Glossary of Terms Bid Bond A bid bond is given by a bidder for a construction contract to guarantee that the bidder, if awarded the contract within the time stipulated, will enter into the contract and furnish any performance and payment bonds that may be required Bond A written agreement whereby one party, called the Surety, obligates itself to a second party, called the Obligee, to answer for the default of a third party called the Principal Cancellation Clause A clause in a bond which terminates the surety's future liability Collateral Anything of value pledged within the surety to protect the surety against loss by reason of default by the Principal. Contract Price The whole sum of money which passes from the owner to the contractor when a final settlement Corporate Surety A corporation licensed under various insurance laws , which under its charter has legal power to act as surety for others Court Bonds A general term embracing all bonds and undertakings required of participants in a lawsuit permitting them to pursue certain remedies in court. Facultative Reinsurance Reinsurance of a single risk. Indemnify An agreement whereby the Principal and/or others agree to make a reimbursement to the surety for any loss the surety may incur under the bond Indemnitor One who enters into an agreement with a surety company to hold harmless from any loss or expense it may sustain or incur on a bond issued on behalf of the indemnitor or another. Indemnity Bond A bond which promises to reimburse an Obligee for loss incurred when a Principal fails to perform its contract or (in some cases) fails to pay for material, services or labor used in prosecution of the contract. Joint Control A written agreement between a person or company and the surety, acknowledged by the bank in which funds are deposited so that the funds are controlled by both parties. Joint Venture A joining of the financial resources and skills of two or more contractors to undertake contracts of construction to large or difficult for their individual and separate abilities. Labor and Material Bond A bond given by a contractor to guarantee payment to certain laborers and suppliers for the labor and material used in the work performed under the contract. License Bond Used interchangeably with the term "permit bond" to describe bonds required by state law, municipal ordinance or regulation, to be filed prior to granting of a license to engage in a particular business or a permit to exercise a particular privilege. Loss Ratio The percentage of losses to premiums Lost Instrument Bond A bond given by the owner of a valuable security (stock, bond, certified check, etc) which is alleged to have been destroyed or lost. Miscellaneous Bond Bonds which do not fit into any other well recognized divisions or categories of surety bonds. Obligee The party to whom the bond is given. The party protected by the bond against loss. An obligee may be a person, firm corporation government or a government agency. Payment Bond See Labor and Material bond. Performance Bond A bond which guarantees performance of the terms of a written contract, Performance Bonds frequently, but not always, incorporate payment bond and maintenance bond liability. Permit Bond See License Bond Principal The one who is primarily bound on a bond furnished by a surety comapny. For example in a contract bond, the Principal is the contractor; in a License bond the Principal is the one to whom the bond is issued. Reinsurance An agreement whereby the original insurer arranges to pass on all or part of the risk to another insurer known as the reinsurer, in consideration of the premium paid to the reinsurer. The original insurer may be referred to as the primary insurer, the reinsured, or the ceding company. The amount of liability retained by the original insurer is commonly called the retention of net line Salvage That which is recovered from the Principal or an indemnitor to offset in whole or in part the loss and expense incurred by a surety in satisfying obligations it has sustained under a bond Subcontract Bond A bond required by a General Contractor of a Subcontractor, guaranteeing that the subcontractor will fully perform the subcontract in accordance with the terms and will pay for certain labor and material incurred in the prosecution of the subcontracted work. Subdivision Bond A bond guaranteeing to construct or finance improvements such as streets, sidewalks, curbs, gutters, sewers and drainage Supply Bond A bond which guarantees performance of a contract to furnish supplies or materials. In the event of default by the supplier, the surety must indemnify the purchaser or the supplies against the loss occasioned thereby Surety Bond A written agreement providing for monetary compensation to be paid by the Surety should there be a failure by the person bonded to perform specified acts within a stated period. Underwriter An officer or employee of a surety company who has the responsibility for reviewing applications for bonds and accepting or rejecting the applications.