Is It Possible to Cancel a Bond?

Canceled Blog PhotoWe all know bonds are not the same as insurance. While bonds are considered to be a type of specialty insurance, and the surety is usually an insurance company, bonds and insurance are two distinctly different products.

A bond is a contract between three parties: the obligee (the party who requires the bond, or the beneficiary); the principal (the party who must obtain the bond, such as a contractor); and the surety (who writes the bond).

Unlike an insurance policy, a bond cannot be cancelled by means of a lost policy receipt. Bonds are required by an obligee — which could be a court, state or municipality that is requiring the principal to carry a bond. Therefore, the surety has to follow the obligee’s requirement, which is usually spelled out on the bond form.

Cancellation provisions vary

Bond termination or cancellation provisions usually depend on the type of bond. In the case of a license, permit and miscellaneous bond, the cancellation provision will usually be listed in the last paragraph of the bond wording.

In the example of a termination clause below, cancellation requires 30 days’ written notice sent to the obligee by registered mail:

“The surety shall have the right to terminate its liability hereunder by serving written notice of its election so to do, by United States registered mail, upon the obligee, and thereupon the surety shall be discharged from any liability hereunder for any default of the principal, after the expiration of thirty (30) days from and after service of such notice.”

Cancellation procedures could also specify 60 or 90 days, or there could be direct mailing instructions for us to send the notice of cancellation, etc. The surety also generally will allow 10 days’ mailing time to be added to the time specified.

DOT bonds and court bond requirements

Other bonds, such as a bond required by a state’s department of transportation may not be cancelled until work is inspected and the DOT issues a release of the bond — even if your client says work is completed. The obligee has to provide the final sign-off.

Court bonds cannot be cancelled by the principal or the surety. The court has required the bond, and only the court is able to cancel the bond by issuing a “release” stating the bond is no longer needed.

Be advised: It could take a long time to settle the estate or court case and meanwhile premiums are due until such time as a release is received.

Business service and other voluntary bonds

Finally, business service bonds and fidelity/crime bonds are voluntary and therefore may be cancelled at the principal’s request, either by a statement requesting the cancellation or by submitting a lost policy receipt requesting the cancellation.

Procedures for canceling a bond vary widely depending on the type of bond, or the state where the business or service is being conducted. Your agent, surety or attorney can provide some guidance on the cancellation provisions involved in the type of bond you or your client are required to obtain.

Should you have questions or need advice, contact an appointed agent or reach out to the Old Republic Surety branch nearest you.

Melanie McGovern

Melanie McGovern is the Executive Surety Marketing Representative of the Southeast Commercial Branch of Old Republic Surety located in Orlando, FL. She has more than 14 years of bond business experience and has been an underwriter for 12 years. She began her career at the Hartford Bond Underwriting Center as a Commercial Surety Underwriter and joined Old Republic Surety Company in 2012. Her focus is on commercial underwriting and currently serves the state of Florida.