No Indemnity Agreement Doesn’t Mean No Liability

No Indemnity Agreement Doesn’t Mean No Liability

Recently, there’s been a trend where surety companies are no longer requiring an indemnity agreement.  These agreements spell out the obligations of both your surety company and whomever signs it.  In its simplest form, it governs the relationship between you, your company, and the surety company.  You can learn more about indemnity agreements here but let’s discuss some common misconceptions below.

My agent said I have no liability because I don’t have a signed indemnity agreement

Nothing can be further from the truth.  If your agent tells you this, he or she has no business providing surety bonds in the first place.  The indemnity agreement provides a very one-sided way of dealing with relationship between the surety company and the bond principal.  The agreement typically benefits the surety company since they’re the one providing you with surety credit.  It can be similar to a loan agreement and outlines the rights of each party.  For example: If a bond claim occurs, the agreement spells out the surety’s available options and, in most cases, your rights as well.  These rights aren’t clearly defined when an agreement doesn’t exist.  However, a surety company can and most definitely will exhaust every legal avenue to be reimbursed when a claim occurs.

How can I benefit by not having a signed indemnity agreement?

It depends.  Each surety company’s indemnity agreement is different.  While all serve mainly the same purpose, they’re different as to form.  Some agreements ask the principal to waive certain rights such as homestead.  Other agreements don’t specifically state these waivers but imply them.  However, you can benefit from not having an agreement because your rights, along with the surety’s rights, aren’t defined.  This leaves any legal action by you or your surety subject to each state’s statutes and law.  You may find that a specific state is more friendly to corporations and creditors while another is more friendly to you as the bond principal.  Regardless, you’re exchanging predetermined rights and legal remedies for a decision ultimately made by the court system.  Again, you may find that not having a signed agreement can benefit you as it can limit the surety company’s right to demand collateral, funds-in-place, and other terms.

Final thoughts about not having an indemnity agreement

No indemnity agreement doesn’t mean no liability for you or your company.  I cannot stress this enough because many insurance agents are simply giving bad information at best while others are intentionally being dishonest.  Regardless, if you’re concerned about your liability, please talk to an attorney about your likelihood of success of not being held liable for your actions.