What is Surety?

Protection on projects

While Liberty Mutual is a leader in the insurance industry, we also provide surety bonds, which are different from insurance. Surety bonds help protect project owners from losses if a contractor doesn’t complete a project as agreed.

How it works

A surety bond is a three-party arrangement between a contractor or business (the principal), the project owner (the obligee), and the surety. The bond guarantees that the principal completes all contractual obligations to the obligee – and if the principal can’t fulfill the obligations, the surety is responsible for “making things right.”

Unique risks, specialized products

Traditional insurance protects the policyholder from losses due to accidents, natural events, or medical events. Surety bonds are different, since they are provided to the contractor or business, but protect the project owner or obligee. 

Unlike traditional insurance, in which the insurer anticipates at least some claims, surety is underwritten with the expectation that a claim is highly unlikely. 

Surety bonds typically fall into three categories:

A contract surety bond guarantees to the owner of a construction project that the contractor will perform the work specified by the contract. Contractors are required to post surety bonds for all federal or state projects, and for most local public projects.

Common contract bonds include:

Type of bond Principal Guarantee
Bid bond Bidder Guarantees the bidder will provide a performance bond if their bid is accepted.
Performance bond Contractor Guarantees the contract will be performed according to the plans and specifications.
Payment bond Contractor Guarantees certain bills for labor and materials will be paid.
Maintenance bond Contractor Guarantees the work will be free from defects in materials and workmanship for a specified period of time.

In general, commercial bonds ensure that businesses and professionals adhere to all codes and regulations, perform work as required by statute or contract, and faithfully fulfill their responsibilities. 

Common commercial bonds include:

Type of bond Principal Guarantee
License and permit Business licensed by state, county, and city government Guarantees compliance with state, city, county, government laws, and regulations.
Public Official Candidate or elected public official to public office, school district, water irrigation, power districts; Notary Publics Guarantees elected official or candidate will faithfully perform duties as prescribed by the law.
Notary public Notary Publics Guarantees notary public will faithfully perform duties as prescribed by law
Fiduciary (administrator, executor, conservator, curator, or guardian) Attorneys specializing in Fiduciary bonds Guarantees faithful performance so the interest of those concerned will be safeguarded.
Judicial (court) Attorneys, financial institutions, collection agencies Guarantees the principal in the lawsuit will pay any damages, court costs, and attorney fees arising from court action.
Miscellaneous Banks, corporations, savings and loans, travel agencies, colleges Guarantees performance of contracts and agreements with private and government agencies.

Our commercial surety team also has expertise with non-construction contract and supply bonds, along with fidelity.  While fidelity bonds are a form of surety, the protection they provide acts more similarly to traditional insurance coverages, and guards against employee dishonesty. 

Common fidelity bonds include:

Type of bond Principal Guarantee
Business services Business Guarantees insured against fraudulent or dishonest acts committed by an employee against the insured’s customer while on the customer’s premises.
ERISA (Employee Retirement Income Security Act) Business Guarantees insured against employee dishonesty which has been committed by employee who handles an insured’s employee benefit plan.
Crime (such as employee dishonesty, forgery, computer fraud, or counterfeit) Business Guarantees insured against dishonest or fraudulent acts by an employee or others
Contract Surety

A contract surety bond guarantees to the owner of a construction project that the contractor will perform the work specified by the contract. Contractors are required to post surety bonds for all federal or state projects, and for most local public projects.

Common contract bonds include:

Type of bond Principal Guarantee
Bid bond Bidder Guarantees the bidder will provide a performance bond if their bid is accepted.
Performance bond Contractor Guarantees the contract will be performed according to the plans and specifications.
Payment bond Contractor Guarantees certain bills for labor and materials will be paid.
Maintenance bond Contractor Guarantees the work will be free from defects in materials and workmanship for a specified period of time.
Commercial Surety

In general, commercial bonds ensure that businesses and professionals adhere to all codes and regulations, perform work as required by statute or contract, and faithfully fulfill their responsibilities. 

Common commercial bonds include:

Type of bond Principal Guarantee
License and permit Business licensed by state, county, and city government Guarantees compliance with state, city, county, government laws, and regulations.
Public Official Candidate or elected public official to public office, school district, water irrigation, power districts; Notary Publics Guarantees elected official or candidate will faithfully perform duties as prescribed by the law.
Notary public Notary Publics Guarantees notary public will faithfully perform duties as prescribed by law
Fiduciary (administrator, executor, conservator, curator, or guardian) Attorneys specializing in Fiduciary bonds Guarantees faithful performance so the interest of those concerned will be safeguarded.
Judicial (court) Attorneys, financial institutions, collection agencies Guarantees the principal in the lawsuit will pay any damages, court costs, and attorney fees arising from court action.
Miscellaneous Banks, corporations, savings and loans, travel agencies, colleges Guarantees performance of contracts and agreements with private and government agencies.
Fidelity

Our commercial surety team also has expertise with non-construction contract and supply bonds, along with fidelity.  While fidelity bonds are a form of surety, the protection they provide acts more similarly to traditional insurance coverages, and guards against employee dishonesty. 

Common fidelity bonds include:

Type of bond Principal Guarantee
Business services Business Guarantees insured against fraudulent or dishonest acts committed by an employee against the insured’s customer while on the customer’s premises.
ERISA (Employee Retirement Income Security Act) Business Guarantees insured against employee dishonesty which has been committed by employee who handles an insured’s employee benefit plan.
Crime (such as employee dishonesty, forgery, computer fraud, or counterfeit) Business Guarantees insured against dishonest or fraudulent acts by an employee or others