Study sets, textbooks, questions
Upgrade to remove ads
Chapter 3: Underwriting Commercial Surety and Fidelity Bonds
Terms in this set (83)
The party (usually an insurer) to a surety bond guarantees to the obligee that the principal will fulfill an obligation or perform as required by the underlying contract, permit, or law
The intentional wrongful performance of duty
The mistaken wrongful performance of duty
The failure to perform a required duty
A party, named in a will, who distributes and settles the deceased's estate as prescribed in the will
The individual appointed by a probate court administer a decedent's estate when the descendent has dies without leaving a will (intestate)
A classification of bonds that guarantee that a guardian will faithfully and diligently administer a minor's estate or preserve the rights and assets of a minor involved in litigation
A classification of bonds that guarantee that the property will remain in the same condition and will not be sold or otherwise disposed of
Replevin action (replevin)
A court action that enables the plaintiff to take back property held by the defendant before trial
Counter replevin bonds
A classification of bonds that guarantee recovery of replevined (taken back) property until the court makes a final decision
In general, the tendency for people with the greatest probability of loss to be the ones most likely to purchase insurance
Field underwriting main activities
evaluate new individual applications and renewal bonds
Field underwriting activities also include
Determining proper coverage
Determining the appropriate rate or price
Providing service to producers and policyholders
Home office underwriting main activities
help underwriting management set and implement underwriting policy that the field underwritings can follow
Home office underwriting activities also include
Formulating underwriting policy
Researching and developing coverages and policy forms
Reviewing and revising plans
Preparing underwriting guides and bulletins
Conducting underwriting audits
Participating in industry associations and advisory organizations
Conducting education and training
Do sureties file bond forms?
Are bond forms or insurance forms more unique to the project they apply to?
What are the underwriting considerations and practices that generally apply to all or most surety types of bonds?
indemnity and other forms of security
Which consideration/practice that applies to surety bond types reflects overall management ability?
Which consideration/practice that applies to surety bond types helps determine a principal's character
Indemnities are used to extend the rights of sureties...
beyond those rights arising from common law
Indemnity requires periodic reviews for changes in...
law or the result of court decisions
General Agreement of Indemnity (GAI) is used for accounts with...
multiple bonds, single bonds with large penalties, single bonds with complex conditions
GAI only provides for signatures of a single indemnitor (T/F)
F, multiple indemnitors
Omnibus agreements can be use when a corporation has a number of...
subsidiaries that will all require bonds
Omnibus agreements allows...
the parent to provide indemnity for its subsidiaries and affiliates, as well as for companies it might acquire or from in the future
Requirements of GAI
all parties must sign before a witness or witnesses and a notary
stored separately from bond or account files in a secure, fireproof area
save all GAI's even when surety no longer writes the accounts
Types of GAI's
Contract surety indemnity agreement (most popular)
Special GAI ("short form")
"short form" GAI is used for...
large, strong companies with infrequent or relatively benign bond needs
Abbreviated GAI is used for..
individual commercial surety bonds
Abbreviated GAI combines...
underwriting information and abbreviated indemnity language
Types of common addendums to address concerns in GAI
A public official bond covers loss of money resulting from...
malfeasance, misfeasance, nonfeasance
What usually describes the bond amount and the length of an official's term in office in a public official bond
Who is generally the only one that can make a claim against the bond in a public official bond
the body that requires the bond
Application provides most the necessary information for public official bond (T/F)
______ is a person or entity that manages another person's affairs or funds or who is otherwise a person of trust
Some sureties rely more on the credentials of the fiduciaries _________ than on those of the fiduciaries themselves
Fiduciary bonds are generally long-term obligations (T/F)
Who appoints administrators for fiduciary bonds
Guardian bonds are usually long-term (T/F)
Duties of guardian bonds include...
collecting the minor's funds
investing, reinvesting, and maintaining records of the use of funds
paying costs for the minor's education, support, and maintenance under court order
Court generally prescribes the penal amount of the judicial bond to include the value of...
the property in question, plus an amount for costs, interest, and damages
Plaintiff and defendant bonds include...
appeal, attachment, replevin, injunction, mechanic's lien, bail
If for a plaintiff, an appeal bond guarantees...
And what is it called?
the payment of costs of the appeal and is
a costs of appeal bond
If for a defendant, an appeal bond guarantees...
And what is it called?
payment of judgement, interest, and court costs upon a stay (holding) of execution on the judgement, order, or decree
stay of execution bond (judgement bond)
the seizing of a person's property to secure a judgement
Defendant posts a _______ to dissolve the attachment bond
release of attachment bond
Replevin bonds are for smaller accounts (T/F)
Attachment bonds are written faster than replevin bonds (T/F)
What is an injunction
a court order requiring a defendant either to act or not to act
Injunction bonds guarantee...
the plaintiff will indemnify the defendant against loss if a court decides the injunction should not have been granted
Dissolve junction bond guarantees...
payment of any damages to the plaintiff resulting from the defendant's acting, or not acting, under the original juristiction
Mechanic's lien bond
discharge a lien against real estate filed by a person who has done work for furnished materials for a building's construction or other property improvements
Bail bonds guarantee...
an accused person in a criminal case will obey court orders and appear in court at the time designated for the trial or hearing
Almost all bail bonds are written by specialty surety companies (T/F)
Compliance-only or privilege bonds guarantee...
principal will conduct business, or exercise privilege's, according to building and trade codes
Forfeiture bonds guarantee...
compliance-only or compliance with third-party liability
Forfeiture bonds are common for bonds that guarantee...
Tax or fee bonds guarantee...
payment of taxes or fees levied under the laws or ordinances requiring these bonds
Tax bonds are outright...
Merchandising and dealer bonds are required by...
Merchandising and dealer bonds guarantee...
buyers will pay farmers or other sellers for goods
Reclamation and environmental protection bonds require the principal to...
restore land (reclaim it) to its original state after operations are completed
Reclamation and environmental protection bonds guarantee...
principal will clean up any oil spills or other hazardous waste that results from its operations
What is the most hazardous license and permit bond
reclamation and environment protection bond
The following are special underwriting considerations for fidelity bonds
fidelity loss control selection practices, periodic audits, monthly bank account reconciliations, divided responsibilities, physical inventory checks, annual vacation requirements
The following selection practices should exist
in-depth background check for new employees (additionally past convicts only hold positions where theft is nearly impossible)
management review of seasoned employees eligible for promotion or transfer
notice unreasonable or unexplained changes in employee behavior
Periodic audits should be at least ______
Physical inventory accounts should occur at least ______
Annual vacation length should be...
no less than 5 consecutive days
Employees who often take vacation often have the best opportunity for theft (T/F)
Owners of most small businesses provide sureties with financial reports that...
contain the same data they give to their banks to apply for loans
The term of a fiduciary bond continues until...
the court has relieved the fiduciary of all responsibilities
Compliance-only or privilege bond penalties are usually nominal (T/F)
Which one of the following special characteristics of fidelity bonds is described by the following statement: The nature of the employment relationship provides the employee an opportunity to learn the firm's routines; schedules; and the existence, absence, or relative effectiveness of management controls.
A. Management control systems are the primary loss control devices.
B. Property exposed to loss is accessible.
C. The probability of severe loss greatly exceeds that in other kinds of crime.
D. Losses can be hidden.
B. Property exposed to loss is accessible.
The fidelity loss control measure of divided responsibilities, under which employees who regularly handle cash do not also handle merchandise, is impractical for some small businesses. To address this situation, which of the following practices should the employer perform?
A. Insist on annual vacations
B. Conduct periodic audits
C. Make frequent spot checks
D. Reconcile bank accounts monthly
C. Make frequent spot checks
A surety does not impose its own limitations on a public official bond because...
the law prescribes conditions for claims
Generally, _______ individuals cause most public official bond losses
An example of a litigation bond used by a plaintiff or defendant in a lawsuit is a
A. Compliance bond with third-party liability.
B. Replevin bond.
C. Tax or fee bond.
D. Forfeiture bond.
B. Replevin bond.
Compliance bonds with third-party liability allow a direct right of action against the ______ for damages a third party may suffer because of the principal's acts
A surety may ask for a _________ to confirm that the government body has been established an approved list of banks
designation of depository
Courts often order attachment bonds to secure property when a _______ is within the court's jurisdiction
Sets found in the same folder
Chapter 2: Surety Bond Production
Chapter 1: Understanding Suretyship
Chapter 4: Contract Bond Underwriting Roles
Chapter 5: Credit and Background Investigations
Other sets by this creator
Chapter 5 Quiz Questions
Chapter 4 Quiz Questions
Chapter 3 Quiz Questions
Chapter 2 Quiz Questions
Recommended textbook solutions
Introductory Business Statistics
Alexander Holmes, Barbara Illowsky, Susan Dean
Human Sexuality Today
Bruce M. King, Pamela Regan
Fundamentals of Financial Management, Concise Edition
Eugene F. Brigham, Joel Houston
Statistical Techniques in Business and Economics
Douglas A. Lind, Samuel A. Wathen, William G. Marchal