What Happens If A Claim Is Made On My Surety Bond?

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If you have a business, you might have a surety bond. If you are a consumer, you might need to make a claim against a surety bond. Here’s all the information you need to know about surety bond claims.

Short on time? Read our other posts on Car Dealer Bond Claims or Mortgage Bond Claims.

What is a surety bond claim?

When it comes to some bonds (License and Permit Bonds and Contract Bonds), a surety bond claim is a complaint that says you (the Principal) have not fulfilled your obligations and duties, or you have not followed the law.

Surety bond claims are understood to be intentional violations made by you or your business. They can also be misunderstandings with your customers, though.

Other bonds (like Lost Title Bonds) are different. A surety bond claim can be someone coming forward and saying that they are the true owner of the vehicle and you should not have been granted a bonded title.

Insurance Claim Rejected

Anyone can make a claim against your bond, and in most cases, the claim cannot be for more than the total amount of the bond. Claims can only be made against your bond during the time your bond is active.

More information about different bond claims can be viewed at the end of the article.

What happens if a claim is made on my surety bond?

If a claim is filed against your bond, the surety company expects you to take care of the claim. This is your obligation under the indemnity agreement you signed when you purchased your bond.

If you fail to do this, the Surety will usually start an investigation to determine the claim’s validity. They will reach out to both you and the claimant.

One of two things will happen:

  1. The surety company will investigate the claim and determine it to be invalid. No further action will be taken with the investigation, but you might be liable for any costs the Surety incurred during the investigation process.

  2. The surety company will investigate the claim and determine it to be valid.
Surety Bond Claim Process

If the Surety finds the claim to be valid, they will remind you of your obligations under the bond. They will expect one of the following responses from you: a response to the claim, a resolution to the claim (this typically involves compensating the claimant for any financial loss or damages incurred) or a valid defense to the claim.

If you resolve the claim, the claim process ends.

If you fail to respond, resolve or provide a valid defense to the claim, the surety company will make a decision based upon the information and documentation provided by the claimant. In some cases, this could lead to the surety company paying the claim for you. If the surety company steps in and pays the claim for you, they will come to you for reimbursement of the settlement and any legal costs associated with it.

This is one way a surety bond differs from an insurance policy. While an insurance company does not expect to be paid back for a claim, a surety company does. You are responsible for cooperating with the surety company during the entire claim process. You are also responsible for paying back the surety company every penny they payout on a claim, including all costs associated with the claim.

How to make a surety bond claim

If you are looking to make a surety bond claim, you’re on the other side of the fence. You are making a surety bond claim because you feel the surety bond obligations were not held up by the Principal. 

Here are the steps you need to take to make a surety bond claim:

Step #1: Find out who bonded the offender.

Look for this information in your contract or on your state’s licensing board website.

Step #2: Make contact with the bonding company, specifically their Claims Department.

Step #3: File the surety bond claim as the surety company requires.

They might require you to submit a letter and/or other supporting documentation.

Step #4: Once your claim is received, maintain contact with the surety company.

Step #5: The surety company will begin an investigation.

The claim will be determined to be invalid and no further action will be taken, or the claim will be determined to be valid. If the claim is valid:

  • The surety company will give the Principal (the person who is bonded) a chance to satisfy the claim.

  • If the Principal fails to satisfy the claim, the surety company will step in and satisfy the claim. The surety company will then go to the Principal for repayment of satisfying that claim.

Therefore, in the end, if a claim is considered to be valid, the bonded individual will be held responsible.

Different types of surety bond claims

All surety bonds are different, therefore the claims will be different too. Here are some of the most common claims that could be made if you have one of the following bonds.

Payment Bond claims

  • Not paying subcontractors/suppliers

Contractor License Bond / Performance Bond claims

  • Not finishing job on time
  • Not finishing job within budget
  • Performing faulty or shoddy work

Motor Vehicle Dealer Bond claims

  • Not supplying motor vehicle titles with a sale of a vehicle
  • Not reporting a sale of a vehicle
  • Misrepresenting a motor vehicle’s state during a sale
  • Selling stolen motor vehicles
  • Not paying sales taxes or other mandated fees

Learn more about Dealer Bonds in our Car Dealer License Guide.

Fidelity Bond claims

  • Employee theft

Mortgage Bond claims

  • Fraud
  • RESPA violation
  • Discrimination
  • Overcharging customers, misusing their money, or manipulating your fees for your benefit

Court Bond claims

  • Mismanaging estate/assets
  • Spending trust fund money
  • Not fulfilling obligations stated by court

Learn more about Court Bonds in our Court Bond Guide.

Lost Title Bond claims

  • Stolen vehicle claim – someone claims you stole the vehicle
  • Unrightful ownership claim – someone claims the vehicle in question is theirs

Learn more about Lost Title Bonds in our Lost Title Bond Guide.

Helpful Resources:

About Surety Solutions, A Gallagher Company

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Crystal Ignatowski
Crystal Ignatowski

Crystal Ignatowski is a Marketing Content Developer. She writes and creates content for Surety Solutions, A Gallagher Company's blog and website.

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