Any contractor that has purchased a contractors license bond in California has signed an indemnity agreement as part of the bonding process, but how many have taken the time to carefully read what it entails? While often misunderstood, a California contractors license bond indemnity agreement is essentially a legally binding contract whereby a contractor agrees to indemnify, or make whole, the surety writing their bond for expenses associated with settling a viable bond claim. Unlike liability insurance, contractors must repay their surety the amount of a bond claim, as well as other costs such as attorney fee’s. Ultimately, the purpose of a license bond indemnity agreement is to clarify the rights and responsibilities of the contractor and the surety in the event of a claim.
To get an idea of what a license bond indemnity agreement looks like, please click here for a sample contract from Suretec, one of the top surety’s providing license bonds in California.
How Does A Surety Determine if a Bond Claim is Viable?
Claims on contractor license bonds are not an uncommon occurrence, though contrary to popular belief, not all result in a bond payout. A surety generally follows specific guidelines to determine if a violation of the California Building and Professions Code has occurred through its own investigations, as well as any investigation by the Contractors State License Board, when available. Even if a contractor feels a pending bond claim lacks validity, contractors should cooperate with their surety throughout this process to ensure each claim is settled fairly based on all facts available regarding the alleged violation. Failure to cooperate with a surety during the claims process could adversely affect the outcome, and jeopardize a contractors ability to obtain a bond from their current surety or other surety’s in the future. Failure to obtain bonding can be detrimental to a contractors ability to legally operate in the state.
For questions regarding a bond claim or a specific surety’s claim evaluation process, contractors should contact their surety at the phone number provided on their Contractors State License Board online profile.
Are All Indemnity Agreements The Same?
While the principle idea of each indemnity agreement may be similar between surety’s, each will vary to some degree with distinctions that can become important in the event of a claim. Contractors should carefully understand the terms of each before signing an agreement.
By Jeremy Schaedler