Surety Bond Claims: How to Avoid & What to Do

Contractors are frequently obligated to maintain a surety bond as a prerequisite for licensure. A surety bond serves as a financial guarantee to clients, ensuring compensation in the event of the contractor's failure to meet contractual commitments.

While a surety bond is intended to encourage contractors to fulfill their work diligently, claims may still arise. In this guide, you’ll learn strategies for preventing claims against your surety bond and the necessary steps to take should a claim be filed.

How to Avoid Bond Claims

1. Understand the terms

Learn what your surety bond covers and doesn’t cover and make sure you get sufficient bond coverage for the project. A reputable surety company explains the terms of the bond policy in detail and helps you understand your contractual obligations.

2. Read the contract

Review the contract thoroughly before agreeing to the work. Ensure you and your clients agree on the scope of the work, budget, deadlines, and any other requirements.

3. Fulfill the contract

Complete the project according to the contract and local laws, stay on schedule, and deliver work to standard.

3. Communicate

Be proactive and provide clients with project status updates and notify them of potential delays. Not only will they appreciate the open communication, but it also helps manage expectations.

4. Maintain accurate records

Documentation serves as key evidence during a claim investigation process. Keep complete and organized records of all contracts, written communications, receipts, and project milestones.

5. Get business insurance

Consider supplementing your surety bond with business insurance to mitigate risks. Surety bonds protect consumers, while insurance protects you from unforeseen risks.

Liability insurance or worker’s compensation is a great way to safeguard yourself from claims that the surety bond doesn’t cover.

What to Do If There’s a Bond Claim

Take the following steps if a claim is filed against your bond:

1. Respond promptly: Notify the surety company immediately if a claim is made against your bond. Provide a detailed explanation of your position and submit all relevant documents to support your case.
2. Cooperate: The surety will investigate the claim. Provide any requested documentation in a timely manner.
   
   It’s possible for someone to file a claim against your bond and also file a complaint with the licensing board. The surety and licensing board will conduct their individual investigations, and the outcome of each doesn’t necessarily mean they will impact each other.
3. Reimburse: If the claim is valid, the surety will use the bond amount to pay the claimant. You’ll need to reimburse the surety immediately for the financial loss.

Failure to repay the surety may result in the cancellation or suspension of your license.

Work With Our Experts

Protect yourself from bond claims and maintain your reputation by working with a surety company that can help you understand the terms of your policy and provide guidance. With more than 60 years of experience, you can trust NNA Surety with your bond needs. Call us for a free quote.