What Is a Surety Bond Rider?

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Surety bonds are frequently given as part of contracts by one party to another and guarantee compensation for any wrongdoing, such as breach of contract. Surety providers issue surety bonds with the understanding that such wrongdoing may not become evident until well after the surety bond expires. A surety bond rider gives the holder additional time for post-expiration claims.

Suretyship

Suretyship is the assumption of responsibility for providing compensation to one party on behalf of another party. Suretyship arrangements commonly occur when an agreement exists between an obligor and an obligee. Suretyship is assumed by a third-party guarantor called a surety. The role of the surety is to pledge compensation to an obligee for losses incurred as a result of wrongdoing by the obligor.

Surety Bonds

A surety bond is the promissory document issued by a surety that contains the surety's written pledge to compensate a named obligee up to a specified amount following any contractual default on the part of a named obligor. In a contractual arrangement, the obligor is responsible for obtaining and paying the premium for a surety bond, subsequently delivering it to the obligee. Surety bonds typically remain in force for one year from the date of issue.

Discovery Periods

It is possible for the obligee to incur losses beyond a surety bond's expiration date resulting from actions that the obligor took while the bond was valid. For this reason, surety bonds often indicate a discovery period. This is a length time after a bond has expired during which the obligee may still file a claim with the surety for losses, provided that the related wrongdoing occurred while the bond was valid.

Surety Bond Riders

The standard discovery period for a surety bond is one year after the bond has expired. A surety bond rider, also called a superseded suretyship rider, is an addendum which the surety attaches to a surety bond in order lengthen the discovery period beyond the span of time originally indicated in the bond's terms.

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