Taxicab Bond

What is a Taxicab Bond?

Taxicab bonds are a subset of the broader license bond category that must be filed with the government agency (city, county, or state) responsible for regulating for-hire transportation in the taxi driver’s jurisdiction as a condition of licensure for most taxicab companies. New York City and the District of Columbia, along with a handful of other cities, require taxicab companies to obtain a bond.

Taxi 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 taxicab bond, will also be referred to as the “surety company” or the “bond company”. Taxicab bonds refer to the license holder as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.

Why is a Taxi Cab Bond Required?

Taxicab companies, digital dispatch services, and taxicab agents are required to purchase license 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 a company breaking taxicab license law. The surety company provides the government a guarantee (the surety bond) that the customers of a licensed taxicab company will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the license up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company also directly receives claims from the public and determines the validity of claims. Ultimately, taxicab companies are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.

Taxicab bond violations triggering a bond payout may include a taxicab company misrepresenting fares or failing to pay taxes or surcharges to the government.

How much does a Taxi Cab Bond Cost?

Taxicab license bonds generally cost between 1.5% and 10% of the bond limit.

Example: $10,000 Taxi Cab Bond Cost

Credit Score Premium Rate Bond Cost
680 or above 1.5% $150
650-679 3.0% $300
600-649 4.0% $400
550-559 5.0% $500
525-549 7.5% $750
500-524 8.0% $800
499 or below 10.0% $1,000

The actual cost of a specific taxicab license bond can vary widely depending on the risk associated with legal precedent in the jurisdiction, the language in the bond form and the taxicab driver’s license history, experience and creditworthiness.

Is a Credit Check Required for Taxi Cab Bonds?

Credit checks are required for most taxicab license bonds required by state agencies. Ultimately, the surety insurance company determines how it will underwrite and price a surety bond.

How Does the Wording in the bond Form Impact the Cost of a Taxi Cab Bond?

The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and taxicab driver (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 taxicab driver via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a taxicab license bond surrounds (1) aggregate limits, (2) cancellation provisions and (3) forfeiture clauses.

Aggregate Limits
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 $50,000 taxicab bond with an aggregate limit of $50,000 will pay out no more than $50,000, regardless of the number of damaged parties or claim occurrences. Taxicab bonds without an aggregate limit will be more expensive than a bond with similar coverage containing an aggregate limit.

Cancellation Provisions
Most bonds contain a provision allowing for the surety company to cancel the bond (“Cancellation Provision”) by providing a notice to the taxicab company 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 taxicab company failing to pay premiums due, claim payouts, or material changes in the taxicab license holder’s credit score. Taxicab 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.

Forfeiture Clause
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”). Taxicab bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.

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