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What is a Contractor Bond?
Contractor license bonds are legally enforceable contracts binding together three separate parties.
- The construction professional buying the contractor license bond acts as the principal.
- The entity requiring the contractor to be bonded acts as the obligee.
- The company issuing the bond and guaranteeing the contractor’s obligation acts as the surety.
If a contractor fails to fulfill the bond’s terms, then the obligee can make a claim on the contractor bond as a way to gain compensation for any damages. However, the surety will not simply absorb the loss. Whereas underwriters of traditional insurance policies assume there will be a loss, surety underwriters consider the policies they write to have no risk. In the event a claim is made against the bond, the contractor is expected to reimburse the surety for any money it pays when settling the claim.
Contractors in California must have a $25,000 surety bond. By posting a contractor’s bond, principals (contractors) pledge to comply with the provisions of Division 3, Chapter 9 of the Business and Professions Code. The bond protects harmed parties from financial loss up to the full amount of the bond if the principal fails to comply with the letter of the law and the terms of the surety bond agreement. The principal must reimburse the surety for all damages paid out. These bonds remain in full force and effect until canceled. The surety can cancel the bond in accordance with the provisions of Sections 996.310 of the Code of Civil Procedure. The applicant’s license or application number and classification(s) are required for underwriting.
Need your Contractors Bond today? No problem. Rancho Cal Insurance Services is here to help you get your contractor’s bond as quickly as possible. Give us a call.
