Opportunities for insurance agents in surety bonds
Judiciary and fiduciary court bonds can yield a steady revenue pipeline for agents willing to build expertise.
Surety bonds are a necessity because courts don’t want to hold cash, cashier’s checks or letters of credit, preferring a bond from a surety carrier in nearly every case. Attorneys and their clients need all types of court and defendant and plaintiff bonds, including appeal, injunction, custodial or guardianship, and probate bonds. All common court bonds are intended to financially protect the various parties involved in legal proceedings.
Interestingly, court bonds might just be recession-proof, as business disputes and estate settlements seem to carry on no matter the state of the economy. While court matters can be a business pipeline for local attorneys experienced in the needs of courts, a law firm may prefer to look to a capable bond producer for help in securing the right bond.
Local independent agents can provide that help. But they must be willing to spend time learning the bond market and understanding the various bonds used by state, county and local jurisdictions. They also must be willing to build relationships with local law firms to serve their surety bond needs.
Typically, it takes a couple of years to get an inexperienced agent up to speed with the expertise necessary to readily navigate the bond market, then submit to the best surety market and underwriter to get appropriate bonds written in a timely manner for local law firms.
But the effort can yield a steady pipeline of revenue for the independent agent.
What purposes do the two broad categories — judicial and fiduciary — of court bonds serve?
Judicial bonds
Required in civil court proceedings where a litigant seeks a special right or remedy in advance of a final court decision, these bonds are written for plaintiffs as well as defendants in lawsuits or other court actions. The bond guarantees that if the opposing party incurs damages as a result of the action being granted and the court determines it was unjustified, the other party will be made whole.
Most defendants’ bonds will cost more because their hazard is greater than for a plaintiff’s bond.
Appeal bonds are issued for defendants in a civil case who have lost a court decision but want to appeal. Since the defendant already lost once, issuing an appeal bond is a higher risk to the surety.
A plaintiff or defendant granted an injunction by a court needs an injunction bond — and the plaintiff or defendant pays for the bond. For example, a company asserting a former salesperson is violating a non-compete agreement can request a court injunction to stop the individual. In such a case, the judge sets that an injunction bond amount be posted by a surety to protect the other party.
Fiduciary bonds
Required by law and ordered by the court, fiduciary bonds fulfill the responsibility of the court to oversee the assets of those who are unable to manage or protect their assets themselves. These include a deceased individual, an incompetent individual, or a minor child. It delegates the responsibility to an individual, attorney, bank, or even a trust company.
Commonly written by sureties, a fiduciary bond protects the court along with the principal of an estate and the fiduciary. The bond is a financial guarantee for the faithful performance of the fiduciary’s duties.
Estates in probate require a court to establish the validity of a will. They’re common. When a court appoints a fiduciary to manage that estate, it requires the fiduciary to purchase a probate bond. Probate bonds typically are administrator or executor (used for cases that concern the deceased’s estate) and guardian or conservator bonds (for those deemed not competent to handle their own affairs).
The court holds the bond after the surety posts it and does so until the estate is settled or closed and the court releases it. All court bonds are non-cancellable obligations for the surety. The surety is obligated to keep the bond until released by the court.
As an example of when guardian or conservator bonds are used: The family of a man severely injured while leaving a large amusement park won a $40 million court award. The amount of the settlement meant that the court required a bond to protect the man, with significant disabilities, from a guardian’s misusing the funds in the estate.
In underwriting, a surety professional will look at factors such as the amount and principal on the bond, the fiduciary’s personal or business credit; debt; any family, friend or neighbor relationship with the individual; what type of assets are involved (cash, stocks and bonds, real estate, etc.); and others. In situations such as these, underwriters justifiably tend to ask more questions.
One risk is that a fiduciary’s debt could entice them if they have access to another person’s funds. In these situations, a surety underwriter likely will prefer doing business with attorneys, who have licenses, are at professional risk for any missteps, and must abide by ethical codes.
One bond is exclusive to federal courts: the U.S. bankruptcy trustee bond. The Department of Justice appoints a trustee, as the principal on the bond, to act in a fiduciary capacity as a bankruptcy trustee. The bond guarantees that the trustee will faithfully perform its assigned duties in managing bankruptcy cases.
One more type of court bond worth mentioning is a Replevin bond, used for when a person or firm defaults on its financing of vehicles or equipment through a bank or credit union. The Replevin bond protects the party that goes to repossess the equipment. These bonds are not limited to passenger cars but also are used for aircraft and industrial or construction equipment.
The independent insurance agent should have the ability to file any type of bond at the courts in their area. The surety company provides the agent with the powers of attorney and seals to file those bonds with the court.
Susan Jordan is regional surety leader in Charlotte, N.C., for Westfield, which writes contract and commercial bonds through agents and brokers. She can be reached at (704) 619-8158 or susanjordan@westfieldgrp.com.
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