Nixon & Lindstrom Insurance

LICENSE AND PERMIT BONDING

OVERVIEW
WHEN LICENSE & PERMIT BONDS ARE NEEDED
WHAT A LICENSE & PERMIT BOND COVERS
TYPES OF LICENSE & PERMIT BONDS

OVERVIEW

WHY A LICENSE AND PERMIT BOND IS NEEDED AND THE PARTIES INVOLVED?
WHY A PERSON OR FIRM WANTS TO DO A CERTAIN JOB OR ENTER BUSINESS AND	PARTIES PRINCIPAL
WE GUARANTEE THAT THE PRINCIPAL WILL	SURETY
CONFORM TO THE REGULATIONS PLACED	OBLIGATION
THE GOVERNMENTAL UNIT GRANTING THE LICENSE OR PERMIT AND WHO REQUIRE THE BOND TO PROTECT THEMSELVES	OBLIGEE
SOMETIMES ADDITIONAL 3RD PARTIES (THE PUBLIC) CAN ALSO COLLECT UNDER A BOND, JUST AS CAN THE OBLIGEE

WHEN LICENSE & PERMIT BONDS ARE NEEDED

In times past, governmental units, individual citizens or firms have thought themselves adversely affected in some manner, by a wide variety of trade people such as plumbers, electricians, sign hanger, movers, livestock and grain haulers, as well as other business persons.

Their activities and the resulting complaints to the various governing authorities caused some towns townships, counties, states and even the Federal Government to pass legislation requiring many kinds of individuals and firms to:

1) Get a license or permit before they could enter business, or perform some specific function or job.

2) In addition to the actual license or permit, they usually require one or both of the following:

A Surety bond directly protecting the governmental unit from their activities. Sometimes these bonds are also required to provide for suits from third parties too. (If so, they are very carefully underwritten.)
Certain legal liability policies to cover their responsibility both under common law and/or statutory law, for example. Automobile and/or Manufacturers and Contractors and Workers Compensation policies. Only rarely is the requirement of a bond waived upon receipt of Certificates of Insurance showing they have the proper insurance policies and coverages.

This explains why a License or Permit bond is required. In some cases the bond is limited to one specific job or function. Each additional job or function requires a separate and additional bond. Most often, however, the bond runs for the term of the license or permit that is issued --- usually one year.

WHAT A LICENSE & PERMIT BOND COVERS

This can only be determined with certainty by checking the law or ordinance that provides for the license or permit. It will always state who is to be protected and for what. However, once you obtain this information it will apply to all similar bonds for that particular governmental unit. Bond underwriters should be provided copies ( or a digest ) of such regulations.

TYPES OF LICENSE & PERMIT BONDS

These bonds will all fall into one of these categories:

1) A FINANCIAL GUARANTEE to a governmental unit that the taxes collected by the principal under his license or permit will all be turned over to the obligee. Examples are principals who deal in petroleum products, tobacco, liquor, wine, beer, amusements, and some common carriers. Obviously, they must not only be honest and trustworthy, but also financially solvent therefore a long form application that includes a financial statement is required.
A credit guarantee to protect third parties. For example, a governmental unit requires a license and license bond from a broker (the principal) of farm products. The bond protects the sellers, should the broker-principal fail to pay the producer-seller for the produce sold.

2) COMPLIANCE BONDS guaranteeing to a governmental unit that the principal will comply with the regulations placed on him by the granting of his license or permit to do a job or enter a business. Examples are plumbers, heating contractors, electricians, sidewalk or masonry contractors, sign hangers, etc. The law or ordinance covering their activities will often permit third parties (the public) to sue under these bonds and, if so, legal liability insurance must be in force. Thus a long form application showing his financial status is required for these too.