surety

Surety is a person or institution that accepts responsibility for the performance or obligations of another. In a surety arrangement, the principal is the party whose obligation must be fulfilled; the obligee is the party to whom the obligation is owed; and the surety provides a guarantee. The surety’s liability is triggered when the principal fails to perform or pay; the surety must compensate the obligee up to the bond amount, and may seek reimbursement from the principal.

Surety bonds are three-party contracts among the principal, obligee, and surety. They are used to guarantee completion of a project, payment to subcontractors and suppliers, or compliance with licenses and court duties. Common forms include performance bonds, payment bonds, bid bonds, license and permit bonds, court bonds, and fidelity bonds (insuring against employee dishonesty). Bail bonds are also a form of surety arrangement in the justice system, securing the release of defendants.

Underwriting and risk: Surety companies assess the principal’s credit, project scope, and related risks. The principal pays a premium; in many cases collateral or financial statements are required. Unlike ordinary insurance, a surety bond is designed to guarantee performance rather than indemnify a loss; the principal remains primarily liable, and the surety may pursue subrogation to recover payments from the principal or other liable parties.

Legal framework: Bond obligations are contracts governed by commercial and contract law, with regulations varying by jurisdiction. Claims typically proceed by notice of default, a demand for cure, and, if unresolved, payment by the surety up to the bond amount. Sureties are often licensed and regulated, and bonding requirements are common in construction, licensing, and court proceedings.