What are the reasons a surety bond business can cancel my coverage?
The answer to this question is crucial if you’re like many contractors. Receiving payment for your services is critical to your business’s success. You’re out of business if your surety bond firm cancels your coverage. So, why would a surety bond business refuse to renew your policy?
A surety provider might cancel your coverage for a variety of reasons. Any of the following might be a reason for your company’s existence:
- An employee’s deception, theft, or embezzlement. In this situation, you’ll need to submit a claim with the surety who issued the bond.
- When submitting your application on the Department of Industrial Relations (DIR) website, you provided incorrect information. You may have to wait 30 days for coverage to be resumed if you fill out the improper application owing to erroneous information supplied in a letter from a DIR-retained consultant. In general, if there is incorrect information on an application, it is termed a “no show.” A no-show means that you were not insured when you were meant to be. This may be pricey, and it can rapidly become a thorny situation.
- Fraud is committed by someone who is not an employee, such as a customer. With the convenience of electronic transfers, this is becoming increasingly widespread. Who is covered for this sort of risk if you aren’t?
- Your business has gone out of business or filed for bankruptcy.
- Your relationship with the surety who provided your bond has been poor. Be warned that if you fail to pay your DIR contract under Industrial Code 8302, your surety may abandon you without warning in order to protect its own responsibilities. It’ll happen rapidly, so be prepared.
Is it possible for me to obtain a return if the surety bond business cancels my coverage?
No, before you may be covered with the same surety business again, you must get new coverage within 30 days after your surety discontinues your coverage.
Do I need more than one bond if I have multiple jobs?
Assume you have three tasks coming up, the first two of which will be with ABC Contractor. If that’s the case, you’ll need to make two bonds. The first is for ABC Corp., and it includes both contracts at $500,000. The DIR-retained consultant then issues a second bond in the amount of $100,000 for ABC Corp.’s work on Industrial Code 8302; this is necessary because it has its own contract with DIR.
You can ask the surety who issued your first bond to issue another bond for your remaining two tasks with XYZ Corporation and 123 Corporation once your first bond is completed. Unless all three contracts equal $500,000 or more and are all from the same contracting body, each contract is considered its own risk (ABC Corp).
Is there anything else about my link that I should be aware of?
While a bond will protect you in the event of a customer’s non-payment under an Industrial Code 8302 contract, it will not cover normal company bad debts. When a corporation owes you money or property for services done or supplied but is unable to pay, you have a bad debt.
It applies even if you are owed money after the task has been finished due to damage, miscalculation, or late modification order. Contractor’s Bond #1, held by a DIR-retained consultant, covers bad debts.
Will my surety bond credit pull have an impact on my credit scores?
If your surety bond business cancels your bond, the credit bureaus will be notified. A credit dip can have an impact on your scores, so it’s a good idea to keep an eye on your credit following one. Also, if one of your jobs has gone to arbitration or is awaiting arbitration, DIR will not record the contractor’s bond as paid until the matter is concluded.
This may make it more difficult for some businesses to obtain bonding for new contracts, but it will not harm businesses that had already established credit with the same surety prior to applying for arbitration.
Before signing anything, the greatest thing you can do is ask questions. Inquire as to why, as well as when, coverage was canceled. If you’re questioned why you applied for DIR coverage, have an explanation ready.
“As a contractor DIR-retained consultant, I realize that a surety may dismiss a customer from their bond portfolio for a variety of reasons. Most importantly, knowing the rules that regulate surety bonding is critical to our ability to work with you successfully.”
What will I do if my surety bond coverage is canceled?
If your credit was pulled lately by the surety that dumped you, the bond will still cover you, but you may have to pay higher rates because of it. Before you may be insured with the same surety firm again, you must get new coverage within 30 days of the surety withdrawing your coverage.
If your credit ratings prevent you from getting bonding for new contracts, you’ll have to rebuild your credit with that surety before you can acquire bonding again.