If you have a surety bond, you may be wondering what happens if someone files a claim against it. In this blog post, we will discuss who can file a claim against a surety bond and what you should do if someone does file a claim against you.
What is a surety bond claim?
A surety bond claim is a legal action taken against an individual or business that fails to fulfill its obligation as stated by the bond agreement. The purpose of filing a claim is to have a third-party, known as a “surety company”, provide financial compensation for any losses resulting from the breach of contract.
Surety Bond Claim Examples
The following are some common examples of claims that could be submitted:
1. Failure to complete contracted services. If the principal failed to fulfill the terms of a contract that was previously agreed upon, an obligee may file a claim against their surety bond to reclaim any damages or losses incurred as a result.
2. Failure to pay sub-contractors and/or suppliers. If the principal failed to make payments to subcontractors or suppliers for services rendered, the obligee may file a claim against the surety bond to recoup any losses associated with these unpaid invoices.
3. Delayed project completion. If the principal failed to deliver a project within the agreed-upon timeframe, an obligee may file a claim against their surety bond to reclaim any damages or losses incurred as a result of the delay.
4. Non-payment of wages to employees. If the principal failed to pay their workers for services rendered, an obligee may file a claim against their surety bond to recoup any unpaid wages owed by the principal.
5. Misappropriation of funds. If the principal has misused any funds that were set aside for a specific project or purpose, an obligee may file a claim against their surety bond to recoup these funds.
Who can file a claim against a surety bond?
Depends largely on the individual surety bond and its specific conditions. Generally, any party who has suffered a financial loss due to a third party’s breach of contract or obligation can file a claim against the surety bond. This includes creditors, suppliers, customers, landlords, contractors, subcontractors, and other parties that may have been involved in the initial agreement.
How do I file a surety bond claim?
The process for filing a surety bond claim varies depending on the type of bond, the obligee, and the issuing company. Generally, an obligee must provide written notice of a claim to the bonding company within 90 days after an event that triggers a bond obligation has occurred. A surety will then investigate the claim and determine if it is valid.
What is the statute of limitations for filing a claim against the surety bond?
The statute of limitations for filing a claim against the surety bond depends on the state in which the bond is issued. Generally, most states require that a claim must be filed within one year from the date of the breach or default under the contract or other agreement secured by the bond. The time limit may vary depending on the type of surety bond and the state in which it is issued.
File the surety bond claim as the surety company requires
The surety company will need to see proof of the contractor’s inability to fulfill their contractual obligations, such as copies of unpaid bills or letters from subcontractors showing non-payment for services rendered. You’ll also need to provide a valid reason for why the contractor is unable to fulfill their duties, such as illness or financial hardship. Be sure to include all relevant documentation, such as copies of invoices, contracts, and receipts. Finally, make sure the claim is filed promptly; late claims may be denied.
Send a Notice of Intent to Proceed Against Bond
If you have obtained a bond from another party to guarantee payment, and the other party fails to fulfill their obligations, you can take action against the bond. The first step is to send a Notice of Intent to Proceed Against Bond (NOIP) to the surety company that issued the bond. This notice alerts them of your intention to proceed with the collection of the bond.
When sending a NOIP, be sure to provide as much detailed and accurate information as possible. Include all relevant documents such as contracts, invoices, and payment records. Taking the time to include proper documentation allows for a smoother and faster process.
In addition to providing proper documentation, consider researching the surety company’s process for claims. Knowing how they handle notices of intent can help you structure NOIP in a way that will be accepted and processed quickly by the surety company.
How to prevent surety bond claims?
Here are some tips on how to avoid potential issues and keep your surety bond claim-free:
1. Follow Contract Terms – When you are a party to a contract, all parties must adhere to the terms of the agreement to prevent any breach of the contract. If a breach does occur, make sure that proper measures are taken immediately by all involved to rectify the situation.
2. Maintain Transparency – Open and honest communication is essential for preventing surety bond claims. Any changes or updates to the contract should be communicated promptly so that all parties can make adjustments as needed.
3. Perform Site Inspections – Regular site inspections are important for reducing risk, as they can help identify any potential hazards or risks that could lead to a surety bond claim.
4. Invest in Training – Ensuring all parties involved in a contract are properly trained on the terms and conditions can prevent misunderstandings and lead to fewer disputes.
5. Stay Current – Keeping up with industry standards and regulations is essential for any business, as it can help ensure that all parties involved are compliant and aware of potential liabilities.