insurance dates back several hundred years, suretyship is
thousands of years old. Reference to it is found in several
places in the Bible. Its need arose in normal transactions
between people when an individual’s promise to perform
a particular thing was not acceptable by itself. The guarantee
of a third party was needed.
comparatively recent times, the surety was an individual,
uncompensated for the favor he gave, except perhaps for the
benefit of friendship or the opportunity to gain from the
outcome of the particular agreement supported by his surety
the latter part of the nineteenth century, corporations were
formed to offer suretyship on a commercial basis for a charge.
The personnel of the corporations were skilled in the pitfalls
of guarantees and their contracts of suretyship were backed
by the corporate assets. Their skills proved to be of definite
help to those seeking suretyship. This was in marked contrast
to the uninitiated personal surety whose impetuous act to
help a friend often involved him in serious loss which he
could ill afford. Furthermore, the corporate surety, through
its financial strength, provided real security to the beneficiaries
of the suretyship which the personal surety too often could
not provide due to lack of funds when trouble arose.
additional benefit to those in whose favor the suretyship
ran was the greater responsibility placed by the courts on
a compensated corporate surety. Personal sureties were treated
as favorites of the court, being absolved on the basis of
defenses which the corporate surety was not permitted to use.
The relief given to the personal surety often weakened or
destroyed the benefits intended by the suretyship.
surety is one who has agreed (in writing) to answer for the
debt, default, or miscarriage of another. For example, in
commercial dealings, the endorser of a note is a surety who
has guaranteed to the lender that the maker of a note will
repay it as promised. The person who guarantees that an accused
person will appear in court is also a surety.
of these situations, however, has to do with the insurance
business sureties without monetary compensation. When an organization
which is chartered as an insurance company engages to serve
as a surety, for monetary consideration, it becomes an insurance
matter, subject to the insurance laws of the respective states.
Although the surety company writes only bonds which it believes
will not result in losses, losses do occur. To this extent,
there is an averaging process and hence, pooling is involved;
this is the essence of insurance.
are three parties to a surety bond. The bond is the joint
and several obligation of the principal and the surety in
favor of the obligee named in the bond. It is the bond of
the principal as well as the bond of the surety. The principal
promises to perform some function and the surety guarantees
that he will. Thus, Highway Contractors (principal) and the
Progressive Surety Company (surety) jointly promise the city
of Springfield (obligee) that Highway Contractors will pave
three miles of road in full accord with the terms and conditions
of their contract (and specifications). It is important to
note that the contract between the contractor and the city
is the underlying obligation to the contract of suretyship
and legally represents the consideration for the surety contract.
suretyship, it is always the desire of the principal to perform
some function or exercise some right under a contract, agreement,
law, ordinance, or regulation to which he is to become subject
voluntarily, as a necessity to the pursuit of his business,
profession, or personal affairs. However, to do so, the principal
must protect the obligee and sometimes others against loss
that results from his improper performance or harm to the
obligee (or other parties) in the principal’s pursuit
of his desired function or right. To accomplish this end,
the obligee calls upon the principal to furnish bond, joined
in by a responsible surety.
Bond - Bond that guarantees that someone will perform faithfully
whatever he or she agrees to do, or that someone will make
an agreed-upon payment to another party.
Bond - Type of Surety bond that guarantees that a supplier
will furnish supplies, products or equipment at an agreed-upon
time and price.
- In bonds, the party (often the insurance company) that agrees
to be responsible for loss that may result if the principal
does not keep his or her promise.
note that the precise coverage afforded is subject to the
terms, conditions, and exclusions of the policy as issued.
This explanation is intended only as a guide. This information
is not intended to be considered investment, tax or legal
advice. It is provided, for your education only. This is not
an insurance contract. All terms and coverages are defined
solely by your policy.
more details, please call a PaulBalep representative toll-free
1-800-964-8614 to receive a free, no-obligation quote.
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