Judicial court bonds are a subset of the broader court bond category that must be filed with the court responsible for settling civil court disputes between plaintiffs and defendants within the litigants’ jurisdiction. Judicial bonds, also referred to as “court bonds” or “civil court bonds”, are required by a civil court as a condition to allow a party to pursue legal remedies while preserving the rights of the other parties to the lawsuit. A plaintiff is defined as a person or entity who brings a case against another in a court of law. A defendant is a person or entity against whom a claim or charge is brought in a court of law. The most common types of judicial bonds are described below:
Judicial bonds must be issued by insurance carriers admitted in the state where the court requiring the bond resides. The insurance carrier issuing any surety bond, such as a judicial bond, will also be referred to as the “surety company” or the “bond company”.
Judicial bonds protect the court by transferring to a surety bond company the cost of ensuring the prevailing party to a lawsuit is compensated when the other party fails to deliver awarded property/damages. The surety company provides the court a guarantee (the surety bond) that the prevailing party will receive payment for financial damages due to a violation of rights pertaining to the court case up to a limit specified in the bond (“penal sum” or “bond amount”). Ultimately, plaintiffs and defendants are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond. Judicial bonds refer to the plaintiff or defendant as the Principal, the surety bond company as the Obligor and the court requiring the bond as the Obligee.
Judicial bond violations triggering a bond payout include a defendant failing to deliver attached property after being ruled against by the court or a property owner failing to make payment to a contractor on a valid mechanics lien.
Judicial bond rates vary from state to state, but typically cost 1% of the bond amount with a $500 minimum premium. Many bonds, including most defendant bonds, will require collateral for most applicants.
Credit checks are generally not required for judicial bonds. Judicial bonds are typically collateralized, meaning the bond principal will provide the surety company with security in the form of an irrevocable letter of credit, cashier’s check, wire transfer, or other liquid assets. 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 court (obligee), surety company (obligor) and plaintiff or defendant (principal). While many bond forms use similar language, each bond form can be customized by the court requiring the specific bond and may contain provisions that increase potential costs for the surety company, which will ultimately be passed on to the plaintiff or defendant via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a judicial 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 judicial 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. Judicial 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”).Cancellation provisions allow the surety company to cancel the bond for any reason, but most often due to the applicant failing to pay premiums due, claim payouts, or material changes in the applicant’s credit score. Judicial bonds are not cancellable and require a release from the requiring court in order for the surety company to be released from liability.
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”). Judicial bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.