Car wash bonds are a subset of the broader financial guarantee bond category that must be filed with the government agency (city or state) responsible for regulating wage and benefit activity in the car wash owner’s jurisdiction.
Car wash bonds must be issued by insurance carriers admitted in the state where the government agency requiring the bond resides. The insurance carrier issuing any surety bond, such as a car wash bond, will also be referred to as the “surety company” or the “bond company”. Car wash bonds refer to the car wash employer as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Car wash employers are required to purchase financial guarantee bonds by state and local statutes to protect a government agency by transferring to a surety bond company the cost of ensuring the public is compensated for damages resulting from an employer breaking labor laws. The surety company provides the government a guarantee (the surety bond) that the government will receive payment for financial damages due to a violation of the statutes and regulations referenced in the bond form up to a limit specified in the bond (“penal sum” or “bond amount”). Ultimately, employers are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face license suspension or civil action.
Car wash bond violations triggering a bond payout may include an employer failing to provide appropriate wages and fringe benefits to their employees.
Car wash bonds generally cost between 2% and 7.5% of the bond amount.
|Credit Score||Premium Rate||Bond Cost|
|680 or above||2.0%||$200|
The actual cost of a specific car wash bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the car wash employer’s license history, experience and creditworthiness.
Credit checks are typically needed for car wash bonds. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and car wash (principal). While many bond forms use similar language, each bond form can be customized by the government agency requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the car wash via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a car wash bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.
Bond forms always specify the penal sum defined as the maximum amount of financial damages any single party can recover from the bond related to a single claim occurrence. Most bond forms also contain a clause which limits the amount of financial damages from all parties and all claims to a specific amount (“aggregate limit”), usually the same amount as the penal sum. For example, a $15,000 car wash bond with an aggregate limit of $15,000 will pay out no more than $15,000, regardless of the number of damaged parties or claim occurrences. Car wash bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the car wash employer and government agency requiring the bond with the cancellation taking effect within a set period of time, usually 30 days (“Cancellation Period”). Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the employer failing to pay premiums due, claim payouts, or material changes in the employer’s credit score. Car wash bonds with no cancellation provision or cancellation periods greater than 30 days will be more expensive than a bond with similar coverage containing a standard cancellation provision.
Surety bond claims are paid by surety companies to damaged parties to reimburse that party for the financial loss incurred up to the bond penalty amount. Certain bonds contain a clause which requires the surety company to pay the full bond penalty to the damaged party, regardless of the actual damages incurred (“Forfeiture Clause”). Car wash bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.
To find information on specific car wash bonds, select the state and use our search function to find any requirement across the country.