What is a Miscellaneous Surety Bond?

Like the name implies, miscellaneous bonds are bonds that do not fit into any of the defined categories of surety or fidelity bonds, resulting in a “miscellaneous” category of bonds that contain no particularly distinct characteristics.

Miscellaneous surety bonds must be issued by insurance carriers admitted in the state where the bond is required. The insurance carrier issuing any surety bond, such as a miscellaneous bond, will also be referred to as the “surety company” or the “bond company”. Miscellaneous bonds refer to the business purchasing the bond as the Principal, the surety bond company as the Obligor and the government agency or private company requiring the bond as the Obligee.

Why is a Miscellaneous bond required?

Miscellaneous bonds protect the Obligee by transferring to a surety bond company the liability that the Principal will not comply with the terms outlined in the bond form. The surety company provides the Obligee a guarantee (the surety bond) for financial damages resulting from the Principal failing to comply with the terms up to a limit specified in the bond (“penal sum” or “bond amount”). Ultimately, business owners are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond.

How much does a miscellaneous bond cost?

Miscellaneous bonds typically cost between 1.5% and 10% of the bond amount.

Example: $10,000 Miscellaneous Bond Cost

Credit Score Premium Rate Bond Cost
800 or above 1.5% $150
680-799 2.0% $200
650-679 2.5% $250
625-649 4.0% $400
600-624 5.0% $500
550-599 7.5% $750
549 or below 10.0% $1,000
 

The actual cost of a specific miscellaneous bond can vary widely depending on the risk associated with the obligee, the type and size of financial obligations required, and the business owner’s license history, experience and creditworthiness. Surety bonds required by a local government (city or county) tend to have the lowest cost, while private, state or federal requirements have potentially higher costs and/or more strict underwriting requirements.

Is a Credit Check Required for Miscellaneous Bonds?

Depending on the relative risk of the bond and the underwriting practices of the surety, the bond company may require a personal credit check of the owner of the business applying for a miscellaneous bond to determine the premium rate and eligibility for the applicant. Most miscellaneous bonds will require a credit check. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.

How does the wording in the bond form impact the cost of a miscellaneous bond?

The bond form is a tri-party agreement which defines the rights and obligations of the entity requiring the bond (obligee), surety company (obligor) and business (principal). While many bond forms use similar language, each bond form can be customized by the obligee requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will  ultimately be passed on to the principal via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a miscellaneous bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.

Aggregate Limits
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 miscellaneous bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.

Cancellation Provisions
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the business and obligee requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the principal failing to pay premiums due, claim payouts, or material changes in the business owner’s credit score. Miscellaneous bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.

Forfeiture Clause
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Miscellaneous bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.  

Types of Miscellaneous Bonds

Suretypedia groups Miscellaneous Bonds into 14 unique categories, primarily by industry and sub-industry. Below is a link to more information on each bond category: