How to Detect Surety Bond Fruad

There are certain things to look for when checking for the validity of a bond.  One of the first things is making sure the person signing the surety bond or their agency is appointed with the bonding company.  This can be verified by going on the Department of Insurance website, searching by name or license number.  The search will provide a list of all the companies that person has power of attorney with.  Don’t panic if they are not specifically listed, sometime the agency is appointed or if it is a recent appointment then it hasn’t been added to the website yet.  If that is the case, then do a little more digging by calling the surety company to confirm that agent is or is not appointed.  This is so important because even if the agent is committing bond fraud, the bonds still have to be honored by the surety company if they are signed by a genuine attorney-in-fact for that company.

Another important part of a bond is the seal of the surety company.  The majority of the time it is a raised seal on the signature page of the bond, but it can also be a sticker seal.  A sticker seal is becoming more popular for bond brokers with low authority limits.  This is another item that is easily checked for when accepting bonds for a project.  Also, as a contractor it is important to make sure that your agent isn’t conducting bond fraud and leaving you as a victim as well.

It also important to check the date on the bond to ensure it is the same date as the power of attorney; this verifies that the attorney-in-fact did have authority to sign on behalf of the bond company on that day.  It is also good to check the liability limit on the power of attorney and compare it to the bond limit.  The bond company often sets lower limits for bond agents and if the amount of the bond is higher than the amount listed on the power of attorney then the liability for the bond company is set to the amount on the power of attorney.

These are all fairly simple ways to check the validity of a surety bond.  When analyzing a bond, if something does not appear correct then take the extra time to investigate.  Many contractors cannot afford to be victims of fraud because it could ruin their company and reputation, even if they were unaware of the malpractice committed by their bond agent.  Being more knowledgeable on surety bonds is a strong asset because it enables contractors to protect themselves in a niche industry that is closely intertwined with construction.