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Glossary

A
Administrator: A person legally vested with the right of administration of an estate

Applications: A form used to collect information to underwrite a risk.

Attachment: The legal process of taking possession of a defendant's property when the property is in dispute.

B
Balance Sheet: A financial statement listing assets, liabilities and net worth.

Bankruptcy Trustee Bonds: Bonds which provide a guarantee to the beneficiaries of the bankruptcy that the bonded trustees, appointed in a bankruptcy proceeding, will perform their duties and handle the affairs according to the ruling of the court.

Common Types of Bankruptcies are:
Chapter 7: Calls for the "liquidation" of a business and allows for the sale of the assets to pay outstanding debts.
Chapter 11: Calls for the "reorganization" of a business and the debtor remains in possession of the assets after the filing of a plan for the reorganization.

Bid Bonds: Bonds which guarantee that a contractor will enter into a contract at the amount bid and post the appropriate performance bonds. These bonds are used by owners to pre-qualify contractors submitting proposals on contracts. These bonds provide financial assurance that the bid has been submitted in good faith and that the contractor will enter into a contract at the bid price.

C
Capacity: A term that refers to the size of a bond which a surety is able to write.

Conservator: A person, official or institution designated to take over and protect the interest of an incompetent or minor.

Contract Bonds: A type of bond designed to guarantee the performance of obligations under a contract. These bonds guarantee the obligee that the principal will perform according to the terms of a written contract. Construction contracts constitute most of these bonds. Contract bonds protect a project owner by guaranteeing a contractor's performance and payment for labor and materials. Because the contractor must meet the surety company's pre-qualification standards, construction lenders are also indirectly assured that the project will proceed in accordance with the terms of the contract.

Court Bonds: A general term referring to bonds required in some action of law

D
Damages: Term that refers to monetary measures of harm which may have occurred in a claim.

Defendant: The term that refers to the person or institution being accused in a court case.

Defendant Bonds: Defendant Bonds counteract the effect of the bond that the plaintiff has furnished. These bonds are more hazardous than plaintiff bonds. Often, they require the posting of collateral to be written.

F
Fidelity Bonds: Bonds designed to guarantee honesty. Generally, the bond guarantees honesty of employees. These bonds cover losses arising from employee dishonesty and indemnify the principal for losses caused by the dishonest actions of its employees.

E
Employee Retirement Income Security Act: The 1974 act that created a requirement for a bond to be posted, in the amount of ten percent of the funds, on the fiduciary of pension funds and profit sharing plans. (Often called ERISA)

Executor: A person appointed to execute a will.

F
Fiduciary: One who is appointed to act in the best interests of another. A fiduciary is a person appointed by the court to handle the affairs of persons who are not able to do so themselves. Fiduciaries are often requested to furnish a bond to guarantee faithful performance of their duties.

Fiduciary Bonds: Bonds which guarantee an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors and other fiduciaries. Fiduciary bonds, in some cases referred to as probate bonds, are required by statutes, courts or legal documents for the protection of those on whose behalf a fiduciary acts. They are needed under a variety of circumstances, including the administration of an estate and the management of affairs of a trust or a ward.

I
Indemnification: The act of guaranteeing another repayment in the event of a loss.

Individual Bonds: A term generally used with public official bonds, which refers to bonds written in the name of the specific public official.

L
License and Permit Bonds: A term used to refer to bonds which are required to obtain a license or permit in any city, county or state. These bonds guarantee whatever the underlying statute, state law, municipal ordinance or regulation requires. They may be required for a number of reasons, for example the payment of certain taxes and fees and providing consumer protection as a condition to granting licenses related to selling real estate or motor vehicles and contracting services.

M
Maintenance Bonds: Bonds that provide for the upkeep of the project for a specified period of time after the project is completed. These bonds guarantee against defective workmanship or materials. These bonds may occasionally include a guarantee of "efficient or successful operation" or other obligations.

Minor: A person who is not of legal majority. In certain situations, a person may be appointed as a guardian of a minor.

Miscellaneous Bonds: A term used to refer to bonds which do not fit any of the other well-recognized categories of surety bonds.

N
Notary Public Bonds: Include bonds that are required by statutes to protect against losses resulting from the improper actions of notaries.

O
Obligee: The person or institution to which a surety guarantees that a principal perform as expected.

Open Penalty: A term used to refer to the unlimited liability of the surety on a particular bond.

Ordinance: A municipal regulation.

P
Payment Bonds: Payment bonds guarantee payment of the contractor's obligation under the contract for subcontractors, laborers and materials suppliers associated with the project. Since liens may not be placed on public jobs, the payment bond may be the only protection for those supplying labor or materials to a public job.

Penalty: A term used to refer to the monetary size or limit of a bond.

Pension: A fixed sum of money regularly paid to a person.

Performance Bonds: Performance bonds guarantee performance of the terms of a contract. These bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability. This protects the owner from financial loss should the contractor fail to perform the contract in accordance with its terms and conditions.

Plaintiff: The person or institution that brings an action in a court of law.

Plaintiff Bonds: Plaintiff bonds are required of a plaintiff in an action of law. They generally guarantee damages to the defendant caused by the plaintiff's legal action, should the court decide for the plaintiff.

Position Schedule Bonds: A type of fidelity or public official bond which lists specific positions and their corresponding penalty amounts. Position schedule bonds use one bond but attach a schedule of positions to be bonded. Each name will list specific dollar amounts for which that individual is being bonded. This type of bond may be used to bond certain positions that have a high amount of turnover. Using a position instead of a name will reduce the paperwork involved year-to-year.

Premium: A sum of money paid as consideration for a bond.

Principal: The individual required to be bonded by the obligee.

Public Official Bonds: A type of bond that guarantees a public official will act with honesty and/or faithful performance. These bonds are required by statutes and ordinances.

Public Official: One who holds public office.

R
Rates: The amount of money per thousand dollars (or percentage) used to determine the bond premium.

Reclamation Bonds: A bond which guarantees that an institution will restore land that it has mined or otherwise altered to its original condition.

Replevin: An, action of a law used to recover specific personal property.

S
SBA: An acronym for the Small Business Administration. The SBA has a program to help small and minority owned contracting businesses obtain surety bonds.

Supply Bonds: Bonds which guarantee performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety indemnifies the purchaser of the supplies against the resulting loss.

Surety: A person or institution which guarantees the acts of another.

Surety Bonds: Surety Bonds are three-party agreements in which the issuer of the bond (the surety) joins with the second party (the principal) in guaranteeing to a third party (the obligee) the fulfillment of an obligation on the part of the principal. An obligee is the party (person, corporation or government agency) to whom a bond is given. The obligee is also the party protected by the bond against loss.

Surety Industry: The surety industry is composed of contract surety business and commercial surety business. The products comprising each are sold through the same type of distribution system - agents and brokers.

T
Treasury Listing: A financial rating published by the federal government that lists the maximum size of federal bond a surety is allowed to write.

Trustee: A trustee is a person named to manage a business' assets and work with the business' creditors.

W
Work-On-Hand Reports: A type of financial statements or schedule which lists a contractor's jobs in progress.

Workers' Compensation Self-Insurers Bond: Workers' Compensation laws, at the state and federal level, require employers to compensate employees injured on the job. An employer may comply with these laws by purchasing insurance or self-insuring by posting a workers' compensation bond to guarantee payment of benefits to employees. This is a hazardous class of commercial surety bond because of its "long-tail" exposure and potential cumulative liability. The "long-tail" exposure stems from the two statutory bond forms:

*Traditional - bond form: The surety is liable for payment of the principal's workers' compensation obligations occurring during the time the bond is in force. When the bond is cancelled, the surety continues to have liability for all workers' compensation claims incurred between the effective date of the bond and the cancellation date of the bond.

*Last surety on - bond form: The surety assumes all past, present and future liability to pay the principal's self-insurers workers' compensation obligations. The surety is released from all accrued liability if the surety cancels the bond and the principal later posts an acceptable replacement security.