Today, I’d like to discuss the agreement that sureties use to secure a bond.
In exchange for a surety bond, a surety requires the payment of an annual bond premium and the execution of an indemnity agreement. In some instances, the surety may require collateral deposited with them. The bond that is ultimately issued is a bond in the name of a bond principal. The surety always secures the indemnity of the bond principal. In many cases, third parties may provide financial information to obtain the best possible terms for the bond. The surety would obtain their indemnity as well through the indemnification agreement (or contract with the surety for the bond). This can be third parties or related entities.
An indemnity agreement is a promise to pay. It’s how the surety secures their position. Other parties may be required to indemnify the surety for the best possible terms for the bond. Those parties may be related and could be investors or third parties with a vested interest in the client obtaining the bond.
An often-asked question is whether or not it is disclosed to others who are the parties executing the indemnity agreement. As in if the parties are disclosed to the obligee, a court, or another entity. The answer is no. It is only disclosed if there is a court order or if the surety needs to file an indemnity action in court to secure their position under the bond.
The bond is ultimately filed in the principal’s name, so the indemnity agreement is between the bond and the client. If not disclosed to third parties, the indemnity agreement is between the surety and the parties executing it.
It’s a commonly asked question. Feel free to send me an email if you have any questions (Neil@courtbondnow.com)
Neil Pedersen
PEDERSEN & SONS SURETY BOND AGENCY, INC.
15 Maiden Lane Suite #800
New York, NY, 10038
212-227-7277
neil@courtbondnow.com
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