What Is a Professional Surety Bond?
A professional surety bond is an instrument that guarantees the performance of a professional. While they exist for many professionals, the basic operation of all professional surety bonds is the same.
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Parties
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There are generally three parties to a professional surety bond. First is the professional, whose performance is guaranteed by the bond. Second is the surety, the person who is guaranteeing the performance. Third is the protected party; in the case of a professional surety bond, this is usually the general public as represented by the clients of the insured professional.
Purpose
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The professional surety bond protects a client from economic loss caused by the failure of the insured professional to properly discharge his duties.
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Creation
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The professional surety bond is a contract between the surety--usually an insurance company--and the professional. This contract, which is paid for by the professional, is often a requirement imposed by the state or federal government to receive a license to practice certain professions.
Function
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Generally, if a client feels he has been harmed by the failure of a professional to do his job, the client seeks redress either through the courts or through some administrative proceeding. If the professional is found liable and cannot pay the damages, the client can receive payment from the surety up to the amount of the bond.
Application
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Professional surety bonds are required of hundreds of professions. Some of the most common include construction contractors, insurance salespeople, car dealerships, warehouses, notaries public and private detectives. Professions requiring bonding and the amounts of those bonds vary widely from state to state.
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