Terms & Definitions*

ADMINISTRATION BOND

A bond which is furnished by the administrator of an estate. It guarantees that the estate will be settled in accordance with the law. It guarantees the fidelity of the executor or administrator.

ADMINISTRATOR (ADMINISTRATRIX)

One appointed to handle the affairs of a person who has died intestate; one who manages the estate of a deceased person who left no executor; “an instrumentality established by law for performing the acts necessary for the transfer of the effects left by the deceased to those who succeed to their ownership.” If decedent dies with a will, an executor carries it out.

ADMINISTRATOR CUM TESTAMENTO ANNEXO (C.T.A.)

Appointed by the court when there is a will and the named executor, and alternate executors decline or are unable to act. This individual acts as a substituted executor, and carries the duties and responsibilities set forth in the will.

ADMIRALTY BOND

Admiralty refers to a body of law peculiar to United States Admiralty Courts which have jurisdiction over maritime causes or controversies arising out of acts done upon or relating to the sea. The initial complaint in admiralty is known as a libel, and the party filing same is called the libelant. The action can be against a person – “in personam”, or against the vessel itself – “in rem”. The libelant may institute a proceeding that is basically the same as an attachment proceeding and have the U.S. Marshall seize the vessel as security for the claim. When a vessel is seized, it is said to have been “libeled” by the libelant who may be required to post a bond with essentially the same guarantees as a standard attachment bond. The release of a libeled vessel can be accomplished by the filing of a counter bond by the vessel’s owner.

ADVANCE PAYMENT OF COMMISSION BOND

A bond posted to guarantee that the administrator or executor of an estate would repay or liquidate any money advanced to it in case the court deems the monetary privileges provided to the executor was improper.

ALCOHOL BOND

These bonds are required where alcohol is used for purposes instead of alcoholic beverages for personal consumption. The bonds basically guarantee compliance with governing regulations and the filing of all necessary reports including proof of use in accordance with the permit. The bonds also cover any special tax levies and substantial penalties if the alcohol is diverted for beverage purposes.

ALCOHOLIC BEVERAGES, BEER & LIQUOR BOND

There is great variation from one jurisdiction to the next in the laws applicable to those dealing in alcoholic or intoxicating beverages. In all states, except where beer or liquor is sold by state stores, dealers are licensed. Bonds may be required to simply guarantee compliance with the law and can be written for reputable dealers. In other jurisdictions, the bonds may also guarantee the payment of taxes on beverages sold which makes the bond a good faith and credit guarantee. In still other jurisdictions, the bond guarantees fines or contains forfeiture provisions making the entire penal sum payable if the dealer is convicted of any violations of the law.

APPEAL BOND

When a judgment or decree has been rendered in one court and the losing party wishes to take an appeal to a higher court, he or she ordinarily must give an appeal bond. The giving of this bond usually prevents the successful party in the lower court from executing on the judgment. Therefore, the appeal bond generally supersedes or takes the place of the judgment. The bond guarantees that the appeal will be prosecuted without unnecessary delay, and if the judgment is affirmed by the Appellate Court, that the principal will satisfy the judgment with interest and costs.

ASSIGNEE BOND

A bond appointing a person for the benefit of creditors by an insolvent debtor to liquidate the debtor’s assets and make distribution to creditors.

ATTACHMENT BOND – DEFENDANT’S BOND TO DISCHARGE OR RELEASE

When 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.

ATTACHMENT BOND – PLAINTIFF’S

Attachment 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.

AUCTIONEER BOND

This bond guarantees that persons conducting auctions will not make any misrepresentations and will faithfully account for the goods and proceeds from the sale. The bonds can be an ongoing or annual license bonds covering any and all auctions during the license term or single permit bonds given in connection with a specific auction. In either case, the risk is a good faith and credit guarantee that can be written for reputable, experienced and well-established dealers.

BENEFICIARY

One receiving (or designated to receive) benefit or advantage, or one who is in receipt of benefits, profits or advantage. The person named in a will to receive certain property is a beneficiary under the will.

BID BOND

Bid bonds are a financial guarantee by the surety to the obligee, usually the project owner, that the contrator will honor his bid price, enter into contract and supply the required performance and payment bonds. The bid bond is usually 5 to 20% of the bid amount. If the contractor fails to honor his bid or can not furnish the peformance or payment bonds, the surety is liable for the difference between the first and second bidder up to the face amount of the bond.

BOND

A written instrument with sureties guaranteeing faithful performance of acts or duties contemplated.

BOND BACK

Occasionally the surety will as part of the underwriting requirements require a contractor/bond principal to have one or more of their sub-contractors provide performance and payment bonds to its bond principal. Doing so can help the contrator quality for larger jobs because having the sub bonded reduces the risk of financial hardship if that sub fails to complete or pay its suppliers or crew. We call this “bonding back the sub”.

BOND LINE

An indication based on current underwriting as to the single job size and aggregate work load for which a contractor qualifies.

BROKER BOND

These bonds are generally good faith and credit obligations guaranteeing the broker will not deceive or make any misrepresentations to the customer and faithfully account for any funds deposited with them by the customer. In some jurisdictions the bonds also guarantee payment of premium taxes and money due insurance companies. The bonds are for the most part regulatory/good faith and credit obligations and there is no rule of thumb regarding net worth. Broker bonds can be written for reputable and experienced applicants with reasonable income and a comfortable financial worth.

BUSINESS FINANCIAL STATEMENT

The annual and semi-annual presentation prepared by a certified public accountant according to specific accounting guidelines and in a specific format, which provides a snapshot of the financial results of the contractor’s company for the year then ending. This is the primary tool for underwriting and evaluating the financial strength of the contractor and should be carefully prepared and include all the required information and schedules which tie into the balance sheet and profit and loss statements.

CIGARETTE OR CIGAR TAX BOND

These bonds guarantee the payment of taxes collected by the seller of cigarettes and cigars. This is a good faith and credit guarantee. The taxes are collected on behalf of the taxing authority by the seller at the point of sale to the customer. As a general rule, tax money is not segregated by the principal, but commingled with other cash belonging to or in the hands of the principal. In addition, these bonds often involve cumulative liability and audit/collection procedures vary from state to state which increases the risk to sureties providing bond coverage for several license periods or terms.

CLAIMANT

One who has asserted a claim under the bond.

CO-SURETYSHIP

This is a procedure or arrangement whereby two or more companies jointly become sureties on a bond. Two or more sureties instead of a single surety execute the bond, and the obligee has a direct right of action against each surety. Co-suretyship may be either limited or unlimited. It is unlimited if each company signs the bond without any limitation upon the amount of its liability, other than the penalty of the bond. In that case, the sureties are jointly and severally liable and any one of the co-sureties can be required to pay the total loss so that if one or more companies should become insolvent, the others would be liable for the entire loss. Co-surety is limited when each of the sureties, by the term of the bond, limits its liability to a specified amount. The aggregate of the amounts to which the several companies bind themselves make up the total suretyship required. Limited co-suretyship is generally accepted on all bonds required by law and the limited form is decidedly preferable to the sureties and is more generally used.

COLLECTION AGENT BOND

These bonds fall within the category of both good faith as well as credit and financial guarantees. Collection agents handle money on behalf of others, and the bonds usually guarantee faithful accounting for it. However, in many jurisdictions the bonds also protect the public from undue harassment and threats.

COMMERCIAL CRIME POLICY

The Commercial Crime Policy can be purchased with a variety of coverages, all protecting the business from criminal acts. Examples include Employee Dishonesty, Forgery or Alteration, Theft, Disappearance and Destruction, Robbery and Safe Burglary, Premises Burglary, Computer Fraud, and Extortion.

COMPLETION BOND

A simplified definition of a completion bond is that the surety guarantees that no matter what happens to the bond principal the project will be completed by the surety even if the owner runs out of money.

CONTRACTOR’S LICENSE BOND

In some municipalities, contractors must post a bond to keep their licenses in force. The bond is for the benefit of the public to compensate them for actual damage if the contractor does not adhere to the Contractor’s License Laws.

CORPORATE SURETY

Usually an insurance company that has been qualified by the state to issue surety bonds and undertakings.

COUNTER REPLEVIN BOND

These bonds may be employed by defendants to retain or regain possession of property that has been replevied. They guarantee that the property will be surrendered, to satisfy the final judgment of the court, in the same condition as when recovered. There is a real exposure under these bonds for safekeeping. The property, in essence, becomes the property of the defendant to deal with in any way it sees fit. Both the defendant and the surety would be liable for any deterioration or outright destruction of the property during the time of the court action.

COURT BOND

These bonds protect the opposing party from any loss he/she might sustain in the event the final decision is not in favor of the one filing the bond. Court bonds are subdivided into those for plaintiffs and those for defendants.

CUM TESTAMENTO ANNEXO (C.T.A.)

It means that the testator made an incomplete Will, i.e., failed to name an executor/executrix; or the named executor/executrix has waived the right to appointment; or for any reason the named executor/executrix is unwilling or unable to serve in such capacity.

DEFAULT

The failure of a principal to meet his/her obligations when due, which gives rise immediately to the surety’s obligation to the obligee, provided there are no conditions precedent to the surety’s liability.

DEFENDANT BOND

These bonds are generally filed as counter bonds to release property seized by plaintiffs; or in some cases, to postpone enforcement of a court order pending further judicial proceedings such as appeals. The former includes release or discharge attachment or garnishment and counter replevin bonds, and the latter includes appeal, supersedeas and stay of execution bonds. In either case, defendant bonds guarantee the payment of any final judgment entered by the trial or appellate court in favor of the plaintiff and against the defendant.

DERIVATIVE SUIT

A civil lawsuit filed by shareholders on behalf of a corporation asserting rights of the corporation in the absence of corporate action to protect such rights; a suit by shareholders to enforce corporate rights against directors or other insiders. The standing of shareholders to sue is derived from the rights of the corporation. This differs from a class action (or representative suit), where a large group of plaintiffs (shareholders or otherwise) bring suit in their own right.

DISBURSING AGENT BOND

A Bond posted by the disbursing agent appointed solely to marshal the assets, liquidate and distribute to creditors guaranteeing faithful execution.

DUAL OBLIGEE BOND

The surety’s promise that the principal will faithfully perform the contract; runs both to the owner and another, usually a lending institution that is financing the construction.

EMPLOYMENT AGENCY BOND

These bonds generally guarantee compliance with rules governing the conduct of this type of business, adherence to proper commission schedules and refund of fees as required by law. This is another good faith and credit guarantee where honesty, integrity, experience, and modest worth relative to the amount of bond coverage are the key underwriting criteria.

ENDORSEMENT

A form attached to the bond to add to, alter, or vary its provisions. Sometimes called a rider.

ERISA

The Employee Retirement Income Security Act of 1974 requires employers that have a pension or profit sharing plan to maintain a bond equal to ten percent of the amount of the plan’s asset. The bond insures that the trustees of the plan will properly manage the assets.

ERRORS AND OMISSIONS COVERAGE / E&O

A professional liability policy covering the policyholder for negligent acts and omissions that may harm his or her clients.

ESCROW AGENT BOND

These bonds are often associated with the sale of real property or timeshares. They generally provide protection to the general public for damages resulting from fraud or misrepresentation, and guarantee refund of any money held for safekeeping by the escrow agent should the depositor be entitled to same. Escrow agent bonds are good faith and credit guarantees and the principal must be reputable, experienced and financially responsible.

ESTATE

Interest, right, or ownership in land; technically, the degree, quantity, nature and extent of a person’s interest or ownership of land. In its broad sense, “estate” applies to all that a person owns, whether real or personal property.

EXCISE OR INTERNAL REVENUE BOND

Excise or internal revenue bonds guarantee that manufacturers and handlers of these commodities will pay the taxes and comply with all federal regulations related to their operation, including full, adequate and timely reporting of statistical data to the appropriate government agencies.

EXECUTOR (EXECUTRIX)

A person who either expressly or by implication is appointed by a testator to carry out the testator’s directions concerning the dispositions he makes under his will. The person who is named in a will to handle the estate of the deceased as set forth in the will.

EXECUTOR BOND

Bond posted by the one named in a Will to administer the estate of the testator guaranteeing faithful execution.

FIDELITY BOND

These bonds are purchased by employers (the insureds) to indemnify or protect against the dishonest acts of an employee. The employer is the equivalent of the obligee.

FIDUCIARIES

These are entities (individuals, corporations, etc.) appointed to handle the affairs of others who are legally incapable or unable to handle their own affairs; and generally operate under the jurisdiction and supervision of courts and hold the property of others in trust.

FIDUCIARY BOND

This type of bond guarantees the person appointed to a position of trust will faithfully perform all duties associated therewith and account for the property being handled on behalf of others. Fiduciary Bonds are instruments written on behalf of persons appointed by courts or designated in Wills or Deeds of Trust to take possession of an estate or property, manage and control it, and finally to account for, transfer or distribute it as required by law. Fiduciaries are agents of the courts and merely a conduit through which courts exercises its custody. Fiduciary Bonds are required by law, and in many instances the specific bond form is set forth by statute. While these bonds may differ in detail among various states, the basic guarantees are that principals will faithfully and properly perform their duties as required by law.

FINANCIAL GUARANTY COVERAGE

This is a versatile surety product. It is most often used in guaranteeing a performance of a specific agreement or in default thereof to pay a sum of money. This product may be written to guarantee obligations when traditional surety products fail to meet the needs of the interested parties.

GAMES OF CHANCE BOND

Currently, two states; (Florida and New York) have laws requiring operators of game promotions offered in connection with the sale of consumer products or services to either establish a trust account or post a surety bond guaranteeing that the prizes will, in fact, be awarded to the winners. In Florida there is an element of adverse selection because the security provisions can be waived for operators who have run successful promotions for five years without any civil, administrative or criminal actions. In as much as the bonds guarantee that the promoter will abide by its promises and award the prizes being offered in the promotion, the bonds must be treated as financial guarantees.

GARNISHMENT BOND

This type of bond is used by plaintiffs to obtain security for an alleged claim for debt by attaching property or credits of defendants that are in the hands of a third party. Third party garnishees, when properly notified, are obligated to hold the property pending the outcome of the suit. This action is frequently used to attach either bank accounts or accounts payable by a business concern.

GENERAL INDEMNITY AGREEMENT

The general indemnity agreement is required to be signed by all bond principals before a bond is issued. The bond principals will include all owners (and their spouses) of the construction company, the company itself will sign the indemnity agreement and potentially other related persons or entities. This document, in very simple terms, states that if the surety incurs any losses on the bonded job then the indemnitors will reimburse the surety for all costs. The reason for this agreement is that a bond is not an insurance policy and the bond principal is responsible for reimbursing the surety for any costs it incurs to finish the job or pay subs, suppliers or crew.

GUARDIAN

One who legally has care and management of the person and/or estate of a minor or incapacitated person. Some essential features of the relationship of guardian and ward include the fact that a fiduciary relationship exists between them, and that the guardian does not hold legal title to the ward’s/minor’s property. It is to be preserved and maintained for the ward/minor.

GUARDIANSHIP

The court actions and proceedings that govern the determinations and appointments in regards to a guardian and ward/minor.

HEIRS

As commonly used in suretyship, an individual, firm, or corporation who agrees to hold the surety free of loss and expense if it will execute a bond or bonds for a principal who is not qualified on his own for the bond or bonds. The agreement is usually, but not necessarily, a continuing agreement effective until cancellation.

INDEMNITOR

As commonly used in suretyship, an individual, firm, or corporation who agrees to hold the surety free of loss and expense if it will execute a bond or bonds for a principal who is not qualified on his own for the bond or bonds. The agreement is usually, but not necessarily, a continuing agreement effective until cancellation.

INDEMNITY

” A collateral contract or assurance, by which one person engages to secure another person against an anticipated loss or to prevent a loss by the legal consequences of an act or forbearance on the part of one of the parties…”

INDEMNITY BOND

This type of obligation guarantees that the principal will pay any damages or losses suffered by the governing body or public while engaging in a potentially hazardous activity that requires a specific license or permit. Differs from compliance type bonds in that the particular activity requires a special permit or license. Examples include various street obstruction and house moving bonds. These bonds can be written for well-established and reputable applicants who have adequate public liability and property damage insurance.

INDEMNITY TO SHERIFF BOND

This type of bond may be required of law officers who are called upon to execute writs. Generally, the officers will rely on the plaintiff’s attorney as to what property is subject to seizure. The officers are liable for damages for seizing the wrong property or acting on invalid writs. The bond is for the protection of officers of the court from such damages. If there is a fully adjudged claim that has been reduced to a judgment, the potential liability under such a bond is quite limited. However, if the claim is questionable or the property not clearly identified as to ownership, substantial damages can occur. Sometimes adjoining or other property not belonging to the plaintiff is damaged when the plaintiff’s property is removed. For example, damages may occur on the premises where the plaintiff’s property is located.

INJUNCTION BOND

Plaintiff’s bond to secure – An injunction is a judicial process generally issuing out of a court of equity, whereby the defendant is required to do or refrain from doing a particular thing. An order granting an injunction may be conditioned upon the furnishing by the plaintiff of a bond to indemnify the defendant against loss in case it be finally decided that the injunction should not have been granted. Defendant’s bond to dissolve – When an injunction has been issued, the court may order the injunction dissolved upon the giving of a bond conditioned, in effect, to pay such damages as the plaintiff may sustain as a result of the performance of the act or acts originally enjoined, it being then the privilege of the defendant to proceed as if the injunction had never been issued.

INSURANCE POLICY

This is a two party contract under which one party (the insurer) agrees to indemnify the second party (the insured) for a monetary loss upon the happening of an event described in the policy.

INTER VIVOS TRUST

A trust created during the grantor’s life.

INTESTATE (INTESTACY)

To die without leaving a valid will.

INTESTATE PROPERTY

That which a testator has failed to dispose of (devise) by will. There can be partial intestacy if a will does not provide for distribution of all of the decedent’s property or if a clause in the will is invalid.

JUDICIAL BOND

A bond required or used in judicial proceedings such as attachment, appeal, or probate. Sometimes called a litigation bond.

LAUNDROMAT/LAUNDRY JOBBER BOND

See License & Permit Bond.

LETTER OF CREDIT

A document issued by a bank that guarantees the payment of a customer’s draft; substitutes the bank’s credit for the customer’s credit.

LICENSE & PERMIT BOND

A bond required by a public body as a condition of issuing a business license or a permit for some activity. It is a guaranty that laws, ordinances, regulations, etc., will be complied with and that the public body or members of the public will be compensated, within the bond’s limits, for damage resulting from violations.

LIQUIDATED DAMAGES

Liquidated damages (LD’s), by definition are not a penalty for not completing the job on time, but an estimate of the costs the obligee/owner will incur because the contract is not completed on time. The LD’s can range from a relatively low amount of one hundred dollars to many thousands of dollars for every day the contractor is late. High LD’s can severely affect the contractor’s profitability; therefore the surety looks closely at this item.

LIVING TRUST

An inter vivos trust; a trust established and in operation during the settler’s life.

LOST INSTRUMENT BOND

Lost instrument bonds are required by the issuers of securities or their agents to protect them against any loss they might sustain by reason of issuing duplicate securities. Whenever someone loses, through theft, destruction or misplacement, a valuable instrument such as check, draft, certificate of deposit, stock certificate, municipal or government bond, bill, note, warehouse receipt, life insurance policy, deed, mortgage note or other similar instrument of ownership, the issuer or originator of the instrument will normally require a bond to protect it against loss, costs, damages, or expenses if the missing original is presented for payment at a future date by a third party claiming ownership thereto. The original may be paid through error or a bona fide holder may present it who acquired it legitimately and whose ownership must be recognized. The most common types of lost instrument bonds cover corporate stock certificates and the obligee can be the issuing corporation itself and/or its transfer agent, redemption agent or registrar. There are two Categories within this classification, fixed penalty bonds and open penalty bonds. Fixed penalty bonds are needed when items are lost such as certified checks, certificates of deposit, co-op certificates and any items with a fixed value. Open penalty bonds are needed when items are lost such as stock certificates or any item whose market value can fluctuate.

MAIL COVERAGE

This coverage protects the insured against the loss of both negotiable and non-negotiable securities in transit by: First Class Mail, Certified Mail, Registered Mail, Post Office Express Mail and Approved Courier. Security shipments made by the insured are automatically covered if they are reported to the surety on a regular basis.

MAINTENANCE BOND

The maintenance (or warrantee) bond is a financial guarantee that the contractor will maintain a project for a specified time after completion. Usually the bond, when required, is written at the same time as the Performance and payment pond. The bond is usually written as a smaller percentage of the contract amount, typically 10%.

MECHANICS’ LIEN – BOND TO DISCHARGE

A lien against real estate may be filed for the amount claimed to be due for labor or materials furnished for the construction of a building or other improvement upon real property. While the owner’s liability is being determined, the owner may discharge the lien by giving a bond which guarantees the payment of any amount that may be found to be due to the claimant together with interest and costs. It is often to the owner’s advantage to give the bond to clear the “title” to the real estate. Depending upon the circumstances of the case the owner may ultimately have to pay the claim and seek recourse against a contractor who may be in serious financial difficulty and unable to respond.

MISCELLANEOUS BOND

As the name implies, miscellaneous bonds cover a wide variety of bonds that are unique in purpose and cannot be categorized by classification or description. Some are required by law and must be strictly conditioned in accordance with the appropriate statutes or regulations. However, the majority of these types of obligations are purely voluntary bonds arising out of contractual obligations negotiated between private parties.

MORTGAGE BROKER BOND

These bonds are good faith and credit guarantees protecting the public against fraud, misrepresentation and the wrongful withholding of earnest money deposits. The bonds guarantee compliance with the state and local laws governing the conduct of mortgage brokers and also the payment of any judgment that may be rendered against the broker for violating the law. The broker must be reputable, experienced, and possess adequate income and financial worth so as to alleviate any concerns about fraud, theft, embezzlement or incompetence.

MOTOR VEHICLE DEALER BOND

These bonds are required of dealers in motor vehicles and basically protect the buying public from fraud and misrepresentation on the part of the dealers/sales persons; guarantee the refund of deposit money if obligated to do so; and, also delivery of good title to the buyer. In some jurisdictions, the bond also guarantees the dealer will pay the seller from whom it purchases vehicles, and in still others, the bond may also guarantee some of the warranties given in connection with the sale of the vehicle. There can be different forms or guarantees in the same jurisdiction for new car dealers and used or new and used care dealers. The bonds can range from pure good faith and credit obligations to a combination good faith and credit and financial guarantee.

OBLIGEE

The obligee is the first party that makes up the three party contract that is a bond. The obligee is the entity that is requiring the bond and the one that benefits from it if there is a problem on the job. The obligee is usually your customer, whether it be a public agency or a general contractor. Sometimes a bank or lending institution can be the obligee when they are trying to protect their investment. Occasionally, there will be two or more obligees on a bond when multiple entities have a vested interest in a project. We call this dual obligees and there will sometimes be an additional charge when there are two or more obligees.

OBLIGOR

Sometimes called the principal, or one bound by the obligation. Under a surety bond, both principal and surety are in a sense, obligors, since the surety must answer if the principal defaults.

OPEN DEFAULT JUDGEMENT BOND

Where a judgment has been entered by default, the defendant may, under certain circumstances, have the case reopened and tried on its merits, upon giving a bond conditioned for the payment of any judgment that may be rendered in the action.

PAYMENT BOND / LABOR AND MATERIAL BOND

The payment bond/ labor and material bond guarantees that the contractor will pay all workers, sub-contractors, suppliers and other vendors that have supplied labor, materials or equipment to the bonded project. This bond is usually written with the performance bond at no additional charge. On occasion the payment bond is written on its own.

PERFORMANCE BOND

The coverage provided by a performance bond is that principal will faithfully perform the terms and conditions of a written contract. In many cases performance bonds incorporate payment bond and maintenance bond liability.

PLAINTIFF BOND

These bonds are generally given in connection with the prejudgment seizure of property belonging to or in the hands of the defendant. Since this action involves the prejudgment seizure of property, the plaintiff must adhere to the letter of the law so the defendant is not deprived of property without due process of law. The bonds guarantee return of the seized property and/or payment of any damages sustained by the defendant if the court ultimately determines the seizure was wrongful and decides in favor of the defendant. Examples include attachment, garnishment, replevin and claim and delivery bonds.

PRELIMINARY EXECUTOR BOND

Person appointed as fiduciary prior to a will being admitted to probate or administration of an estate, with no power to make distribution of estate assets pursuant to the will until such time as the will has been admitted to probate.

PRELIMINARY INJUNCTION BOND

A court order preventing one or more specific parties from taking some action. A preliminary injunction often is issued to allow fact-finding so a judge can determine whether a permanent injunction is justified.

PREMIUM

The premium is the cost of the bond, paid to the surety for providing the financial guarantee and for performing the underwriting on the contractor. For contractor license bonds the premium is fixed amount. For contract surety bonds the premium charged is always a percentage of the contract amount.

PREMIUM ADJUSTMENT

If there is a change order issued on a contract the surety will issue a premium adjustment notice to charge additional premium if the contract goes up.

PREVAILING WAGE

Almost all public works construction projects are required by the Davis Bacon Act to pay all workers who work on the public works project the prevailing wage in the local area. By definition established a long time ago this wage approximates the local union scale for the particular trade. This rate is usually much higher than the wages paid for private work and the contractor has to adjust their bid accordingly or face serious consequences. Certified Payroll: The certified payroll is one means to verify compliance. All contractors working on public work project are required to provide on a weekly basis a certified copy of the weekly payroll on a specific project naming all workers and showing all wages, deductions and benefits paid including the check number. DLSE (Division of Labor Standards Enforcement): If you don’t comply with the prevailing wage rules the DLSE can come after you and the penalties are steep.

PRINCIPAL

This entity is primarily liable for the underlying obligation. Is sometimes also called the obligor or debtor. The person whose debt or other obligation is secured or guaranteed by the bond and who has the primary duty to pay the debt or discharge the obligation. The individual or individuals whose fiduciary performance is guaranteed by the surety.

PRIVATE INVESTIGATOR/DETECTIVE AGENCY BOND

These bonds usually protect the public from personal injury and property damage caused by the detective or private investigator during the course of business. In addition, libel, slander and malicious prosecution are among the charges that could result in fines or penalties covered by the bond. Only exceptionally good applicants meeting the financial guarantee criteria are considered for bonding.

PROFESSIONAL LIABILITY

Covers professionals for negligence and errors or omissions that injure their clients.

PUBLIC ADJUSTER/INDEPENDENT ADJUSTER BOND

See License & Permit Bond.

PUBLIC OFFICIAL BOND

A bond that guarantees faithful performance of duty of a public official in a position of trust; also provides for an honest accounting of all public funds handled by him/her. Such bond is given to comply with a statute and, therefore, carries whatever liability the statute imposes.

RECEIVER BOND

A bond appointing a person to take temporary or permanent charge of the property of debtors or to operate, reorganize and rehabilitate the debtors business for its continuance as a going concern guaranteeing faithful execution.

REFUNDING BOND

This term is applicable to any bond conditioned for future return, if ordered, of money which the principal was allowed to charge and retain pending final determination or decision in a contested matter.

REMOVAL BOND

Where a case originally brought in a state court is removed to the federal court, the defendant is required to give bond for the payment of costs in federal court if the case is found to have been improperly removed. Similar bonds may be required on removal of a case from one state court to another.

REPLEVIN BOND

A replevin bond is given by a plaintiff who is claiming either ownership of property in the hands of the defendant, or at least a legal right to possession. In a replevin action, the plaintiffs claim title or ownership of the property, and that they are entitled to immediate possession. This differs from an attachment or garnishment proceeding where the property being seized belongs to the defendant. Replevin bonds, also known as claim & delivery, detinue or forthcoming bonds in some jurisdictions, must be filed by the plaintiff to secure possession of the property in question and it guarantees return of the property and/or its value plus damages if the replevin is deemed wrongful. This differs from attachment or garnishment bond proceedings where property is held in the custody of the sheriff or marshal or retained by the garnishee.

RIDER

A printed form of special provision added to a bond. Sometimes called an endorsement.

SECOND HAND DEALER BOND

See License & Permit Bond.

SECURITY FOR COSTS BOND

A statutory requirement of certain plaintiffs in a derivative suit to post a surety bond from which defendants may be reimbursed for their expenses if they prevail.

SEIZURE BOND

A drastic but legal preliminary remedy for certain kinds of infringement. A Federal court may order the United States Marshal to confiscate and impound allegedly infringing articles pending trial. Since it may turn out later that the allegation was incorrect, the party seeking seizure must post a bond to protect the party whose items were seized. The remedy may even be granted ex parte in certain circumstances (meaning that the defendant has no chance to oppose the seizure in advance).

STAY OF EXECUTION

An appellant may, at or prior to, the filing of the notice of appeal, file a supersedeas bond in an amount determined under the Statute, which if approved and accepted by the court, shall have the effect of staying execution on the judgment while the appeal is pending. The court may also, at or prior to the filing of the notice of appeal, fix the amount of the supersedeas bond by order and allow appellant a reasonable period of time not to exceed thirty (30) days to file the bond, subject to its approval. This means that a bond may be filed in the court after the notice of appeal has been filed and if the court sets the amount of the bond at or before the filing of the notice of appeal.

STREET OBSTRUCTION BOND

See License & Permit Bond.

SUBDIVISION BOND

This bond guarantees that a developer will properly improve public property associated with a commercial subdivision belonging to the obligee, in accordance with applicable building codes.

SUPERSEDEAS BOND

This is a form of bond given by a defendant to prevent an officer of the law from executing on a judgment pending an appeal to a higher court. It has been mentioned previously under appeal bonds, but it “supersedes” or stands in place of the judgment.

SURETY

“One who is legally liable for the debt, default or failure of duty of another”; or, “one who undertakes to pay money or do any other act that his principal fails therein … and who is entitled to be indemnified by someone who ought to have paid or performed”.

SURETY BOND

A three party instrument by which one party (the surety) guarantees that a second party (the principal) will perform an obligation or duty owed to a third party (the obligee). The bond is generally in a fixed amount or penal sum, a.k.a. penalty, which establishes the monetary limit of liability for the surety.

SURETYSHIP

Stated in its simplest terms, suretyship embraces all forms of obligation to pay debts or answer for the default of another.

SURPLUS LINES PRODUCER BOND

Surplus lines insurance pertains to business that is placed by an agent or broker with a non-admitted insurer. A non-admitted insurer, known as an excess and surplus lines insurer is not licensed to transact business in a given state but may be permitted to write certain business in accordance with the surplus lines provisions of the state’s insurance laws which often permits greater freedom from rate, form and operational regulation. See Broker Bond

TEMPORARY RESTRAINING ORDER BOND

It is a judge’s short-term order forbidding certain actions until a full hearing can be conducted. Often referred to as TRO. A TRO bond carries essentially the same guarantees and liabilities as a preliminary injunction bond. In some jurisdictions, a TRO bond is replaced by a subsequent preliminary injunction bond.

TESTAMENT

Strictly, a testimonial or statement of a person’s wishes concerning the disposition of his or her personal property after death, in contrast to a will, which is strictly a devise of real estate. Commonly, however, a will and testament are considered synonymous. The word is rarely used today except in the formal heading of one’s will, which reads: “This is the last will and testament of…”

TESTAMENTARY TRUST

A trust created under a will and which comes into existence after the grantor’s death.

TESTAMENTARY TRUSTEE BOND

A bond posted by the trustee of an estate guaranteeing faithful execution.

TRUST

Property, real or personal, held by one party for the benefit of another.

TRUSTEE

One who holds legal title to property “in trust” for the benefit of another person, and who is required to carry out specific duties with regards to the property, or who has been given power affecting the disposition of property for another’s benefit.

TRUSTEES IN BANKRUPTCY – LIQUIDATION

Trustees of this type are appointed by under the close supervision of the court. The sole purpose of this fiduciary is to convert the business assets into cash and make a pro-rata distribution to creditors. The standing panel trustees appointed by the United States Trustee in each district and/or attorneys and other professionals usually handle these proceedings. They are generally well qualified and thoroughly familiar with the bankruptcy laws. In view of the close supervision of the court, and the fact that the duties of the office are confined to the liquidation and distribution of the assets, these bonds are considered very desirable.

TRUSTEES IN BANKRUPTCY – REORGANIZATION

If Chapter 11 is granted, an automatic stay goes into effect preventing creditors from enforcing claims pending reorganization. A Creditors Committee consisting of the major creditors is created to approve, modify or disapprove the plan. Often the bankrupt is a fairly large corporation with operations that are quite complex. The company may have many outstanding issues of stock and bonds as well as numerous classes of creditors. This would of course require a fiduciary be appointed with ample experience and ability. By the very nature and complexity of this type of activity, a bond of this type can be expected to continue in force for many years.

UNION WAGE & WELFARE BOND

Union wage and welfare bonds are required of employers. The bond guarantees the payment of wages and fringe benefits to employees, or in some case, fringe benefits only. The bonds are usually relatively small, but they are financial guarantees and the principal should be well established, historically profitable and in good financial condition.

WHOLESALE DISTRIBUTORS, FUEL TAX BOND

This bond is similar to the fuel tax bond for retailers. Basically, it allows the wholesaler to defer payment of tax on the acquisition of gasoline, aviation and/or diesel fuel to the supplier of said fuels until the date the supplier must remit taxes to the state taxing authority. This bond is more in the nature of a financial guarantee because the wholesaler is liable from its own assets for the payment of the taxes. Applicant should be reputable, well established, possess a good credit rating, historically profitable, have good cash flow, working capital of three to five times and net worth five to ten times the amount of coverage depending upon other risk factors and characteristics.

*The terms & definitions provided herein are for informational purposes ONLY and are not intended to serve as legal advice, nor are they a substitute for consulting legal counsel.