What Is the Difference Between a Surety Bond & a Fiduciary Bond?
A surety bond is a type of bond issued by an entity on behalf of a third party. The surety bond guarantees that the insured will fulfill one or more obligations to this third party. In case the insured does not meet his obligations under the surety bond, the third party will recover its losses via a payment from the bonding company. A fiduciary bond, on the other hand, guarantees that a court-appointed fiduciary, a guardian or executor, will perform specific duties under the bond.
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Three and Two Parties
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A surety bond involves three different parties, the principal, the obligee and the surety. The principal is the person or organization the surety bond insures for failure to complete the specified obligations. The obligee is the party owed money or labor, and the surety is the person or organization that promises to pay up to the value of the surety bond in the event the principal defaults. A fiduciary bond protects the person for whom the fiduciary is acting. For example, a fiduciary bond could protect a ward or a person not of age. A fiduciary's can have a wide range of responsibilities including giving financial advice or managing an estate.
Examples
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Examples of surety bonds include bail bonds, contract bonds, court bonds and license bonds. When the principal receives a contract to perform a building or maintenance job, the oblige may require a surety bonds to guarantee performance under the contract. A court often requires court surety bonds before a principal can appeal a case or file certain types of claims. Examples of fiduciary bonds include administrator bonds, guardianship bonds, conservator bonds, receiver bonds, executor bonds and trustee bonds.
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Surety Bond Contract
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When the principal enters into a contract with a surety, normally an insurance organization, the principle promises to reimburse the surety in the event the surety has to pay a claim against the bond for nonperformance. If a default does occur, the surety has a legal obligation to pay up to the amount of the surety bond to the oblige. The principal is then liable to reimburse the surety for all losses and expenses incurred by the surety as a result of payment under the surety bond.
Fiduciary Bond Contract
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With a fiduciary bond, the bonding company agrees to pay up to the value of the bond in the event that the fiduciary does not perform his specified duties. Courts often require fiduciary bonds. As with the surety bond, in the event of default under the bond, the fiduciary has a legal obligation to repay the bonding company for payments made by the bonding company for the fiduciary's failure to perform.
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