What Happens if a Surety Bond Claim Is Filed Against You?

Surety bonds are crucial precautionary measures meant to provide financial reassurance and security for you and your clients when entering into a business agreement. Of course, like most precautions, you’d prefer not to have to rely on surety bonds, as doing so indicates that something has gone awry. Unfortunately, you may eventually have to manage these situations. As such, knowing what to expect can help the process go as smoothly as possible.

When Might Someone File a Surety Bond Claim?

Surety bonds, also known as business bonds, are often sold by insurance companies and can provide clients, customers and others with a means to recoup losses for which you’re at fault, such as if you’re unable to complete a project or violate contract terms. When facing such financial consequences, the obligee (e.g., your client) can file a claim against the bonds the principal (e.g., your business) has purchased from a surety (e.g., an insurance company).

How Does the Claims Process Work?

If someone files a claim against a surety bond your business purchased, you should be prepared for a multistep process, often including the following processes:

• Investigation—If the obligee files a claim, your surety will notify you and start investigating the situation. Be prepared to present your side of the story, including relevant contracts, emails and invoices. If the claim is deemed invalid, the surety will deny it.
• Resolution—Should the surety approve a claim, you’ll have to choose between compensating the obligee directly or having the bond pay out to compensate them for their losses.
• Reimbursement—If you choose to have bonds pay out, you’ll still be responsible for repaying the surety for their expenses, including related legal costs. If you fail to do so, they may sue your business.

We’re Here to Help

At Better Way Insurance Agency, we can help businesses in and around Port Arthur, TX understand and address their bond-related needs. Contact us today to begin.

This blog is intended for informational and educational use only. It is not exhaustive and should not be construed as legal advice. Please contact your insurance professional for further information.