Claiming against a surety bond
A licensing bond is money a contractor puts up before a state will let them work. This is what it is, who pays out of it, and how a claim against one runs.
The short version
Three parties, and you are not one of them
The contractor buys the bond. A surety company issues it and stands behind it. The state requires it as a condition of the license, for the benefit of whoever the contractor works for.
So the bond exists for your benefit and is not held by you. The state demanded it for people in your position, and you are still not a party to it, which is why a payout is something claimed rather than something owed automatically.1
Four things it is not
Most of what people assume about a bond is wrong
Not insurance you own
The contractor buys it and the surety issues it. Nobody is obliged to tell you it exists, or to pay out of it because a job went wrong.
Not automatic
A bond pays when somebody makes a claim and the surety agrees to it. A failed job on its own moves no money.
Not unlimited
It is a fixed sum standing behind every claim against that contractor at once, not a sum per customer.
Not their liability insurance
Liability cover answers for accidents and damage. A licensing bond answers for the license conditions, which is a different promise about a different thing.
The sequence
How a claim generally runs
Establishing that a bond exists
The licensing record holds it: whether the license requires a bond, who wrote it, and the number. That record is public in the states that license the trade.
Notice to the surety, in writing
The surety company, not the contractor. A claim addressed to the contractor is correspondence with the contractor.
The surety asks the contractor for their account
This is standard practice and is not a sign a claim is failing. The surety is contractually entitled to the contractor's version before it pays anybody.
The surety investigates and decides
It is deciding whether the license conditions the bond stands behind were breached, which is a narrower question than whether the work was bad.
If it pays, it pursues the contractor
A surety that pays a claim recovers from the contractor afterwards. That is why a contractor who has ignored a customer for months will often answer a surety within days.
Why timing works differently here
A bond does not grow, and it does not wait
One bond stands behind every claim against that contractor. When a contractor is failing, the people claiming against it are drawing on the same fixed sum, and it is generally paid out as claims are resolved rather than shared proportionally between everybody who was owed something.
That is the whole difference between this route and the others. A court deadline is a date. A bond is a quantity, and the people ahead of you in the queue are the ones spending it.
What to have ready
What a surety generally asks for
- The signed contract, and every change order
- Proof of what was paid and when
- Dated evidence of what was done and what was not
- The full correspondence with the contractor
- The licensing record showing the bond and its number
Some states require a court judgment against the contractor before a bond will pay at all, which makes small claims and the bond one route in sequence rather than two alternatives.2 What your state requires, and what its small claims limit is, is on your state’s page.
Disclosures
- 1.Satisfy is not a law firm and does not provide legal advice. This page describes how a licensing bond and a claim against one generally work; whether a bond stands behind any particular license, and what it answers for, is set by that state’s licensing law and by the bond itself.
- 2.Bond amounts, the period in which a claim may be brought, and whether a court judgment is required first are all set by state law and by the terms of the individual bond. Nothing on this page states a figure or a deadline, because neither is the same in any two states.