Which Type Of Indemnity Agreement Is Right For You?
Which Type of Indemnity Agreement Is Right for You?
What is Indemnity?
Indemnity is a commitment from one party to compensate another for any losses incurred. In the context of surety bonds, indemnity specifically refers to the obligation of the bondholder to reimburse the surety for any valid claims made against the bond.
What Does An Indemnity Agreement Guarantee?
Indemnity agreements vary in structure but share fundamental guarantees that protect the surety:
- Protection for the Surety: In the event of a claim, the surety will be held harmless. If the claims process is prolonged, the principal may be required to provide collateral until the matter is resolved.
- Security Agreement & Lien: The surety can place a security agreement and lien on the principal’s property. If repayment is not made, the surety can file a lien, although this is typically a last resort.
- Indemnity Throughout the Bond Lifecycle: Indemnity applies to any changes during the bond’s lifespan and remains effective even if bond amounts fluctuate, ensuring no additional signatures are needed for changes.
What is a General Indemnity Agreement (GIA)?
The General Indemnity Agreement (GIA) is often used for contract bonds and can also apply to specific commercial bonds. This comprehensive agreement covers an entity's overall bonding needs rather than just a single bond request.
Reasons to Request a GIA
- Convenience: A GIA simplifies the process when multiple bond requests exist for the same entity, eliminating the need for multiple applications.
- Complex Corporate Structure: A GIA clarifies indemnity arrangements in businesses with complex structures.
What is a Standard Commercial Bond Application Indemnity Agreement?
The Standard Commercial Bond Application is commonly used for commercial bonds. It requires a signature from the principal or bondholder and may need additional signatures based on specific indemnity requirements. Depending on the business type, indemnity may be signed personally or on behalf of the business.
What is a Single Sign Application?
In certain scenarios, Merchants may offer a Single Sign Application for commercial bonds. This option requires only one indemnity signature from the principal, covering business, marital, and personal guarantees without needing a witness signature. It’s ideal when all parties understand the business arrangements clearly.
How is an Indemnity Agreement Signed?
At Merchants Bonding Company, indemnity signatures are necessary for commercial bond amounts exceeding $75,000. For amounts below this threshold, common law indemnity is implied. Most agreements are signed electronically using platforms like DocuSign, although some states still require notarized signatures. Consult your underwriter for specific requirements.
Indemnity Requirements by Business Structure
- Sole Proprietor: Both business and personal indemnity are needed. The owner signs on behalf of the business and individually, with the spouse signing if required.
- Partnership: One partner signs for the business while both partners provide personal indemnity.
- Corporation/LLC: An officer must sign on behalf of the corporation, along with personal indemnity from stockholders and their spouses.
Spousal Indemnity
Spousal indemnity protects the surety if a married business owner tries to transfer assets to avoid payment to the surety.
Corporate Resolutions
A corporate resolution may be necessary to verify that the signing individual has the authority to bind the corporation.
Finding the Right Indemnity Agreement
Choosing the right indemnity agreement—whether a GIA or a standard commercial bond application—depends on your specific needs. Merchants’ underwriters are available to help you determine the best option for your situation.
How do I get a Surety Bond?
Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.
What is a Surety Bond?
A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.
All information provided is subject to change.