This post is part of a series sponsored by Old Republic Surety.
It’s a question you may have: Can I void this warranty? While canceling an insurance policy can be a simple process, canceling a bond is more complicated, especially since most bonds are required by law or by project owners. Here is useful information for you and your bond clients.
We all know that bonds are not the same as insurance. While bonds are a type of specialized insurance, and a surety is usually an insurance company, bonds and insurance are two completely different products.
a Warranty It is a contract between three parties: the obligor (the party requesting the bond, or the beneficiary); Principal (the party that must receive the bond, such as a contractor); And the guarantee (who writes the bond).
Unlike an insurance policy, a bond cannot be canceled by losing the policy receipt. The obligor—which may be a court, state, or municipality—requires the principal to hold a bond. Therefore, the guarantee must follow the obligor’s requirement, which is usually spelled out on the bond form.
Cancellation provisions vary
Provisions for termination or cancellation of bonds usually depend on the type of bond. in the case of a license, permit And the Miscellaneous documentthe cancellation clause is usually included in the last paragraph of the drafting of the bond.
In the termination clause example below, cancellation requires 30 days’ written notice to be sent to the debtor by registered mail:
“Warranty shall be entitled to terminate its liability under this Agreement by giving written notice of its choice to do so, by United States registered mail, to the Obligor and, accordingly, the Warranty shall be released from any liability under this Agreement for any default on the part of the Principal, after the expiration of thirty (30) days after service of this notice.”
Cancellation procedures can also limit 60 or 90 days, or there can be direct mail instructions for us to send a notice of cancellation, etc. The guarantee will also generally allow a 10-day mailing time to be added to the specified time.
DOT Bonds and Judicial Bond Requirements
Other bonds, such as bonds required by the state’s Department of Transportation (DOT), may not be rescinded until the work has been inspected and the Department of Transportation issues a version of the bond—even if your client says the work is complete. The obligor must submit the final signature.
court bonds It cannot be canceled by the principal or the guarantee. The court demanded the bond, and only the court is able to void the bond by issuing a “release” stating that the bond is no longer required.
Be aware: It may take a long time for the estate or court case to be settled, meanwhile the installments are due until such time as the release is received.
Business service and other voluntary bonds
Finally, business service bonds and Fidelity/Crime Bonds It is voluntary and therefore can be rescinded at the principal’s request, either by a statement requesting revocation or by submitting a missing policy receipt requesting revocation.
Procedures for canceling a bond vary greatly depending on the type of bond, or the state in which the business or service is performed. Your agent, guarantor, or attorney can provide some guidance on the cancellation provisions included in the type of bond you or your client is required to obtain.
If you have questions or need advice, contact a specific dealer or reach out to Old Republic Surety branch closer to you.
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