Alabama Automobile Club Bond

What Is the Purpose of the Alabama Automobile Club Bond?

Automobile or motor clubs in Alabama that offer paid contractual services related to ownership, operation, use or maintenance of vehicles must obtain a $25,000 Automobile Club Bond. The Alabama Department of Insurance (ALDOI) requires the bond as part of the licensing requirements for motor clubs.

The surety bond is a guarantee from the surety company to make payment to entities who suffer fiscal damages as a result of fraudulent actions, misrepresentations, or failure to uphold contractual obligations by the automobile club. 

Which Businesses Need the Alabama Automobile Club Bond?

Any motor club or association collecting dues or payments in exchange for services need to obtain licensing with the ALDOI and consequently, the $25,000 surety bond. This can be for services such as roadside assistance, deals for purchasing vehicles, etc. Basically any services that have a financial value that a member pays dues for. 

What Do Surety Underwriters Need to Know About the Automobile Club Bond?

Claims against the bond will arise from the automobile club not upholding their contractual obligations or frauding their members, thus causing financial injury. Most often a club of these types of policies, will address any claim in a reasonable manner or else their licensing will come under jeopardy. The surety company’s risk is heightened by a motor club being on the brink of financial ruin, thus not being able to address claims as they exit the business.

Surety companies will base the rate for this bond on the personal credit of the automobile club principal (owner). This should suffice as the credit outlook of the owner is an indicator of future issue handling claims. A surety company may want to review the contract offered to members, in case there are larger or unreasonable liabilities extended that may cause future complaints.

This motor club bond in Alabama is of low risk to the surety company. There are no red flags such as no aggregate limits or extended cancellation periods.

What Do Surety Claims Handlers Need to Know About the Automobile Club Bond in Alabama?

Surety companies will most likely be dealing directly with the Alabama Department of Insurance. The Alabama Code Title 27 Chapter 39 details the rules and regulations surrounding automobile clubs and associations. The ALDOI will perform an investigation following a member complaint.

Payouts can not exceed the bond limit even if multiple complainants exist over the lifetime of the bond. 

The surety handler should default to Alabama Administrative Code when referencing timelines to handle bond claim communications. Responses should be within 15 days of receiving notice of claim or other communications. Denial or acceptance of claim should be within 30 days of receiving the proof of loss.

Can an Automobile Club Avoid the Bond Requirement? 

Cash and other approved securities (such as a letter of credit) can be used in lieu of the surety bond. $25,000 would have to be deposited to the department of insurance if they allow it and would be held until licensing and most likely all liabilities extended to members has expired. Any letter of credit will be based on approval by a bank or lending institution and would come with fees attached.

How Much Does the Automobile Club Bond in Alabama Cost?

The $25,000 Automobile Club Bond cost ranges from $250 to $2,500 for a one-year term bond. Rates are typically based on the personal credit of the ownership.

How Is the Automobile Club Bond Filed to the ALDOI?

The principal (automobile club president/owner) must sign the bond form. The surety company attorney-in-fact must sign and seal the bond form. 

The original bond form must be submitted to the following address:

State of Alabama Department of Insurance

State of Alabama Department of Insurance
201 Monroe St.
Suite 502
Montgomery, AL 36104

Can the Automobile Club Bond Be Cancelled?

The bond can be cancelled per request by the surety company to the Alabama Department of Insurance. The bond has a 30-day grace period before the surety company’s liability is released by the ALDOI.

Are Automobile Club Bonds Renewable?

The bond must be active so long as the motor club is offering any service in exchange for membership payments. Surety companies will offer annual and, perhaps, multi-year terms which will expire. Surety companies will need to collect renewal premiums in order to extend bond coverage past the original or current term.