If you are in the process of obtaining a surety bond, chances are you have been asked to provide personal indemnity prior to a bond bond issued.
What is Personal Indemnity on a Surety Bond?
Personal indemnity on a surety bond is a legal contract in which the indemnitor (the person signing the agreement) agrees to hold the surety harmless from any losses that it may suffer as a result of the principal’s default. This means that if the principal fails to fulfill their obligations under the bond, the surety can go after the indemnitor for payment.
In the context of surety bonds, the principal is the person or entity who is required to perform a certain task or obligation. The surety is the company that guarantees that the principal will perform the task or obligation. The obligee is the person or entity who is entitled to the benefit of the surety bond. Learn more about the 3 parties of a surety bond https://surety1.com/the-three-parties-of-a-surety-bond/.
Personal indemnity is typically required for surety bonds that involve a high level of risk, such as construction bonds and performance bonds. The surety company requires personal indemnity to protect itself from financial losses in the event of a default.
The terms of a personal indemnity agreement will vary depending on the specific bond. However, most agreements will include the following provisions:
- The indemnitor agrees to hold the surety harmless from any losses that it may suffer as a result of the principal’s default.
- The indemnitor agrees to pay the surety’s legal fees and costs if the surety is required to defend a claim against it.
- The indemnitor agrees to provide the surety with a copy of their insurance policy.
- The indemnitor agrees to cooperate with the surety in any investigation or legal proceeding.
If you are required to sign a personal indemnity agreement, it is important to read the terms carefully and to understand the risks involved. You should also consult with an attorney to get advice on the agreement.
Here are some of the things to consider when signing a personal indemnity agreement:
- The amount of the bond. The higher the amount of the bond, the greater the risk that you are assuming.
- The scope of the agreement. The agreement should be specific about the types of losses that the surety is seeking indemnity for.
- The time period covered by the agreement. The agreement should specify how long the surety can seek indemnity from you.
- The insurance requirements. The agreement should require you to have adequate insurance coverage.
- The right to contest the claim. The agreement should give you the right to contest any claim made against you.
If you are not comfortable with the terms of the agreement, you should not sign it. (Of course not signing it will probably preclude you from obtaining the surety bond). You should also consult with an attorney to get advice on the agreement.
Surety companies require personal indemnity from the principal and any other individuals who have a financial interest in the business, such as spouses, partners, or shareholders. This is because the surety company wants to be able to recover its losses in the event that the principal defaults on the bond.
Personal indemnity is a legal contract in which the indemnitor agrees to hold the surety harmless from any losses that it may suffer as a result of the principal’s default. This means that if the principal fails to fulfill their obligations under the bond, the surety can go after the indemnitor for payment.
Why do surety companies require personal indemnity:
- To protect their financial interests. Surety companies are in the business of guaranteeing the performance of others. If a principal defaults on a bond, the surety company is liable to the obligee for the full amount of the bond. Personal indemnity helps to protect the surety company from financial losses in the event of a default.
- To ensure that the principal has skin in the game. When the principal and other individuals with a financial interest in the business sign a personal indemnity agreement, they are essentially putting their own money on the line. This helps to ensure that the principal is motivated to fulfill their obligations under the bond.
- To make it more difficult for the principal to default. If the principal knows that they are personally liable for any losses that the surety company may suffer, they are less likely to default on the bond.
Personal indemnity is a common requirement for surety bonds. If you are required to sign a personal indemnity agreement, it is important to understand the terms of the agreement and to make sure that you are comfortable with the level of risk involved.
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