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Obligee Definition

To understand how surety bonds work you must know about the three parties involved. This glossary entry focuses on one of those parties – the obligee.

What Does Obligee Mean?

The term refers to whatever agency requires or "obligates" you to get a bond. In the case of commercial bonds, it's typically the federal, state, or local agency responsible for regulating your industry by awarding professional licenses. For example, the Motor Vehicle Division of the Illinois Secretary of State regulates all the car dealers in the state. One way it does that is by requiring them to get a bond before being granted a license, making the agency the obligee. In the case of contract bonds, the obligee is the party creating the contract – eg. for a construction project or service agreement. Whoever is designated as the obligee receives financial compensation when valid claims are filed against the bond. According to data from The Surety and Fidelity Association of America, obligees have been paid more than $25 billion since 1998.

What is the Role of the Obligee?

The obligee has several responsibilities. They create the bond requirements, identifying what kind of bond is necessary and how large (monetarily) it must be. They also hold the bonded party accountable if someone files a claim or the bond lapses. For example, when someone files a valid claim, the surety bond company pays the obligee, who then pays the individual.

What Other Parties are Involved?

The principal must obtain whatever bond the obligee requires. Once the bond is active, the principal bears the responsibility for paying any claims made against the bond by the obligee. The surety company issues the actual bond and pays any claims made against it, at least initially. After payment is made, the surety company recoups its costs from the principal.

Viking Bond Service can help you understand your role in any surety bond agreement. We also offer bonds to satisfy almost any obligee. Fill out an online application or contact us for more information.

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