FIDELITY & SURETY LAW COMMITTEE
-About The Committee-
The Fidelity & Surety Law Committee is one of the General Committees under the auspices of the Tort Trial & Insurance Practice Section (TIPS) of the American Bar Association. Our committee focuses on the law of suretyship, fidelity, and forgery insurance.
Suretyship is a very specialized line of insurance that is created whenever one party guarantees performance of an obligation by another party. There are three parties to the agreement, which include the principal (the party that undertakes the obligation), the surety (the party that guarantees the obligation will be performed) and the obligee (the party who receives the benefit of the bond). A surety bond is a written agreement that usually provides for monetary compensation in case the principal fails to perform the acts as promised. While there are many different types of surety bonds, two general categories are contract and commercial/ miscellaneous surety bonds.
The more common type are the contract bonds, which provide financial security and construction assurance on building and construction projects by assuring project owners that contractors will perform the work and pay certain subcontractors, laborers, and material suppliers.
There are three types of these contract surety bonds:
- Bid Bonds provide financial assurance that the construction contractor's
bid has been submitted in good faith, and that the contractor intends
to enter into the contract at the price bid and provide the required
performance and payment bonds.
- Performance Bonds protect the owner from financial loss should the
contractor fail to perform the contract in accordance with its terms
and conditions.
- Payment Bonds guarantee that the contractor will pay certain subcontractors, laborers, and material suppliers associated with the project.
A substantial portion of the contract surety bonds issued in the United States are for Federal or State public works projects. Under the terms of the federal Miller Act, surety bonds are required on all such contracts in excess of $100,000. State and local public work projects are protected by "Little Miller Acts," which have been enacted by each individual state.
While the more traditional uses for surety bond are to guaranty the performance of construction contracts, commercial or financial guaranty bonds have recently become a popular method of guarantying other types of transactions and obligations. These include collateral requirements for self-insured workers' compensation programs and health coverage. Moreover, surety bonds are being used to guaranty payment under commercial contracts in much the same manner as letters of credit. The benefit from the perspective of the principal under the bonds are the reduced costs or premium paid for issuance of the bond, as opposed to the cost associated with a letter of credit.
Fidelity coverage is another specialized line of insurance which generally responds to losses resulting from dishonest or fraudulent acts committed by an employee such as robbery, burglary, theft, forgery etc.
The Fidelity and Surety Law Committee includes member lawyers who practice in the area of Fidelity and Surety law, as well as associate members which include non-lawyer accountants, engineers and consultants who work with the lawyers and sureties to respond to surety and fidelity claims. The Committee sponsors several educational seminars each year, including our Annual CLE Mid-Winter Meeting, which is generally held during the later part of January in either New York City or San Francisco.
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Last Modified on
Tuesday, January 27, 2004 12:50 PM
TIPS LEGAL
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