Glossary of Terms



  • Alcohol Bond. A general term describing a bond given in compliance with either federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol. The bond frequently is referred to as a liquor bond, when the alcohol is intended for beverage purposes.
  • Appeal Bond. One filed in court by a defendant against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, with the hope of reversing the judgment.
  • Application. A questionnaire that provides required information concerning anyone who requests a bond written on his behalf. It describes the nature of the bond requested, includes the applicant’s promise to pay the bond premium, and also indemnifies the surety in the event of default.
  • Assets. The property of an estate, whether real or personal.
  • Attorney-In-Fact. One who holds a power of attorney by a surety company empowering the execution of a surety bond (see “Power of Attorney”).


  • Bid Bond. A guarantee that a contractor will enter into a contract if awarded to him and will furnish such contract bonds as are required by the terms of the contract.
  • Blanket Fidelity Bonds. These cover losses of money, merchandise or other property (real or personal) belonging to the employer or in which he has a pecuniary interest or which he may be holding in any capacity, when such loss is due to dishonesty of employees.
  • Bond. An instrument designed chiefly to guarantee the integrity and honesty of the principal, his ability, financial responsibility, and his compliance with the law or contract; a guarantee of performance. It is an agreement whereby one party (the surety) obligates itself to a second party, (the oblige) to answer for the default of a third party (the principal).


  • Collateral. Anything of value pledged with the surety it against loss through default of the principal who supplies the collateral.
  • Construction Contract Bond. One that guarantees the faithful performance of a contract bond. It is a three-party agreement among the contractor as principal, the owner as obligee and the surety.
  • Contract. An agreement between two or more parties to do or not to do a certain thing.
  • Contract Bond. One that guarantees the performance of a contract.
  • Contract Price. The entire sum of money that passes from owner to contractor when final settlement is made between the two under the contract entered into between them.
  • Contractor Defaults. Failures on the part of contractors resulting from one or more multiple causes which effect breach of the contract.
  • Corporate Surety. A surety which is a corporation, licensed under various insurance laws, and which under its charter has legal power to act as surety for others.


  • Defendants’ Bonds. Bonds given by defendants in litigation enabling them to retain or regain possession of property, pending the outcome of a suit, or to suspend the execution of a judgment, order or decree of a court while the defendant seeks reversal of an unfavorable judgment in a higher court.
  • Depository Liability. The liability of a public official, as an insurer of public funds, which is deposited in a bank and cannot be paid over because of failure or insolvency of the bank.
  • Dishonesty Bond. A generic term describing fidelity bond coverage guaranteeing against loss caused by dishonest officers or employees of a commercial firm or financial institution or by dishonest public officials or employees.


  • Earned Premium. The earned premium on a bond, which is payable in advance, is at any time the amount which would compensate the surety for the protection furnished for the expired portion of the term of the bond.
  • Executor. A fiduciary named in a will to manage or distribute the assets of an estate and pay all just claims and debts (see “Administrator”).


  • Fidelity Bond. A bond which will reimburse an employer for loss up to the amount or penalty of the bond, sustained by the employer named in the bond by reason of any dishonest act of an employee covered by the bond.
  • Fiduciary. A person who occupies a position of special trust and confidence, particularly one who handles the affairs or funds of another.
  • Fiduciary Bonds. Bonds issued for persons either named in a will or appointed by the court to manage the affairs of others, such as wards, incompetents, etc., or to distribute a decedent’s estate assets in accordance with the provision of a will or order of the court.


  • Indemnity. To compensate for actual loss sustained.
  • Indemnitor. In surety bonds, a person or company entering into a written agreement with a surety to hold that surety harmless from any loss or expense it may incur on a bond issued on behalf of another.
  • Insurance. A contractual relationship which exists when one party, for a consideration, agrees to reimburse another party for a loss caused by certain designated contingencies.
  • Insuring Agreements. The part of an insurance policy or bond which recites the agreement of the insurer to protect the insured against some form of loss or damage. This is the crux of the insurance contract.


  • Joint Control. An agreement by written agreement between a fiduciary and a surety, and acknowledged by the bank in which funds are deposited and securities lodged for safekeeping, whereby both parties jointly supervise both funds and securities, and their withdrawal, entailing signature and counter signature.
  • Judicial Bonds. A general term applied to all bonds filed in court – whether fiduciary or court bonds (see “Fiduciary Bond”).


  • Labor and Material Payment Bond. A bond given by a contractor guaranteeing payment for the labor and material used in prosecuting the work which the contractor is obligated to perform under the terms of the contract.
  • Labor Union Bonds. Bonds required under the U.S. Labor Management Reporting and Disclosure Act of 1959, which contains a provision requiring every officer, agent, shop steward or other labor organization representative to be bonded for the faithful discharge of duties, including the dishonesty hazard. Three separate labor organization bonds have been standardized by the Surety Association of America as a consequence of the passage if that act (see also item: “Welfare and Pension Plans”).
  • Liability. This is a broad term denoting any legal enforceable obligation.
  • License and Permit Bonds. These are bonds required by state law, municipal ordinance or local regulation as a condition precedent to the granting of a license to engage in a particular business or the granting of a permit to exercise a specific privilege. Certain serious obligations are entailed on those who seek such licenses or permits, and are thereupon bonded.
  • Limit of Liability. The maximum amount which an insurance or surety company agrees to pay in case of loss. Also, in corporate suretyship, termed the “bond penalty.”
  • Long-Term Bond. (Fiduciary) a bond required of a fiduciary whose duties are normally expected to extend over a considerable period of time (see also: “Short-Term Bond”).
  • Loss Ratio. The percentage which incurred losses bear to premiums.
  • Lost Securities Bonds. Those given by the owners of valuable instruments, such as stocks, bonds, promissory notes, certified checks, etc., which are alleged to have been lost or destroyed, in order to protect the insurers against loss which may result from the issuance of duplicates of the instruments or, in some instances, payment of cash value thereof.


  • Maintenance Bond. A guarantee against loss because of defective workmanship or materials used in the performance of the construction or supply contract.
  • Miller Act Bond. A performance and labor and material payment bond required by the Miller Act on Federal Work, as approved August 24, 1935 (for further reference: U.S. Code, Title 40, Section 270a).
  • Miscellaneous Contract Bonds. A number of contracts, other than construction contracts, require surety bonds, such as supply contract bonds, garbage and ash removal, for carrying United States mail, and for demolition and wrecking contracts. The bond manual lists a segment of such bonds.
  • Miscellaneous Indemnity Bonds. Bonds which do not fit any of the well-recognized divisions or subdivisions, and therefore are thus categorized. The bond manual will supply further data.


  • Obligee. The party in whose favor the bond runs, or one who is protected against loss by the bond.
  • Obligor. Commonly termed the principal, or one bound by an obligation. Strictly speaking, under a surety bond, both principal and surety are obligors, since the surety must answer if the principal defaults.
  • Open Penalty Bond. A surety bond without maximum limit on the liability of the principal or the surety.


  • Payment Bond. (See “Labor and Material Payment Bond” and also “Miller Act Bond” in foregoing.)
  • Penalty of the Bond. In a surety bond, the amount guaranteed or the limit of the company’s liability.
  • Performance Bond. One which guarantees faithful performance of the terms of a contract for construction or for furnishing of supplies.
  • Personal Surety. An individual who acts as surety for another, who may or may not exact a price for services and usually is not regulated by any governmental agency, as is the corporate surety.
  • Plaintiffs’ Bonds. Bonds given by plaintiffs in litigation, enabling them to exercise certain privileges with permission of the court, such as attachment, injunction or replevin.
  • Policy. A written contract of insurance, and sometimes of suretyship.
  • Power of Attorney. Authority given one person or corporation to act for and obligate another to the extent laid down in the instrument creating the power. In corporate suretyship, an instrument under seal which appoints an attorney in fact to act on behalf of a surety company in signing bonds.
  • Principal. The suretyship, the party whose actions, honesty or responsibility is to be guaranteed. The principal in a fidelity bond, for example, is the bonded employee.
  • Probate Bond. One that guarantees an honest accounting and faithful performance of duties by administrators, executors, trustees, guardian, and other fiduciaries. So-called because such bonds are usually filed in a probate court.
  • Public Official Bonds. These are afforded in four categories: Individual, Named Schedule, Position Schedule and Public Employees’ Blanket Bond and Public School System Employees’ Blanket Bond.


  • Reinsurance. The practice by which insurance companies protect themselves against excessive loss, usually accomplished by reinsuring with other companies that portion of the assumed liability which exceeds their net line.
  • Riders. Another name for clauses or endorsements; more specifically, the printed forms of special provisions not contained in the bond or policy contract. In bonding, such clauses are called riders instead of endorsements.
  • Risk. Any chance of loss. Also the insured or the property to which the bond or insurance policy relates.


  • Short-Term Bonds. Those covering fiduciaries whose duties are to collect the assets if the descendent, pay the debts and distribute the remainder according to law. The terms of these fiduciaries are usually brief (see “Long-Term Bond”).
  • Statutory Bond. A term generally used to describe a bond given in compliance with a statue. Such a bond must carry whatever liability the statue imposes on the principal and the surety.
  • Subcontract Bond. One furnished by a subcontractor, and required by general contractors, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay bills for labor and material incurred in the prosecution of the subcontracted work.
  • Subdivision Bond. One guaranteeing that a developer of a subdivision will, within a specified period, construct improvements on the property, such as streets, sidewalks, curbs, gutters, sewers, etc.
  • Subrogation. The legal process by which an insurance company seeks recovery of the amount paid to the policyholder or, in suretyship, to the oblige, from the third party who may have caused the loss.
  • Supply Bond. One that guarantees faithful performance of a contract for furnishing supplies or materials, etc.
  • Surety. A person or corporation collaterally bound for payment of money or the performance of an act or duty by another.
  • Suretyship. The function of being a surety. Stated in its simplest terms, suretyship embraces all forms of obligation to pay the debt or answer for the default of another.


  • Term. A period of time for which a bond or policy is issued.


  • Underwriter. An individual or employee of an insurance company who has the responsibility of accepting risks and determining the amounts of the risks.


  • Welfare and Pension Plans. The Welfare and Pension Plans Disclosure Act, effective since September 16, 1962, calls for individual, schedule or blanket bonds written by corporate surety companies which are acceptable sureties on federal bonds. In the main, these bonding requirements are similar to those established under the Labor-Management Act 1959 (see item: “Labor Union Bonds”). The Welfare and Pension Plans Disclosure Act requires disclosure and reporting of financial and other information concerning the operation of employee benefit plans subject to the act. Bonding is required to protect benefit funds against loss by acts of fraud or dishonesty. The Employee Retirement Income Security Act (ERISA) of 1974 requires that fiduciaries of private employee benefit plans be bonded.