Bond Glossary

Administrator: A fiduciary appointed by the probate court in the absence of a will, to manage or distribute the assets of an estate and pay all just claims and debts.

Administrator, Cum Testamento Annexo or With Will Annexed: One appointed by a probate court to administer the estate where the deceased left a will but failed to name an executor or the one named as executor fails to qualify.

Administrator, Cum Testamento Annexo, De Bonis Non: One appointed by a probate court to succeed an executor who has died, resigned or been discharged before the administration is complete.

Administrator De Bonis Non: One appointed by a probate court to succeed an administrator who has died, resigned or been discharged before the administration is complete.

Administrator Pendente Lite: One appointed to preserve the assets of a decedent’s estate where there is a contest of the will or other circumstances which delay qualification of an executor if there is a will, or the appointment of an administrator if there is no will.

Administrator, Special: Same as Administrator Pendente Lite.

Administrator, Temporary: Same as Administrator Pendente Lite.

Admiralty Court: Special courts which deal with matters pertaining to the sea. They have their own procedures, rules, etc. which differ from those in ordinary courts.

Admiralty Company: An insurance or surety company licensed to do business in a given state.

Advance Payment Bond: Guarantees repayment or liquidation by the principal of monies advanced in connection with a construction or supply bond or other type of contract.

Adverse Selection: This occurs when an obligee enforces a bond requirement for principals who do not meet certain credit standards of the obligee. The standards could be a minimum net worth, a clean credit history or “X” years in the business.

Agent of Record: an individual who has a contractual agreement with an insured/principal. The agent of record has a legal right to commissions from the risk.

Aggregate Liability Clause: A clause in a third party license bond which limits the surety’s liability to the bond penalty regardless of the number of claims made against the bond.

Alcohol Bond: A general term describing a bond given in compliance with either Federal or State laws or regulations governing the sale, manufacture, or warehousing of alcohol. The bond frequently is referred to as a Liquor Bond

Annual Accounting: This term relates to Fiduciary Bonds. An annual accounting is a presentation of an estates activity over a year term. Depending on the jurisdiction, a fiduciary may be required to file such a document with the court. As a surety, we require copies of the court accepted document to ensure that the fiduciary is complying with court requirements and that no obvious problems are developing with the estate.

Annual Bond: One written to cover contracts or bids awarded or submitted during an annual period or for a period terminating within a fiscal year.

Appeal Bond: One filed in court by a defendant, against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, in the hope of reversing the judgment.

Appellant: One pleading review of a court decision.

Appleton Law: Regulation named after a former Superintendent of Insurance of New York State, and instituted in the early 1900’s. The law was amended in 1989 after the failure of several banks which provided credit during the financing boom of the 1980’s. The repayment of many of these credit risks were guaranteed by surety bonds in the form of financial guarantees. Consequently, the state of New York passed an amendment which restricts the writing of “financial guarantee insurance” to those companies set up to write coverage only in New York State, ie. monoline carriers. Since the definition of “financial guarantee insurance” is somewhat vague, many insurance companies have elected not to write bonds that may be carry potential promissory note guarantees. Some examples include retro premium payment, large deductible, and depository bonds.

Application: A questionnaire giving required information concerning one who requests a bond written in his/her behalf. The questionnaire describes the nature of the bond and contains the applicant’s promise to pay and to indemnify the surety in case of default.

Assets: Assets include all funds, property, securities, etc. Also the property of an estate — real or personal.

Assign: To transfer an interest.

Assignment: The document transferring an interest.

Attachment Bond-Plaintiff’s: Attachment is the taking into custody of a defendant’s property by a summary process from the court, in advance of the trial on the merits of the case, as security for the payment of any judgment that may be recovered by the plaintiff in the action. Attachment is allowed only where the plaintiff alleges a statutory ground for it (e.g. defendant is a non-resident or is about to leave the jurisdiction or remove or conceal his property). The bond, which the plaintiff is required to furnish, provides for indemnity to the defendant against loss or damage in case it is finally decided that a statutory ground did not in fact exist or the plaintiff fails to recover a judgment against the defendant.

Attachment-Defendant’s Bond to Discharge or Release: When an attachment has been issued, a defendant may discharge the attachment by giving bond conditioned for the payment of any judgment that may be rendered against him in the action, with interest and coasts.

Attorney-in-Fact: One who holds a Power of Attorney granted by a surety company empowering the execution of a surety bond.

Audit: An examination and verification of financial books and records.

Audited Statement: The report of the public accountant after having examined and verified the books and records to an extent sufficient to certify to their accuracy.

Bail Bond: One given by an accused or convicted of violation of a law or ordinance in order to secure his release or liberty, guaranteeing that he will appear in court at the time set for trial. Hartford Bond does not write these type of bonds.

Bank Confirmation Letter: An agreement whereby one financial institution guarantees (confirms) a letter of credit of another financial institution. TheHartford usually requires that all letters of credit issued by small or foreign banks be confirmed.

Bid Bond: Given by a bidder for a supply or construction contract to guarantee that the bidder, if awarded into contract within the time stipulate, will enter into the contract and furnish the prescribed performance bond. Default will ordinarily result in liability for the difference between the amount of the principal’s bid and the bid of the next low bidder who can qualify for the contract. In any event, however, the liability of the surety is limited to the bid bond penalty.

Blanket Fidelity Bond: is a bond which covers loss of money, securities or other property owned by the insured, held by the insured, or for which the insured is legally liable, when such loss is due to the dishonesty of the insured’s employees. Unless specifically excluded, all employees are covered under the bond for one blanket amount.

Blocked Accounts: This term relates to Fiduciary Bonds. It is an established account of estate assets that a fiduciary does not have access to without a court order.

Blue Sky Bonds: In many states, there are laws regulating the sale of securities, known as Blue Sky Laws, designed to prohibit the sale within the state of worthless securities. A bond is required of securities dealers to indemnify purchases of securities from the dealer against loss in event of false representations, as an inducement to purchase.

Bond: An instrument designed chiefly to guarantee the integrity and honesty of the principal; his/her ability, financial responsibility, and compliance with the law or contract. It is a guarantee of performance. Bonds are written by the surety on behalf of the principal to ensure satisfaction by the obligee.

Bond Penalty: See Penal Sum

BOP/Business Owners Policy: Crime insurance for smaller businesses is often provided as part of a business owners policy (BOP). Although most BOP’s are independently filed by companies (and therefore aren’t all the same), they typically include nominal limits of employee dishonesty insurance and other basic crime coverages.

Broker of Record: See Agent of Record.

Cancellation: Termination of an insurance policy or a bond either by the insured or by the insurance company.

Cancellation Clause: A clause in a bond that permits the surety to terminate its future liability under the bond by serving written notice upon the obligee.

Capital Retention Agreement: An agreement between surety and indemnitor whereby the indemnitor agrees to maintain a certain level of equity or other covenants in exchange for bond credit. If the indemnitor defaults, the surety has the right to seek retribution as outlined in the agreement.

Certiorari, Bond on Petition for Writ of: Certiorari is a writ issuing out of a superior court to call upon the record of a proceeding in an inferior court before an administrative officer or body for review by the superior court. The one who petitions for the writ usually is required to give bond or security for the payment of the costs incurred in connection with the petition.

Claimant’s Bond: In cases where, pending final decision on the merits, property is released to one not a party to the litigation, who claims to be the owner thereof, the claimant may be required to give bond conditioned for the return or redelivery of the property if ordered to do so by the court.

Class of Business: distinguishes applicants based on their primary activity or business purpose and the relative crime risk within that type of activity or business. Class of business is a primary rating factor in crime policies with the more hazardous risks having higher premium modifiers.

Co-Fiduciary: One who serves as a fiduciary jointly with another, such as a co-administrator, co-executor,

co-guardian, etc.

Collateral: Anything of value pledged with the surety to secure it against loss through default of the principal who supplies the collateral. An ILOC is our preferred form of collateral.

Combination Crime Policy: (also known as the Commercial Crime Policy) is a policy providing various crime coverages for mercantile or government entities. The policy is written in easy-to-read language and is under the joint jurisdiction of the SAA and the ISO. Several optional crime coverage forms are available under the policy, each of which insures against specific exposures. The policy can be tailored to fit the insurance needs of the insured by attaching only the coverage forms desired – a sort of “mix and match” arrangement.

Commercial Package Policy: is a policy containing coverages from various lines of insurance (e.g. Boiler & Machinery, General Liability, etc.). Each line of insurance is written as a coverage part of the Commercial Package Policy. Employee dishonesty, for instance, is included in the “part” dealing with crime coverage and generally written at nominal limits.

Commissioner of Insurance: The official charged with enforcement of the laws pertaining to insurance in his state. In some jurisdictions this official is called the Superintendent or Director of Insurance.

Committee: One appointed by a court to manage the estate of a person ho has been declared incompetent. Also known as a conservator or a curator

Completion Bond: One covering performance of a construction project that names as an obligee a lender or similar party in a position to invoke the performance features of the bond for his benefit without an obligation to provide funds to complete.

Compliance Bond: These are the most commonly required and freely written license and permit bond. Required by states, counties, and local cities or towns. These bonds guarantee that a person or business will conduct a business or profession according to the privilege granted and in conformity with the governing laws, ordinances, or regulations. (e.g. electricians, plumbers and other construction tradespersons)

Condition: The technical name of one of the four parts of a bond. The condition is not a qualification of coverage as in the case of an insurance policy but is the essence of the guarantee.

Confirmation Letter: See Bank Confirmation Letter

Conservator: A person, official or institution designated to take over and protect the interest of an incompetent.

Consignee: One to whom merchandise is shipping on consignment.

Consolidation: Merger is the first General Condition clause. It deals with the acquisition, consolidation or merger of the insured with another entity. It provides for short-term coverage, but requires underwriting information for reassessment of risk and premium to be charged.

Continuation Certificate: A document evidencing continuation of a bond beyond the stipulated termination data.

Continuity Clause: The clause in a bond, or rider attached to a bond, under which that bond, subject to its terms, assumes liability for any loss due to acts which occurred while a prior bond was in force but which were not discovered until after the expiration of the discovery period of the prior bond.

Continuous Term: means the Policy Terms states a “from” date, but no specified expiration date. The policy always remains in effect unless the insured provides a signed policy release or the insurer sends written notice of cancellation.

Contract: An agreement between two or more parties to either do or not do a specific thing.

Corporate Surety: A surety which is a corporation, licensed under various insurance laws, and has under its charter the legal power to act as surety for others.

Cost Bond: A bond filed by a litigant in a court action guaranteeing payment of the court costs. Co-Surety: One of a group of Sureties directly participating in a bond, with the obligation under the bond joint and several.

Co-Suretyship: A procedure whereby two or more surety companies jointly become sureties on a bond.

Counter Replevin: See Replevin – Defendant’s Bond to Recover Property Replevied.

Countersignature: A signature of a licensed domiciled agent or representative required by the laws of some states to validate the bond.

Court Bonds: A general term applied to all bonds filed in court, whether Fiduciary or Judicial Bonds (See “Fiduciary” and “Judicial” Bonds for amplification).

Cumulative Liability: When one bond is canceled and a second bond is issued to take its place, if the first bond has a “discovery period,” the surety company is exposed to the possibility of a loss equal to the aggregate sum of the two bonds.

Custom Bond: The primary purpose of these bonds is to assure the payment of import duties and taxes, and compliance with all regulations governing the entry into the United States of merchandise from foreign sources.

Deductible: is an amount which is to be subtracted from any loss and which the insured agrees to bear.

Default: Violation of the terms of the bond or the bonded contract by the principal.

Defendants Bonds: Bonds given by defendants in litigation enabling them to retain or regain possession of property, pending the outcome of a suit, or to suspend the execution of a judgment, order or decree of a court while the defendant seeks reversal of an unfavorable judgment in a higher court.

Deferred Premium Payment Bond: See Retrospective Premium Payment Bond.

Definite Term: is a when a policy is written with both a stated “from” or starting date and “to”, a expiration date. See also “Continuous Term” above.

Depository Bond: This guarantees repayment of moneys deposited with a bank in the event of failure or insolvency of the bank. Now a negligible line of surety business, it was once a large one. The Federal Deposit Insurance Corporation (FDIC) now guarantees the payment of bank deposits up to $100,000 per account title.

Depository Liability: A public official is liable for public funds, which he deposits in a bank and cannot pay over because of insolvency or failure of the bank. In many states, statutes provide for the designation of depositories for public funds and for the furnishing of collateral security by such depositories. Such laws, if strictly complied with, usually exempt the public official and his surety from liability for loss through failure of any of the designated and qualified depositories.

Discharge of Attachment Bond: A bond permitting a defendant to retain possession of property attached by a plaintiff.

Discharge Mechanics Lien: See Mechanics Lien – Bond to Discharge.

Discovery Basis: refers to a policy wherein a loss may be sustained (occur) at any time, but is discovered during the period of time that the policy is in force. See also Loss Sustained Basis.

Discovery Period: Provision is made in certain bonds and policies to give the insured a period of time after the cancellation of the bond or policy in which to discover that he/she has sustained a loss. The loss must be within the terms of the contract and must have been recoverable if the contract had remained in-force.

Dishonest or Fraudulent Acts: are those dishonest or fraudulent acts that are committed by an employee with the manifest (evident) intent (1) to cause the insured to sustain a loss, and (2) to obtain financial benefit for the employee or another person or entity.

Dissolve Injunction: See Injunction – Defendant’s Bond to Dissolve.

Dun & Bradstreet: This is an independent company that provides analysis reports on business entities. There are two types of reports available from Dun & Bradstreet (D&B): (1) a reference book that is divided by state and city and includes a financial rating for both publicly and non-publicly traded companies; (2) a full summary report which includes a detailed listing of the history of the company, its ownership, their operations and any significant current legal proceedings. Sometimes financial and credit information is also available.

Earned Premium: The earned premium on a bond is at any time the amount which would compensate the surety for the protection furnished for the expired portion of the term of the bond. Effective Date: The date on which coverage becomes effective. The onset of the premium period. Endorsement: A form attached to the bond to add to, alter or vary its provisions (See also Rider).

Embezzlement: is the wrongful taking of money or property entrusted to one’s care. Employee is a person in the service of the insured who receives compensation for his services and is under the direction and control of the insured.

Employees: can be either the regular employees of an insured or employees of an employment contractor temporarily working for the insured. The policy definition of an employee may be changed by endorsement.

Endorsements: (called Riders on bonds) are documents that are attached to the original policy that modify or change the original policy in some way. An endorsement my broaden coverage or may restrict coverage, or may extend coverage to an insured not on the original policy. It may also serve as a clarification of the policy’s terms.

Estate: The assets entrusted to a Fiduciary.

Excess Bond: A bond or policy covering the insured against certain hazards, applying only to loss

or damage in excess of a stated amount, or primary insurance.

ERISA: (Employee Retirement Income Security Act of 1974) is a Congressional Act that replaced the Welfare & Pension Plans Disclosure Act of 1962. ERISA requires that qualifying employee benefit plans be bonded by acceptable surety companies (as listed by the U.S. Treasury Department) for the protection of plan funds against loss by acts of fraud or dishonesty on the part of those persons handling the funds. ERISA also requires the disclosure and reporting of financial and other information concerning the operations of employee benefit plans.

Exclusions: Provisions of a bond or policy referring to hazards or to property with respect to which no insurance is afforded.

Executor: A fiduciary named in a will to manage or distribute the assets of an estate and pay all just claims and debts. (see Administrator)

Expense Ratio: The percentage of the premium used to pay all costs of acquiring, writing, and servicing the bond.

Expiration: The date upon which a bond will cease to provide coverage unless previously canceled.

Facultative Reinsurance: Reinsurance of individual risks by offer and acceptance wherein the reinsurer retains the faculty or privilege to accept or reject each risk offered.

Faithful Performance Bond: A bond guaranteeing that the principal will discharge his obligation as required by law.

Federal Bonds: Immigrants Bonds, Internal Revenue Bonds, and Customs Bonds. Loosely grouped under the miscellaneous classification.

Federal Deposit Insurance Corporation (FDIC): An agency formed as the result of bank failures in the 1930’s to insure the deposits of customers of member banks. The FDIC is an agency of the Federal Government and insures each account title up to $100,000.

Fiduciary: A person who occupies a position of special trust and confidence, particularly one who handles the affairs or funds of another.

Fiduciary Bonds: Bonds issued for persons either named in a will or appointed by the court to manage the affairs of others, such as wards, incompetents, etc., or to distribute a decedent’s estate assets in accordance with the provision of a will or order of the court.

Financial Institution Bonds: are bonds specifically written for financial institutions such as commercial banks, savings banks, savings and loan associations, stockbrokers, mortgage bankers, insurance companies, and others.

Financial Guarantee Bond: A bond which guarantees payment of a sum of money whether or not the exact amount is known or stated. Common types are: court bonds (appeal, etc.), lease bonds which guarantee payment of rent, etc.

Financial Responsibility Law: A statute requiring motorists to furnish, either before or after an accident, evidence of ability to pay damages. Such evidence may be furnished by a surety bond.

Financial Statement: A compilation of financial disclosures (including the balance sheet, income statement and other pertinent schedules) which the surety requires the bond applicant to furnish, setting forth his financial position as of a given time or period.

Fixed Penalty Bond: A bond the amount of which is expressed in a certain sum of money.

Forfeiture Bond: A bond requiring payment of the entire penalty upon default of the principal, regardless of the size of actual loss.

Forgery Coverage: indemnifies the insured for loss caused by forgery of a signature on, or alteration of stated instruments, documents or securities.

Forthcoming Bond: This term is applicable to any bond conditioned for the return of redelivery of property in compliance with an order of a court. In some states, it may guarantee payment of a judgment.

Fronting: A procedure under which a ceding company (the fronting company) cedes a risk it has underwritten to a reinsurer with the ceding company retaining none of the risk for its own account.

Garnishment-Bond to Discharge or Release: When money or property belonging to a defendant has been attached while in the hands of a third party, the processing is called a garnishment and the third party is called the garnishee. The bond is similar to a release of attachment bond.

Guarantee: A promise to answer for the debt or default of another.

Guardian: One appointed by the court to manage the estate of a minor or an incompetent.

Guardian Ad Litem: One appointed to preserve the assets of the estate of a minor during a litigation which delays the appointment of a general guardian. Guardian or General Guardian: A fiduciary appointed by the court to administer the estate of a minor.

Hazard: A term applied to certain conditions which may create or increase the probability of a loss because of a given covered peril.

Heir: One who inherits or is entitled to inherit.

Hold-Over Public Officials: Those who are elected or appointed to succeed themselves in office or who continue beyond the limits of their terms until their successors are appointed or elected.

Immigrants Bond: A class of federal bonds covering aliens who enter theUnited States legally.

Income Tax Bonds: These are given to guarantee payment of federal income taxes due or claimed to be due. They are direct financial guarantees and collateral usually is required.

Indebtedness: The sum of one’s obligation.

Indefinite Term: Having no fixed termination.

Indemnify: To compensate the victim of a loss for the actual loss sustained.

Indemnitor: One who enters into an agreement with a surety company to hold the surety harmless from any loss or expense it may sustain or incur on a bond issued on behalf of another.

Indemnity: A promise to prevent or compensate for loss.

Indemnity Agreement: A contract by which one party agrees to protect another against loss.

Indemnity Bond: A general term describing any bond which protects the obligee against direct loss which may arise as a result of failure on the part of a principal to perform.

Indemnity to Sheriff or Marshal: A sheriff or marshal, in the execution of the process of the courts, may incur liability for damage to a third party through an act or acts which turn out to be wrongful. Either official when requested to take some particular action, may require a bond of the party making the request. The bond covers the liability of the sheriff or marshal in that connection.

Inherit: To receive from one’s ancestors or predecessors.

Inheritance: A legacy.

Injunction: A court order prohibiting or requiring a certain action.

Injunction-Plaintiff’s Bond to Secure: An injunction is a judicial process whereby the defendant is required to do or refrain from performing a particular act. An order granting an injunction may be conditioned upon the furnishing by the plaintiff of a bond to indemnify the defendant against loss in case it is finally decided that the injunction should not have been granted.

Injunction-Defendant’s Bond to Dissolve: When an injunction has been issued, the court may order the injunction dissolved upon the giving of a bond conditioned, in effect, to pay such damages that the plaintiff may sustain as a result of the performance of the act or acts originally enjoined, it being then the privilege of the defendant to proceed as if the injunction has never been issued.

Insolvency: The condition of being unable to pay one’s maturing debts.

Internal Revenue Bonds: A class of Federal Bonds guaranteeing producers’ of distilled spirits, tobacco, etc., compliance with laws and regulations, as well as their payment of taxes.

Intestate: Not having made a valid will. One who dies without having made a valid will.

ISO: (Insurance Services Office) is an organization working with the insurance industry to maintain statistical data, file loss costs and manage standardized forms on behalf of its member companies. The ISO is to the insurance industry as the SAA is to the surety industry. See SAA.

Joint Control: This is an arrangement by written agreement and acknowledgement of a financial institution holding estate funds whereby any access to said funds requires two signatures: the fiduciary’s and that of a third party, i.e. attorney, surety, agent.

Joint Venture: An association established to conduct a single transaction or series of related transactions, as contrasted to an ongoing business that involves many transactions. It is a special purpose partnership whose members can be sole proprietorships, partnerships or corporations.

Joint Insured: Endorsement adds subsidiaries or other entities such as welfare and pension plans over which the insured exercises control. An employee of one insured is considered an “employee” of all the insureds.

Judgment: The obligation created by a court decree or decision.

Judicial Bond: Bonds required of litigants who seek to avail themselves of privileges or remedies which are allowed by law, upon condition that a bond be furnished for the protection of the opposing litigant or other interested parties.

Last Surety On Form: Workers Compensation Bonds falling under this description obligate the surety for all self-insured retention liability of the principal, dating back to the inception of the principal’s self-insured qualification. The surety may be absolved of all liability once their bond is superseded by acceptable replacement security.

Legal Liability: Obligation imposed by law.

Legatee: One to whom property is given under the terms of a will.

Lessee: A tenant.

Lessor: One who grants a lease.

Letter of Understanding: This letter is required of a all principals who post collateral in support of a Self-Insured Workers Compensation Bond. The letter explains the nature of the risk and outlines The Surety’s procedures on returning the collateral to the principal.

Liability: This is a broad term denoting any legally enforceable obligation.

Libel – bond to discharge or release: When a warrant for the seizure of a ship has been issued, the marshal is required to stay execution of the process, or discharge the ship if process has been levied, on receiving from the owner of the ship a bond or stipulation conditioned to comply with the decree of court in the action.

License and Permit Bonds: These are bonds required by law or ordinance as a condition precedent to the granting of a license to engage in a particular business or a permit to exercise a specific privilege.

Lien: A charge upon real or personal property for the satisfaction of a debt.

Limit of Insurance: is the maximum amount an insurer will pay in case of loss. Sometimes called limit of liability, bond penalty or penal sum.

Limit of Liability: The maximum amount a surety is liable to pay in case of a loss as set forth in the contract.

Limited Liability Company: An LLC is a hybrid business entity created by statute. It is an unincorporated association of members which, if properly structured, receives pass-through federal tax treatment and limited liability for its members.

Liquidate: To pay a debt. To settle the accounts and distribute the assets of an estate.

Liquor Bond: (See Alcohol Bond)

Litigant: A party to an action at law.

Long-Term Bond: (Fiduciary) A bond required of a fiduciary whose duties are normally expected to extend over a considerable period of time. (See also: “Short-Term Bond”)

Loss Ratio: The percentage which incurred losses bear to premiums.

Loss Sustained Basis: refers to the form of bond wherein a loss must be sustained (or occur) as well as be discovered during the period of time the coverage is in force. Most policies written on this basis include an additional provision for a discovery period. This allows for a loss that is sustained (occurs) during the bond/policy period, but discovered during the discovery period that follows the expiration or termination of the policy – typically twelve months. See also Discovery Basis.

Lost Securities Bonds: Bonds given by owners of valuable instruments (i.e. stocks, bonds, promissory notes, certified checks, etc.) which are alleged to have been lost or destroyed, in order to protect the issuers against loss which may result from the issuance of duplicate instruments or, in some instances, payment of cash value thereof.

Maintenance Bond: The normal coverage provided by a maintenance bond is a guarantee against defective workmanship or materials. However, maintenance bonds sometimes incorporate an obligation guaranteeing “efficient or successful operation” or other obligations of like intent and purpose.

Mandamus: This is a common law writ issuing from a superior court to an inferior court, corporation, or public officer, requiring the person so ordered to do some particular act therein specified which pertains to his office. If the writ is issued before there has been a final decision on the merits, the person requesting the mandamus may be required to give bond to indemnify the person so ordered against loss or damage in case it is finally decided that the mandamus should not have been issued.

Manifest Intent: Employee dishonesty forms require that an employee act with manifest intent to (1) cause a loss to the insured and (2) obtain financial benefit for the employee or for another person or entity that the employee wants to receive the benefit. This “dual trigger” indicates that both elements for manifest intent must be present in order for coverage to apply.

Manual: A book published by an insurance or bonding organization giving information as to rates, classifications, codes and other data. (Specifically, for Fidelity, Forgery and Surety Bonds, the rate manual of the Surety Association of America.)

Manual Rate: The cost of a unit of insurance or bond protection as published in the pertinent manuals of various organizations in the insurance industry, and again seen in the rate manual, as to bonds, of the Surety Association of America.

Martindale Hubbell Law Directory: This is a directory maintained in Home Office that provides information on both individual attorneys and law firms. Information may include schooling, year graduated, legal expertise, members/partners of a firm, and a rating (CV, BV, AV, with AV being the best). Directory is either in hardback or on CD Rom.

Mechanic’s Lien: A right to detain property exercised by one who has furnished labor or material.

Mechanics Lien – Bond to Discharge: A lien against real estate may be filed for an amount claimed to be due for labor or materials furnished for the construction of a building or other improvement upon the property. Pending final determination of the owner’s liability, the owner may discharge the lien by giving bond conditioned for the payment of any amount that may be found due to claimant with interest and costs.

Minimum Premium: The smallest amount of premium acceptable for a specified period.

Miscellaneous Indemnity Bonds: Bonds which do not fit any of the well-recognized divisions or subdivisions, and therefore, are thus categorized. The bond manual will supply further data.

Monoline: policies provide only one type of insurance coverage (i.e. commercial crime).

Moody’s: See Standard & Poor’s.

Moral Hazard: The possibility of loss caused by, or accentuated, by the dishonesty or carelessness of the insured or others.

Negotiable Instrument: Commercial paper which may be circulated with or without endorsement.

Net Rating Factor: This figure is net of all credits and/or debits applied to rates for an account’s bonds. For example, if the account receives a 50% net worth credit and a 15% indemnity credit, the net rating factor would be .425 (.5 x .85).

Notary Public: An official who attests signatures on documents.

Note: A written promise to pay a certain sum of money.

Obligation: An enforceable duty assumed by or imposed upon a person, firm or corporation.

Obligee: The person or firm protected against loss by a bond. Similar to the insured under an insurance policy.

Obligor: The entity for whose account the debt or default is made. Under a bond, strictly speaking, both the principal and the surety are the obligors since the surety company must answer if the principal defaults.

Occurrence: is a loss caused by, or involving one or more “employees”, whether the result of a single act or a series of acts.

Occurrence Form: Workers Compensation Bonds meeting this description obligate the surety for all self-insured retention liability of the principal which accrue during the term of the bond. Without special precautions, the surety will remain forever obligated for liability accrued under the bond after termination, cancellation or replacement by a succeeding surety.

Omnibus Language: This is a clause found in the Continuing Agreement of Indemnity – Miscellaneous Form, which extends the signer’s indemnity to bonds written for “the Applicant; individually; jointly with others or on behalf of any of its subsidiaries, affiliates or divisions or their subsidiaries, affiliates or divisions now in existence or hereafter formed or acquired; or on behalf of individuals, partnerships or corporations .”

Omnibus Named Insured: provides for extension of coverage (within certain parameters) to entities acquired in the future where there is more than 50% ownership and controlled or operated by the insured and for pension and benefit plans. Typically added by endorsement.

Open Penalty Bond: A surety bond written without maximum limit on the liability of the principal or the surety.

Parent Company: A corporation owing or controlling one or more other corporations.

Partnership: A legal relationship created by the voluntary association of two or more persons to carry on as co-owners of a business for profit.

Penal Amount or Penalty: The limit of liability under a bond.

Per Occurrence Limit: A bond limit that is applied to each loss/occurrence that is incurred during the term of the bond. For example, if a surety receives 10 claims of $5,000 each on a bond with a per occurrence limit of $10,000, the surety would pay out $50,000.

Performance Bond: A bond that guarantees faithful performance of the terms of a written contractor for furnishing supplies or for construction of all kinds. Performance bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability.

Performance Bond (non-construction): A bond that guarantees performance of contractors/vendors who provide services, manufacture/supply goods, or perform installation of equipment or software.

Permit: Permission given by a governmental authority to engage in some activity.

Personal Surety: An individual who acts as surety for another, who may or may not exact a price for his services, and usually is not regulated by any governmental agency, such as is the corporate surety.

Petitioning Creditors’ Bond: When a petition is filed to have a person adjusted a bankrupt and application is made to have a receiver or a marshal take charge of the property of the alleged bankrupt prior to the adjudication, the petitioners are required to give bond to indemnify the alleged bankrupt for such costs as counsel fees, expenses, and damages that may be occasioned by such seizure in case the petition is dismissed or withdrawn by the petitioners.

Place in Funds Letter: An agreement between surety and indemnitor whereby indemnitor agrees to immediately provide the surety funds if surety shall be called upon to make payment under bond. The document supplements our indemnity agreement and in no way affects our rights under such.

Plaintiff: One who initiates an action at law.

Plaintiff’s Bond: Bonds given by plaintiffs in litigation enabling them to exercise certain privileges with permission of the court, such as Attachment, Injunction, and Replevin.

Power of Attorney: Authority given one person or corporation to act for and obligate another to the extent laid down in the instrument creating the power. In corporate suretyship, an instrument under seal which appoints an attorney-in-fact to act on behalf of a surety company in signing bonds.

Premium: The consideration paid to the company for its bonds or policy of insurance. An insurance premium includes a factor for the payment of losses.

Principal: In suretyship, the party whose actions, honesty or responsibility is to be guaranteed.

Probate: The legal process of administering estates of decedents, minors and incompetents.

Probate Bond: One that guarantees an honest accounting and faithful performance of duties by administrators, executors, trustees, guardians and other fiduciaries, so-called because such bonds are usually filed in a Probate Court.

Prohibited Risk: A risk of a class which the company will not entertain in any circumstances.

Proof of Loss: A sworn statement by claimant setting forth details of his claim.

Pro Rate Cancellation: Computation of the return premium resulting from cancellation on a proportionate basis.

Public Official Bonds: These are afforded in four categories: Individual, Name Schedule, Position Schedule, and Public Employees Blanket bond and Public School System Employees Blanket Bond.

Qualifying Limit: The largest net amount that a surety company may retain. The Qualifying Limit for bonds filed with the Federal Government is established annually by the U.S. Treasury Department. Several states also establish Qualifying Limits applicable to bonds filed in their particular jurisdictions.

Qualifying Power: The largest net amount of risk which may be carried by a surety company on a bond.

RMA Annual Statement Studies: (Robert Morris Associates) The Statement Studies contain composite financial data on manufacturing, wholesaling, retailing, service, and contracting lines of business. Financial statements on each industry are shown in common size form, and are accompanied by widely used ratios.

Rate: The cost of a unit of insurance.

Rate Manual: A compendium that lists, among other items, the rates established for individual risks, e.g. The Rate Manual of Fidelity, Forgery & Surety Bonds of the Surety Association of America.

Rating Bureau: An organization which files rates with state supervisory authorities for those member companies authorizing it to do so.

Receiver: One appointed by a court to take custody of property.

Recital: The portion of a surety bond usually commencing with the word “Whereas” which describes the transaction for which the bond is given. In the case of a guarantee of a contract it generally incorporates the contract by reference.

Recovery: Reimbursement received by a surety from a reinsurer, by subrogation, or from salvage following a loss.

Redelivery Bond: Substantially the same as a Forthcoming Bond.

Refunding Bond-Rate Litigation: This term is applicable to any bond conditioned for future return, if ordered, or money which the principal was allowed to charge and retain pending the final determination or decision in a contested matter.

Reinsurance: A form of insurance that insurance/surety companies buy for their own protection – a sharing of insurance. An insurer/surety (the reinsured) reduces its possible maximum loss on either an individual risk (facultative) or on a large number of risks (treaty) by giving (ceding) a portion of its liability to another insurance/surety company (reinsurer). Reinsured: An insurance/surety company which originates an insurance policy/surety bond and cedes a portion of the liability to another company (reinsurer).

Reinsurer: An insurance/surety company which assumes all or part of an insurance policy/ surety bond written by a primary insurance/surety company (ceding company).

Release: To give up or abandon an enforceable right. The document evidencing such act.

Removal Bond: Where a case originally bought into a state court is removed to the federal court, and the defendant is required to give bond for the payment of costs in federal court if the case is found to have been improperly removed. A similar bond may be required on the removal of a case from one state court
to another.

Renewal: Continuance of a bond or policy for a subsequent premium term.

Replevin: A legal action to recover property taken or unlawfully detained.

Replevin-Plaintiff’s Bond to Secure: Replevin is an action to recover possession of specific articles or personal property. The replevin bond, which the plaintiff is required to furnish, is conditioned for the return of the property, return is ordered, and for the payment of all costs and damages adjudged to the defendant.

Replevin-Defendant’s Bond to Recover Property Replevied: Where personal property has been replevied the defendant may, by the furnishing of a bond, regain possession of the property, pending final decision on the merits. The bond is conditioned for redelivery of property to the plaintiff, if ordered to do so, or otherwise to comply with a court order or judgment.

Retention: The portion of a reinsured risk that the originating insurance/surety company does not cede to the reinsurer.

Retroactive Restoration: A provision in a bond whereby, after payment of a loss, the original amount of coverage is automatically restored to take care of undiscovered losses as well as future losses.

Rider: An attachment to a bond that modifies its conditions by expanding or restricting benefits or excluding certain conditions from coverage.

Risk: Any chance of loss. The insured or the property to which the bond relates.

SAA: (Surety Association of America) is the surety industry counterpart to ISO. See ISO. Examples of Surety Association data are included in this training section. Employee Dishonesty and Forgery coverages are often considered to be “surety,” rather than “insurance,” with respect to state insurance law.

Salvage: The value of property after it has been partially damaged by fire, malicious mischief or other perils. In suretyship, salvage is that which is recovered from the principal or indemnitor to offset the loss and expense paid by a surety in satisfying its obligations under a bond.

Schedule Fidelity Bond: is a bond or policy that covers only the dishonest acts of specifically named persons (Name Schedule) or specifically listed positions within the company (Position Schedule.) See also “Blanket Fidelity Bond.”

Securities: Certificates evidencing debts or shares of ownership.

Separation or Segregation of Duties: is a means of providing internal control by clearly defining the roles and responsibilities of employees and requiring that more than one person are involved in the handling, recording and reconciliation of all transactions. For example, the person who prepares or signs checks should be different than the person reconciling the bank statement.

Sequestration Bond: Substantially the same as Attachment Bond-Plaintiff’s.

Sheshunoff Bank, and Sheshunoff S&L: This reference guide provides summary financial statistics on Commercial Banks and Savings and Loans respectively. The guide is organized by state and city. A financial rating is made available based on an interpretation of the financial strength of the bank or S&L. This guide is available in the Home Office and comes out quarterly.

Short Rate-Short Rate Cancellation: The charge required for bonds taken for less than a year, and in some cases, the earned premium for bonds canceled by the insured before the end of the term of the bond; i.e., the earned premium plus an expense charge.

Short-Term Bonds: Those covering fiduciaries whose duties are to collect the assets of the decedent,
pay the debts and distribute the remainder according to law. The terms of these fiduciaries are usually brief. (See “Long Term bond.”)

Stack/Cumulative Liability: This occurs when a bond has a definite expiration date and a new bond must be filed for each successive term. Each bond carries a new bond penalty, thus “stacking” the bond liability from year to year.

Standard & Poor’s (S&P) and Moody’s: Both S&P and Moody’s are independent companies that provide ratings on a company’s ability to pay their outstanding debt (i.e. commercial bonds). The ratings are based on an analysis of a given company’s financial condition. The higher the rating the higher the level of confidence that they will fund their debt obligations as agreed. The ratings are provided from an investment perspective and are updated monthly. Most publicly traded companies are rated. These publications are available from Home Office and most local libraries.

Statute: A law enacted by a legislature.

Statutory: Required by, or having to do with, a law or statute.

Statutory Bond: A term generally used describing a bond given in compliance with a statute. Such a bond must carry whatever liability the statute imposes on the principal and the surety.

Statutory Warranty Deed: A warranty deed form prescribed by some state statutes.

Stay of Execution: A bond to stay or suspend execution on a judgment. It guarantees the payment of the judgment upon termination of the stay.

Stipulation for Value or Limitation of Liability: The release of a libeled ship is something effected by the owner giving a stipulation for value in an agreed amount or, if claims exceed the value of the ship, by giving stipulation for limitation of liability in an amount fixed by the court based on an appraisal of the ship, conditioned by paying any sum awarded by final decree not exceeding the amount of the stipulation.

Subcontract Bond: One required by a general contractor of a subcontractor, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay for labor and material incurred in the prosecution of the subcontracted work.

Subdivision Bond: One guaranteeing that a developer of a subdivision will, within a specified period, construct improvements on the property, such as streets, sidewalks, curbs, gutters, sewers, etc. at his
own expense.

Submission: The presentation of underwriting data to one with the necessary authority to act.

Subrogation: The surrender of rights by an insured against a third party to an insurance company that has paid a claim.

Supersede: To replace.

Supersedeas: A writ staying execution of a judgment pending appeal.

Superseded Suretyship: is a provision that allows an insured to change surety companies/insurers without fear of severe penalties. It provides coverage for losses that were sustained (occurred) before the policy period of the current policy (but only to the limit of the previous policy and only if there was no interruption in coverage between the two policy periods). In other words, if the current policy became effective on the date the former policy expired, the discovery period for the previous policy had expired, and if the loss would be recovered under both the terms of the old and the new policies, then the new policy reaches back and picks up the loss coverage – even if the companies changed. Superseded suretyship is only applicable to loss sustained policy forms.

Supply Bond: An agreement providing for monetary compensation should there be a failure to perform specified acts within stated period.

Surety: A person or corporation collaterally bound for the payment of money or the performance of an act or duty by another.

Surety Association of America (SAA): An association composed of leading capital stock insurance companies which engage in Fidelity, Surety and Forgery Bond Underwriting. It establishes the classifications of risks. It also creates standard forms, provisions, riders and miscellaneous other forms. It collects and analyses statistical data, makes filings with regulatory authorities in behalf of its members and performs other functions for the benefit of its members and subscribers and for their insured.

Surety Bond: A three party agreement whereby one party (the surety) is bound with the person bonded (the principal) to a third party (the obligee). The bond guarantees the surety’s performance or monetary compensation to the obligee should there be a failure by the principal to perform specified acts within a stated time period.

Term: A period of time for which a bond or policy is issued.

Testamentary: Of or relating to a will.

Testator: One who dies leaving a valid will.

Third Party Coverage: extends protection to theft of client property by an employee of the insured.

Third Party Liability: A bond provision that provides third parties the right to make claim against the surety bond. This increases the surety’s exposure and may result in small nuisance claims.

Treasury Limits: These are qualifying limits imposed upon the surety by the United States Treasury Department. To be an acceptable surety on bonds in favor of theU.S., the surety must qualify financially under regulations of the Treasury Department. It compiles an annual list of the companies who are qualified, the underwriting limit of each and other pertinent data.

Treaty Reinsurance: An agreement between parties in which one company agrees to automatically cede a portion of all business outlined in the agreement to the other party (reinsurer), and the reinsurer agrees to accept such business.

Trustee: One holding property belonging to and for the use of another.

Undertaking: This is similar to a bond except it is a two party agreement between the surety and the obligee – The principal is not named on the form. Under such an agreement, the obligee can make demand on the surety without first looking to the principal for action.

Underwriter: An individual or employee of an insurance company who determines which risk to accept and the amount of such risks.

Uniform Commercial Code: A codification of the law merchant adopted by many states.

Unilateral: By one party only.

Value Line Investment Survey: Value Line is an independent company that maintains information on larger, publicly traded companies, primarily those traded on theNew York and American Stock Exchanges. Reports are updated quarterly. The information provided includes a synopsis of the company’s operations and financial trends and is geared towards investors. Home Office maintains a subscription to Value Line, and most libraries retain copies in their reference collections.

Ward: One under guardianship.

Will: A document disposing of property upon death.

Without Prejudice: This clause is often seen on court judgments, motions or orders of decree. It is meant as a declaration that no rights/privileges of the parties concerned are to be considered waved or lost. If a case is dismissed “without prejudice,” a new suit can be brought on the same cause or action. A Document with this phrase is not sufficient evidence to cancel a court bond.

Writ: An order issued in the name of a court.