Surety is not insurance. It is more closely related to the commercial lending practice of financial institutions. As such, a surety needs to satisfy itself that the party they are bonding has the experience, financial and capital resources necessary to perform their obligations. Further, if called to pay out under a bond, a Surety will seek recovery for their losses under an indemnity agreement or other security typically taken at the start of the relationship.
A surety bond is a guarantee of performance of an obligation. The bond itself gives rise to a three party relationship where the Surety agrees to fulfil the obligations of the Principal (the ‘insured’ or bonded party) to the Obligee (the beneficiary of the bond), in the event the Principal is unable to do so. The Surety stands behind the Principal as a guarantor or ‘co-signer’. The Surety typically does not become involved unless the Principal is in legitimate default of their obligations to the Obligee, at which point a claim is made under the bond and the Surety steps in to remedy the failure to perform.
The uses and application of surety bonds are unlimited. Obligations of almost any nature can conceivably be bonded, however, the mainstream use of this product can be classed into three types:
For more information please contact Claude Miron at (613) 226-1350 ext 250