Virtually all License & Permit bonds guarantee compliance with laws, ordinances
or departmental rules. Some go further by including guarantees for payment of monies (such as taxes, fees, or fines),
or for performance of contracts. A brief discussion of each broad type follows.
Compliance - These bond forms are usually generic in nature, simple and
straightforward. Most refer to a specific license (electrician or plumber, for example), and guarantee only that
the principal will "COMPLY" with the rules pertaining to their license and trade. These rules usually address
building code adherance, customer fraud prevention measures, and procedural compliance. Typical wording for these
bonds will be similar to "...the principal has been licensed as an electrician in the City of Champaign. Now
therefore, the condition of this obligation is such that if the principal shall indemnify the obligee against all
loss which the obligee may be subject by reason of the principal's non-compliance caused by the principal's breach
of any ordinance, rule, or regulation relating thereto, ...". The bond refers to ordinaces or rules, and these
bonds are usually easily written.
Third Party Suit - Some bonds also allow individuals to file claim on the bond.
Any type of license & permit bond can include third party suit provisions, with typical wording similar to
"...the people of the city/state/county...". Although the responsibilities of the principal are no different,
these bonds are considered more hazardous to the surety because any individual may file claim on their own initiative
rather than making their complaint with the licensing office of the governmental body.
Compliance with Financial Guarantee - These bonds include guarantees that the
principal will make payments to the obligee, typically of fees, fines, and taxes required by ordinance and associated
with the principal's license or permit. These bonds are also considered more hazardous, and the surety will typically
examine financial statements and/or credit histories prior to issuing such a bond.
Compliance with Performance - These bonds also include a blanket performance bond,
guaranteeing to all customers of the principal that all contracts will be performed in full accordance with contract
terms. Typically much more expensive than other types of license & permit bonds, the underwriting process is also
much more involved and includes reference checks. Note that the mere presence of the word "perform" within the bond
form does not necessarily mean that the bond includes contract performance guarantees. The form may say something
similar to "... faithfully perform all contracts entered into in accordance with building codes...", which
would be a compliance bond only. However, wording similar to "...Now therefore, if the said principal shall comply
with all statutues pertaining to the license, and also perform all contracts undertaken, then this obligation..."
invokes contract performance provisions.
In most cases, the specific wording of the bond form dictates the required degree of underwriting. We encourage you
to contact us with your bond form for more details, and to define your specific needs. Call
us at (800) 824-9023, or (630) 955-0010 in the Chicago area,
and ask for one of our commercial surety specialists!
Arthur J. Gallagher Risk Management Services, Inc. now owns
and operates Robert Keith and Associates, Inc.
Virtually all License & Permit bonds guarantee compliance with laws, ordinances
or departmental rules. Some go further by including guarantees for payment of monies (such as taxes, fees, or fines),
or for performance of contracts. A brief discussion of each broad type follows.