What is a Public Official Bond?
Public official bonds are a subset of the broader surety bond category that must be filed with the government agency (city, county, or state) for which the public officialis appointed or electedas a condition prior to taking office for most public officials (ie judges, sheriffs, treasurers, constables, etc). Public officials with access to public money are most often required to post a bond.
Public official 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 public official bond, will also be referred to as the “surety company” or the “bond company”. Public official bonds refer to the appointed individual as the Principal, the surety bond company as the Obligor and the government agency as the Obligee.
Why is a Public Official Bond required?
Public officials are required to purchase 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 official breaking local or state statutes and regulations surrounding the duties of each office. The surety company provides the government a guarantee (the surety bond) that the government agencywill receive payment for financial damages due to a violation of the statutes and regulations pertaining to the official’s appointment 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, public officials are responsible for their actions and required by law to reimburse the surety company for any payments made under the bond or face revocation of their office.
Public official bond violations triggering a bond payout may include an official failing to collect taxes, fees, or other public funds, negligently inflicting personal injuries, or misappropriating public funds.
How much does a Public Official Bond cost?
Public official bonds generally cost .5% of the bond limit with a minimum premium of $100.00
Example: $10,000 Public Official Bond Cost
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Is a Credit Check Required for Public Official Bonds?
Credit checks are not required for most public official bonds with bond amounts up to $50,000; however, the surety insurance company ultimately determines how it will underwrite and price a surety bond.
How does the wording in the bond form impact the cost of a Public Official Bond?
The bond form is a tri-party agreement which defines the rights and obligations of the government agency (obligee), surety company (obligor) and public official (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 official via higher bond premiums, stricter underwriting or collateral. The primary text to consider in a public official 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 public official 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. Public official 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 public official 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 official failing to pay premiums due, claim payouts, or material changes in the official’s credit score. Public official 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”). Public official bonds with forfeiture clauses will be more expensive than a bond with similar coverage that does not contain the clause.