Whether a surety bond is required or not, it is still a wise decision to obtain one as protection for certain eventualities, like claims.
A surety bond’s protection, however, is something the Principal and the Surety hope to never use—as you’ll find out why later on.
Even if the Principal did his or her due diligence, claims can arise. A claim is a request that will be submitted by the Obligee (beneficiary of the bond) to the Surety for compensation for a covered loss.
Handling claims is a time-sensitive event that requires a thorough and fair investigative process. Here are the steps in which the Surety handles a surety bond claim:
- A claim is received
- A claim will be investigated
- The Surety will respond to the claim
Read on to know more about how Surety Bond claims are handled.
A Claim is Received
Under the Unfair Claims Settlement Practices Act, the surety must do the following once a claim is received:
- Acknowledge the claim
- Provide a proof of claim form
- Inform the claimant of the documents and information needed for the claim
- Start the investigation immediately
There are several ways in which a claim is received. One is through email and the other is via a telephone call.
Claim via email
The surety agent who received the claim will immediately make a copy of the claim before forwarding it to the claim department of the surety bond company.
Claim via telephone
The surety agent will carefully take notes of the entire conversation, make a copy of the notes, and then forward it to the claim department.
Once the surety’s claim department has received the claim, it will immediately gather all the necessary paperwork that is relevant to the matter.
This is in preparation for the next step of the surety bond claims process, which is the investigation of the claim.
Surety Bond Claims Investigation
The surety has the right to perform an independent investigation in order to verify a claim, and that investigation should always be just and fair.
Contrary to popular belief, a surety cannot be biased towards one party because they will be subjected to a claim of bad faith; which means, they will lose their reimbursement rights if it happens.
There are several steps that happen during the investigation process. A slight variation may occur depending on the surety bond company’s policies and the claim that’s being handled.
- The surety will review the conditions of the bond, its coverage, and all the regulations, rules, and laws that pertain to it.
- The surety will check all the evidence that has been submitted by the claimant that shows the Principal’s violation. The surety will also interview the claimant regarding the matter.
- The surety will ask the Principal (the person who is required to perform the bond’s obligations) about the claim that’s being made against the bond. The surety will require the Principal to submit documents applicable to the claim in order to determine the Principal’s stance.
- If there are third parties involved, the surety will interview them and ask for supporting documents as well.
Responding to a Surety Bond Claim
All the information gathered from the parties involved will be thoroughly checked by the surety before a verdict is given.
The surety will first check if all the information that they have received in defense of or in support of the claim is valid.
Next, the surety will check whether a violation was indeed committed by the Principal and if the bond covers the violation.
If the claim is not valid or if the bond does not cover the claim, the surety will immediately deny the claim.
However, if the claim is valid, the surety will determine the amount that will be paid to the claimant.
Since a surety bond is an indemnity product, the surety has the right to seek reimbursement from the Principal after the claim has been settled.
If third parties are involved, the surety can exercise its subrogation rights. This allows the surety to legally assert the rights of the Principal and the Obligee when seeking reimbursement from third parties.
If you have further questions about how Surety Bond claims are handled or if you need a surety bond within a day, feel free to contact us. We’ll be happy to help you!