liquor bond.<\/p>\n ANNUAL BOND<\/a>:<\/strong><\/span>\u00a0One written to cover contractors or bids awarded or submitted during an annual period or for a period terminating within a fiscal year.<\/p>\n APPEAL BOND<\/a>:<\/strong><\/span>\u00a0One filed in court by a party against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, in hope of reversing the judgment. The bond guarantees that the judgment will be paid if the appeal fails.<\/p>\n APPLICATION:<\/strong>\u00a0<\/span>A questionnaire which must be completed, when required, by an applicant for a bond. It gives the company information about the applicant and contains his\/her agreement to indemnify the surety in the event of loss, as well as his\/her promise to pay the premium.<\/p>\n ASSETS:<\/strong><\/span>\u00a0The items on a balance sheet showing the book value of property owned. For a surety this could include all funds, property, securities, etc., or the property of an estate, whether real or personal.<\/p>\n ATTACHMENT BOND<\/a> – PLAINTIFF’S:<\/strong><\/span>\u00a0Attachment is taking a defendant’s property into custody by a summary process from the court in advance of the trial on the merits of the case. It is taken as security for the payment of any judgment that may be recovered by the plaintiff in the action. Attachment is allowed only where the plaintiff alleges a statutory ground for it (e.g. defendant is a nonresident or is about to leave the jurisdiction or remove or conceal his\/her property). The bond, which the plaintiff is required to furnish, provides for indemnity to the defendant against loss or damage in case it is finally decided that a statutory ground did not exist or the plaintiff fails to recover a judgment against the defendant.<\/p>\n ATTACHMENT – DEFENDANT’S BOND TO DISCHARGE OR RELEASE:<\/strong><\/a><\/span>\u00a0When an attachment has been issued, a defendant may discharge the attachment by giving the bond conditioned for the payment of any judgment that may be rendered against him\/her in the action, with interest and costs.<\/p>\n BID BOND<\/a>:<\/strong><\/span>\u00a0Given by a bidder for a supply or construction contract to guarantee that the bidder, if awarded the contract within the time stipulated, will enter into the contract and furnish the prescribed performance bond. Default will ordinarily result in liability for the difference between the amount of the principal’s bid and the bid of the next low bidder who can qualify for the contract. In any event, however, the liability of the surety is limited to the bid bond penalty.<\/p>\n BLANKET FIDELITY BOND<\/a>:<\/strong><\/span>\u00a0A bond which covers loss of money, merchandise, or other property owned by the insured or in which he\/she has a pecuniary interest when such loss is due to dishonesty of his\/her employees. All employees are covered under the bond unless specifically excluded.<\/p>\n BLANKET POSITION BOND<\/a>:<\/strong><\/span>\u00a0A blanket fidelity bond which covers all of the insured’s employees for a uniform amount on each so that if loss is caused by dishonest or fraudulent acts of two or more employees in collusion, recovery up to the amount of the bond may be made on each identifiable participating employee.<\/p>\n BLUE SKY BONDS:<\/strong><\/span>\u00a0Many states control the sale of securities under regulations known as Blue Sky Laws. These laws are designed to prohibit the sale of worthless securities. The bonds required of security dealers indemnify purchasers against loss caused by false representations. The term Blue Sky Law originated when a court complained that certain stock was backed only by the blue sky.<\/p>\n BOND:<\/strong><\/span>\u00a0Generally speaking, it is an agreement whereby one party, called the surety, obligates itself to a second party, called the obligee, to answer for the default of a third party, called the principal.<\/p>\n CANCELLATION CLAUSE:<\/strong><\/span>\u00a0A clause in a bond which permits the surety to terminate its future liability by serving written notice upon the obligee.<\/p>\n CLAIMANT’S BOND:<\/strong><\/span>\u00a0In cases where, pending final decision on the merits, property is released to one not a party to the litigation, who claims to be the owner thereof. The claimant may be required to give bond conditioned for the return or redelivery of the property if ordered to do so by the court.<\/p>\n CO-FIDUCIARY:<\/strong><\/a><\/span>\u00a0One who serves as a fiduciary jointly with another, such as a co-administrator, co-executor, co-guardian, etc.<\/p>\n COLLATERAL:<\/strong><\/span>\u00a0Anything of value pledged with the surety to secure it against loss by reason of default of the principal.<\/p>\n COLLUSIVE LOSS:<\/strong><\/span>\u00a0A loss caused by two or more dishonest employees acting in consort.<\/p>\n COMMERCIAL BLANKET BOND<\/a>:<\/strong><\/span>\u00a0A blanket fidelity bond issued in a stated amount on all regular employees of commercial establishments covering against loss from employees’ dishonest acts.<\/p>\n COMMISSIONER OF INSURANCE:<\/strong><\/span>\u00a0The official charged with enforcement of the laws pertaining to insurance in his\/her state. In some jurisdictions this official is called the superintendent or director of insurance.<\/p>\n COMMITTEE:<\/strong><\/a><\/span>\u00a0One appointed by a court to manage the estate of a person who has been declared incompetent. Also known as conservator or a curator.<\/p>\n COMPLETION BOND<\/a>:<\/strong><\/span>\u00a0One covering performance of a construction project that names as an obligee a lender or similar party in a position to invoke the performance features of the bond for its benefit without an obligation to provide funds or to complete.<\/p>\n CONDITION:<\/strong><\/span>\u00a0The technical name of one of the four parts of a bond. The condition is not a qualification of coverage as with an insurance policy, but is the essence of the guarantee.<\/p>\n CONSERVATOR<\/a>:<\/strong><\/span>\u00a0A person, official, or institution designated to take over and protect the interests of an incompetent.<\/p>\n CONTINUITY CLAUSE<\/strong>:<\/strong><\/span>\u00a0The clause in a bond, or rider attached to a bond, under which that bond, subject to its terms, assumes liability for any loss due to acts which occurred while a prior bond was in force, but which were not discovered until after the expiration of the discovery period of the prior bond.<\/p>\n CONTRACT BOND<\/a>:<\/strong><\/span>\u00a0A guarantee of the faithful performance of a construction contract and usually the payment of all labor and material bills related to it. In those situations where two bonds are required – one to cover performance and the other to cover payment of labor and materials – the former is known as a performance bond, and the latter as a payment bond.<\/p>\n CONTRACT PRICE:<\/strong><\/span>\u00a0The whole sum of money which passes from an owner to contractor when final settlement is made between the two under the contract, the basis for the premium charge on most types of construction and supply contract bonds.<\/p>\n CONVERSION:<\/strong><\/span>\u00a0The wrongful taking of property entrusted to one’s care.<\/p>\n CORPORATE SURETY:<\/strong><\/span>\u00a0A corporation licensed under various insurance laws, which under its charter, has legal power to act as surety for others.<\/p>\n COST BOND<\/a>:<\/strong><\/span>\u00a0One required of a litigant conditioned for the payment of the costs of the litigation, such as fees of the court clerk, sheriff, etc.<\/p>\n CO-SURETY:<\/strong><\/span>\u00a0One or two or more surety companies directly participating in a bond. Their obligation to the owner is joint and several, but often a limit of liability for each surety is stated as between themselves.<\/p>\n COUNTERSIGNATURE:<\/strong><\/span>\u00a0A signature of a licensed domiciled agent or representative required by the laws of some states to validate the bond.<\/p>\n COURT BONDS:<\/strong>\u00a0<\/span><\/a><\/span>A general term embracing all bonds and undertakings required of participants in a lawsuit permitting them to pursue certain remedies in the courts.<\/p>\n CUMULATIVE LIABILITY:<\/strong><\/span>\u00a0The aggregate amount of two or more bonds in behalf of the same principal (or in the case of fidelity or blanket bonds, in favor of the same obligee) filed in succession, where the succeeding bond(s) does not extinguish the liability under the prior bond(s) or the liability of the surety is the penalty of the bond times the number of years in force.<\/p>\n CUSTOMS BONDS:<\/strong><\/span>\u00a0These bonds guarantee the payment of import duties and taxes, and compliance with regulations governing the entry of merchandise from foreign countries into the United States.<\/p>\n DEDUCTIBLE:<\/strong><\/span>\u00a0An amount which is to be “deducted” from any loss and which the insured agrees to bear personally.<\/p>\n DEPOSITORY BOND:<\/strong><\/span>\u00a0This guarantees repayment of moneys deposited with a bank in the event of the failure or insolvency of the bank. While this is now a negligible line of surety business, it was once a large one. The Federal Deposit Insurance Corporation (FDIC) now guarantees the payment of bank deposits.<\/p>\n DEPOSITORY LIABILITY<\/strong>:<\/strong><\/span>\u00a0A public official is liable for public funds which he\/she deposits in a bank and cannot pay over because of insolvency or failure of the bank. In many states, statutes provide for the designation of depositories for public funds and for the furnishing of collateral security by such depositories. Such laws, if interpreted strictly, usually exempt the public official and his\/her surety from liability for loss through failure of any of the designated and qualified depositories.<\/p>\n DEPOSIT PREMIUM:<\/strong><\/span>\u00a0The advance premium required by a surety company on those forms of bonds which are subject to premium adjustment.<\/p>\n DISCOVERY BOND:<\/strong><\/a><\/span>\u00a0A form of fidelity bond which covers against dishonest or fraudulent acts of employees, provided such loss is discovered any time after the bond becomes effective and before it is terminated, irrespective of when the dishonest or fraudulent acts were committed.<\/p>\n DISCOVERY PERIOD<\/strong>:<\/strong><\/span>\u00a0Under certain bonds and policies, provision is made to give the insured a period of time after the cancellation of a contract in which to discover whether a loss was sustained that would have been recoverable had the contract remained in force. This period usually varies from six months to three years. The period may be determined by statute; in certain bonds, it is of indefinite duration because of statutory requirement.<\/p>\n DISHONESTY INSURANCE:<\/strong><\/a><\/span>\u00a0A generic term describing fidelity bond coverage guaranteeing against loss caused by dishonest officers or employees of a commercial firm or by dishonest public officials or employees.<\/p>\n EARNED PREMIUM:<\/strong><\/span>\u00a0The premium amount which would compensate the surety for the protection furnished for the expired portion of the term of the bond.<\/p>\n EFFECTIVE DATE:<\/strong><\/span>\u00a0The date from which bond coverage is provided.<\/p>\n ENDORSEMENT:<\/strong><\/span>\u00a0A form attached to the bond to add to, alter, or vary its provisions. Sometimes called a rider.<\/p>\n EXCESS BOND<\/a>:<\/strong><\/span>\u00a0Additional coverage over a primary bond protecting against certain perils (usually dishonesty) applying only to loss above a specified amount.<\/p>\n EXCLUSION:<\/strong><\/span>\u00a0A provision in a bond referring to perils or property not covered.<\/p>\n EXECUTOR<\/a>:<\/strong><\/span>\u00a0One named in a will to distribute and settle the estate of the testator.<\/p>\n EXPENSE RATIO:<\/strong><\/span>\u00a0The percentage of the premium used to pay all costs of acquiring, writing, and servicing the bond.<\/p>\n EXPERIENCE:<\/strong><\/span>\u00a0The loss record of either an individual or a class of coverage.<\/p>\n EXPERIENCE RATING:<\/strong>\u00a0<\/span>A plan available for fidelity bonds whereby surcharges or discounts are applied to premiums developed by those risks based on the actual past experience of such risks.<\/p>\n EXPIRATION:<\/strong><\/span>\u00a0The date upon which a bond will cease to provide coverage unless previously cancelled.<\/p>\n FAITHFUL PERFORMANCE BOND:<\/strong><\/span>\u00a0<\/a>A type of bond where the coverage goes beyond protection against loss due to dishonesty or fraudulent acts of the principal; it provides protection to the named insured against loss by reason of the failure of the persons covered hereunder to faithfully perform their duties as prescribed by law or by the constitution and bylaws of the insured or their equivalent.<\/p>\n FIDELITY BOND<\/a>:<\/strong>\u00a0<\/span>A bond which will indemnify an insured for loss caused by a dishonest act or fraudulent act of an employee covered under the bond. Also known as dishonesty insurance.<\/p>\n FIDUCIARY:<\/strong><\/span>\u00a0<\/a>A person who occupies a position of trust, particularly one who manages the affairs or funds of another.<\/p>\n FIDUCIARY BOND:<\/strong><\/a><\/span>\u00a0Required of administrators, executors, guardians, committees, etc., guaranteeing faithful performance of duty in accordance with the laws applicable to the trust. Frequently called a probate bond because the bond is customarily filed in a probate court.<\/p>\n FINANCIAL GUARANTEE BOND:<\/strong>\u00a0<\/a><\/span>A bond that guarantees payment of a sum of money whether or not the exact amount is known or stated. Common types are: court bonds (appeal, etc.), lease bonds which guarantee payment of rent, etc.<\/p>\n FINANCIAL RESPONSIBILITY LAW<\/strong>:<\/span> A statute requiring motorists to furnish, either before or after an accident, evidence of ability to pay damages. Such evidence may be furnished by a surety bond.<\/p>\n FINANCIAL STATEMENT:<\/strong><\/span>\u00a0A balance sheet which the surety requires of an applicant for a bond (particularly a contractor), setting forth his\/her financial position as of a given time or period.<\/p>\n FIXED PENALTY BOND:<\/strong><\/span>\u00a0A bond for which the amount is expressed in terms of a stated and definite sum of money.<\/p>\n FORFEITURE BOND:<\/strong><\/span> A bond where the full penalty is payable upon breach of the condition regardless of the amount of loss or damage.<\/p>\n GARNISHMENT – BOND TO DISCHARGE OR RELEASE:<\/strong><\/a><\/span>\u00a0When money or property belonging to a defendant has been attached while in the hands of a third party, the proceeding is called a garnishment and the third party is called the garnishee. The bond is similar to a release of attachment bond.<\/p>\n GROSS LOSS:<\/strong><\/span>\u00a0The amount of loss before giving effect to reinsurance. Usually reported inclusive of claim expenses. It may also be considered as the loss without allowance for collection of salvage.<\/p>\n