Many tradesmen are required to maintain current surety bonds. These bonds are essentially three-way agreements between you, the surety company, and your customer. You agree to provide quality work according to the terms of the contract with your client. The client agrees to pay for the work, and the surety company agrees to offer compensation in the event a tradesman's obligations are not met.
It can be beneficial to understand what happens once a surety bond claim is filed so that you can deal with the claims process as needed in the future.
You are expected to handle the claim.
It's important to note that once one of your customers files a claim against you with your surety company, you are expected to deal with the claim on your own. Insurance companies will take over the claim process, but a surety company will not.
Under the indemnity agreement that you sign when you purchase your surety bond, your obligation to resolve any and all claims directly is clearly outlined. Be prepared to take action once your surety company notifies you of an active claim.
The surety company can investigate.
If you fail to fulfill your obligation to resolve a claim filed against your surety bond, the surety company can step in and conduct an investigation. This investigation is designed to determine whether or not the claim is valid.
If the claim is determined to be invalid by the surety company, it will be dismissed, and no further action is required on your part. If the claim is valid, the surety company will contact you to inform you of your options. You can respond to the claim by paying the claimant, or you can dispute the claim with a valid defense.
The surety company can pay a claim on your behalf.
Once the surety company has deemed a claim against your bond to be valid, they will wait for you to pay the claimant what he or she is owed. If you do not make a timely payment, the surety company can step in and make the payment on your behalf. This option will result in the accrual of additional legal fees associated with the settlement of the claim.
You will be responsible for reimbursing the surety company for the settlement and any associated legal fees in full. Failing to do so could compromise your ability to secure a surety bond in the future, leaving you without the legal protection needed to work as a tradesman in most states.
For more information, contact a local surety bonds company like NFP, P & C, Inc.