Surety Basics

Surety always involves three parties:

  1. Obligee: the party to whom the bond is payable in the event of a default;
  2. Principal: the party on whose obligation is guaranteed; and 
  3. Surety: the party that assumes the obligation if the principal cannot.

A surety bond protects the obligee against losses, up to the limit of the bond, that result from the principal's failure to perform its obligation or undertaking.  Unlike insurance, a loss paid under a surety bond is fully recoverable from the principal.

The two most common forms of surety are contract surety and commercial surety.

Contract Surety Commercial Surety

Contract surety bonds are used primarily in the construction industry. These bonds protect the owner (obligee) from financial loss in the event that the contractor (principal) fails to fulfil the terms and conditions of their contract.  The obligee is protected against a contractor's inability to complete a job.

Commercial surety bonds satisfy the security requirements of public, legal and government entities and protect against financial risk. These bonds guarantee that the business or individual will comply with all required legal obligations.

Find out more about contract surety. Find out more about commercial surety.