What is a Fireworks Permit Bond?
Firework permit bonds are a subset of the broader permit bond category that must be filed with the government agency (city, county, or state) responsible for regulating fireworks and public safety activity in the permit holder’s jurisdiction as a condition to perform a public display of fireworks. Most firework permits are issued by cities or counties, while the State of Delaware requires permits to be issued by the State Fire Marshall.
Firework permit 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 firework permit bond, will also be referred to as the “surety company” or the “bond company”. Firework display permit bonds refer to the permit holder as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Why is a Fireworks Permit Bond required?
Individuals needing to pull permits are required to purchase permit 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 permit holder breaking rules and regulations associated with the permit. The surety company provides the government a guarantee (the surety bond) that the agency or the public will receive payment for financial damages due to a violation of the statutes and regulations pertaining to the fireworks permit up to a limit specified in the bond (“penal sum” or “bond amount”). The bond company may also directly receives claims from the public and determines the validity of claims. Ultimately, the permit holders are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond.
Firework permit violations triggering a bond payout may include a firework permit holder using illegal explosives in their display, failing to comply with safety regulations or failure to pay necessary permit fees.
How much does a Fireworks Permit Bond cost?
Fireworks Permit license bonds generally cost between .5% and 1% of the bond amount with a minimum premium of $100.00.
Example: $10,000 Fireworks Permit Bond Cost
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Is a Credit Check Required for Fireworks Permit Bonds?
Credit checks are not required for Firework Permit bonds.
How does the wording in the bond form impact the cost of a Fireworks Permit Bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and contractor (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 firework permit holder via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a firework permit 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 firework permit 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. Firework permit 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 firework permit holder 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 permit holder failing to pay premiums due or claim payouts. Firework permit 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”). Firework permit bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.