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Indemnity Bond

It's not uncommon to hear a surety bond referred to as an indemnity bond. If you are ever required to get one, it's important to know what that involves and comply quickly. Viking Bond Service is here to help at every step along the way starting with this quick guide.

What is an Indemnity Bond?

Most surety bond types fall under the classification of indemnity bonds, meaning that in all cases, they are a binding agreement that holds one party liable for misconduct that harms another party. The victim of the misconduct may file a claim for damages against the bond. So long as the claim is true, the surety agency that backs the bond guarantees a full settlement.

However, the surety only serves as an intermediary. The bonded party, under the surety bond indemnity agreement, has liability for all claims. This obligates that party to repay the surety the claim amount plus interest and fees.

How Do Indemnity Bonds Work?

If a person or a business has been negatively affected by illegal, unethical, negligent or contractually forbidden behavior, they may file a claim against the indemnity bond. The surety will then launch an investigation with help of any specialists (accountants, investigators, lawyers, etc.) that may be helpful to prove the misconduct occurred as claimed.

All validated and confirmed claims receive immediate compensation from either surety or principal, whereas invalid claims get rejected outright. After settling, the surety will use whatever means available to have that debt reimbursed by the principal before sending the debt to collections.

Types of Indemnity Bonds

There are many varieties of surety bond requirements that also classify as indemnity bonds. For example, commercial bonds hold a professional or a business responsible for following state laws by requiring bonds as part of the licensure process.

Contract bonds are another example. They hold the bonded party accountable for breaching a contract. If you have questions about different types of indemnity bonds and requirements, contact Viking Bond Service to help clarify things.

What an Indemnity bond looks like can be different from case to case. To ensure you're familiar with the guidelines and legal regulations regarding the agreement, it's important to understand different types of business contracts. Let's break it down:

Commercial Contracts This legal document seals one party's responsibility for a specific action, or for refraining from one. This contract holds a professional or a business responsible for following state laws by requiring bonds as part of the licensure process.

Loan Agreement This agreement is a binding contract between the borrower and a lender. It holds both parties responsible for honoring and upholding the terms of the agreement.

Leases are legally binding contracts that require the lessee (who's using the asset temporarily) to pay the lessor (the owner of the asset) for property, vehicles, buildings, or other assets, products and services.

Licensing Agreements are signed by a licensor (owner) and the licensee (renter). In that agreement the licensee is granted permission to use the asset, be it goods, property, or services under specific guidelines set by the licensor.

Legal Contracts hold both parties responsible for going through with specified actions like exchanging goods or services. Both parties are to uphold the agreement, which now legally binds them.

Supply Agreements is a contract between a supplier and a buyer that agree to do business exclusively with one another.

When are Indemnity Bonds Required?

An indemnity bond may be required in almost any situation where one party needs to establish and fortify trust in another. Since indemnity bonds add financial responsibility for the principal, they are less likely to leave anything up to chance. Rather, they force the maleficent party to pay and guarantee compensation for the victim. It's important to meet all the bond requirements ASAP so as not to stall any important processes – such as getting a professional license or finalizing a contract.

Obtaining an Indemnity Bond

When applying for an indemnity surety bond, it's important to understand the contract language. The terms of the contract will become the basis of the obligee's claim against the contract, as they will have to justify their reasoning. So, the obligee will try to make sure the language of the indemnity bond or contract adequately describes their rights to pursue a claim against the principal.

To obtain a bond, you'll need to start with finding a surety bond agency authorized to sell them in your state. Make sure to compare quotes as they might be drastically different company to company. They will help you fill out an application form for your indemnity bond and submit it to the surety. In turn, they will run a background check on the applicant for credit risks and any criminal record.

Indemnity Bond Example

To help illustrate what an indemnity bond is and in practice, how they work and how they affect each of the parties involved, let's look at a common example: motor vehicle dealer bonds. Most people who sell cars for a living need a license and require an indemnity bond to get that license. Essentially, the bond holds the auto dealer accountable for any behavior that violates state laws regulating auto sales. Here's how that bond would work in action:

1. A motor vehicle dealer would obtain a bond before being allowed to obtain a license.
2. The dealer sells someone a car with a rolled back odometer.
3. Later, the car buyer discovers the deception, then files a claim for damages equal to the cost of the car.
4. The surety agency that backs the bond investigates the claim.
5. If the claim holds up, the surety settles it in full without further delay.
6. The motor vehicle dealer must now repay the surety the claim amount with interest and fees included.
7. If the bonded dealer does not repay the surety, the debt will be sent to collections, their credit will be negatively affected, and they will struggle to get bonded in the future.

Indemnity Bond Cost

The cost of a surety bond, indemnity or otherwise, varies with each applicant. It will be a small percentage of the total bond value. It will also depend on credit history, with better credit leading to lower premiums. One would need to pay to activate a bond, then pay to renew the bond (usually annually) when necessary. Once all three parties are in agreement about the terms of the indemnity bond's cost and its contents, the bond would be issued to a principal, thus starting the coverage.

Viking Bond Service - Nationwide Indemnity Bond Provider

Don't spend unnecessary time and hassle looking for a bond provider. Work with Viking Bond Service straight away. We offer the bond you need, along with the services to make the process quick, easy, and competitively priced. Request a quote at your convenience. We are also happy to answer questions - call our team at 1-888-2-SURETY (1-888-278-7389) or contact us.