Which one of the following characteristics is unique under American personal suretyship compared with corporate suretyship? - correct answer Sureties were
... [Show More] protected by laws that were favorable to them
Except in the case of a forfeiture bond, if the principal defaults the surety will pay - correct answer Up to the bond penalty, but no more than the obligee's actual loss amount
CB Construction entered into a construction contract with Lee Properties. The contract required that CB Construction obtain a performance bond, with Lee Properties named as the obligee. Performance bonds guarantee that the obligee will be indemnified for any loss resulting from the principal's failure to perform the work - correct answer According to the contract, plans, and specifications; at the agreed price; and within the time allowed
Which of the following groups, for the most part, serves the market for fidelity and surety bonds in the United States? - correct answer Multiline property-casualty insurers
Which one of the following is an example of a third-party beneficiary on a given bond? - correct answer An heir on a fiduciary executory bond
Bonds under this classification guarantee that the principal will properly account for and remit government funds collected as required. Which license and permit bond classification is described? - correct answer Tax or fee bonds
The two basic types of surety bonds that are written today are - correct answer Contract surety bonds and commercial surety bonds
A basic type of bond that involves all situations in which sureties guarantee performance of obligations that generally do not arise from contract is - correct answer Commercial surety bonds
When evaluating a surety claim, claims representatives are often assisted by outside legal counsel. Which one of the following other professionals often assist claims representatives? - correct answer Engineers
The surety bond three-party relationship, the party who guarantees fulfillment of the obligation and who will either perform the obligation or pay the costs for its fulfillment is the - correct answer Surety
Paul has the legal responsibility for the care for his brother, who is a legally incompetent person, and for his brother's property. Paul is required to obtain a bond that guarantees he will exercise his duties faithfully and account for all property received. This bond is called - correct answer A fiduciary bond
A person who commences an action against another to obtain an equitable remedy may be required to post a bond before the court will proceed with the action. This bond is called - correct answer A plaintiff bond
Bonds for which the laws specify the bond conditions and for which all three parties are dictated by the applicable law rather than the bond provisions are - correct answer Statutory bonds
A surety bond is a written document in which one party guarantees a second party's - correct answer Performance to a third party for the second party's failure to fulfill an obligation
Unless the cosureties limit their respective liabilities in a bond, when two or more cosureties execute a bond with the same principal, their liability to the obligee is - correct answer Joint and several
A group that educates the general public, legislative bodies, contractor associations, and others about the benefits of surety bonds is - correct answer The National Association of Surety Bond Producers (NASBP)
A surety's liability for a surety bond can only cease to exist when the underlying obligation/agreement has - correct answer Been performed as specified in the contract or when the bond has been canceled
Because most bonds are "joint and several liability" documents, the obligee can recover losses from - correct answer The principal or the surety, or from both
The Miller Act was passed to require principals, in addition to furnishing a performance bond, to furnish a separate payment bond guaranteeing payment of all bills incurred by the contractor - correct answer For labor and materials at the project completion for all federal jobs
Judicial bonds - correct answer Are a category of court bonds that arise out of litigation and are posted by persons seeking or appealing a remedy in court
Bond losses occur when a fiduciary and its surety are held accountable because the fiduciary did not exercise reasonable care in notifying all heirs of an impending probate proceeding. This fiduciary is called - correct answer An administrator
In accordance with a contract to build a county shed for the Village of Malcolm, Raymone Construction purchases a contract surety bond from SureRite Insurance. Identify the principal, obligee, and surety in this suretyship. - correct answer Principal- Raymone Construction; obligee- Village of Malcolm; Surety- SureRite Insurance
In an unlimited cosurety arrangement, the obligee can collect - correct answer The full loss from any of the cosureties up to the penal sum of the bond
WP Hospitality hired Green Builders to build a new hotel. As part of the contract, WP Hospitality required that Green Builders obtain a surety bond to guarantee that it would pay all subcontractors for their labor and materials. The payment bond was obtained from Blue Surety. Which one of the following is a potential third-party beneficiary in this surety relationship? - correct answer Subcontractors
Under a bid bond, if the bid is accepted and the principal refuses to enter into the contract or fails to provide the additional required bonds, subject to the penal amount of the bond, the obligee is generally entitled to be paid - correct answer The difference between the amount of the principal's bid and the next lowest bid the obligee finally accepts
Public official bonds are written for principals who have administrative duties but do not handle money and who - correct answer Include commissioners, assessors, judges, coroners, town clerks, engineers, and auditors
Ellen was planning a large family reunion at a local park. She wanted to reserve the picnic tables, and have use of the restrooms at the park. As a prerequisite to using the park, the township required that Ellen obtain a commercial surety bond. Which one of the following types of surety bonds would Ellen be required to obtain? - correct answer Permit bond
Jennifer is a producer for Goshen Insurance Agency. She is also the person at the agency responsible for selling and servicing surety bonds. Which of the following written documents do sureties use to authorize a producer to act as the surety's agent in bond production? - correct answer A power of attorney
Following the Civil War, the growing number of complexity of financial/commercial relationships led to the need for - correct answer Corporate suretyship
In the surety bond three-party relationship who is primarily responsible for fulfilling the obligation and who typically has control of the obligation is the - correct answer Principal
A bond that guarantees that faulty work will be corrected and defective materials will be replaced for a period of one year or less that is usually provided with a performance bond at no additional cost is a - correct answer Maintenance bond
In bonds under this classification, the surety pays the entire bond penalty if the principal fails to complete the obligations. Which one of the following bond classifications is described? - correct answer Forfeiture bonds
Which one of the following developed in the United States to guarantee the large amounts of money involved in the country's industrial and commercial growth? - correct answer Corporate suretyship
An organization that uses its collected data to calculate loss costs that member company underwriters use to determine premiums for risks is - correct answer The Surety and Fidelity Association of America (SFAA)
Under a public official bond guaranteeing honestly of a treasurer - correct answer He or she must account for the cash that he or she holds while in office
Which one of the following statements provides an accurate description of license and permit bonds or their use? - correct answer Licenses help regulate license holders through statutes, regulations, or ordinances, and they are backed by license and permit bonds
The establishment of the formal contract between the surety, principal, and obligee that is offered to the principal is called - correct answer Execution of a bond
A pre-set surety bond credit limit - correct answer Eliminates the need to reevaluate the contractor's need for every bond
To reach a reasonable rate of return for their bond risks - correct answer Sureties pay competent underwriters and agents competitive salaries and commissions
A contractor's percentage-of-completion estimates - correct answer Are based on the contractor's ability to estimate the cost to complete the project and recognize income and profit as they accrue during the project.
Which one of these statements is true regarding the surety producer's role in a bonding relationship? - correct answer The producer assists the contractor and the underwriter in the bond application and analyses; when the bond or credit line is approved by the underwriter, the producer assists with communication and continues as an integral part of the contractor's management team.
Johnson Construction was approved for a $5 million/$20 million annual contract surety credit. A $5 million/$20 million contract surety credit line means that the surety is willing to - correct answer Bond single jobs up to a contract price of $5 million when the aggregate contract backlog does not exceed $20 million
Which one of the following statements regarding a surety's capacity is true? - correct answer If a contractor appears to be outgrowing the surety's capacity, the producer should arrange a backup surety with adequate capacity to replace the first surety before reaching capacity
The most effective and credible form of promotion for surety producers is - correct answer Word-of-mouth advertising and referrals from the producer's satisfied clients
Which one of the following statements is true regarding surety producer's promotion? - correct answer Participating in professional seminars and construction industry associations is an excellent way to communicate to a target audience
Jay is a surety bond producer. After receiving a standard letter of authority from a surety, he is allowed to approve which one of the following types of bonds without the surety's approval? - correct answer Bankruptcy bonds
Sureties compete for commercial surety bonds in this category on the basis of service to the agent and to the client and they usually offer substantial price discounts for accounts with larger clients. Which one of these categories of bonds is described? - correct answer License and permit and miscellaneous bonds
In the next step of the bond prequalification process, once the producer has compiled the contractor's financial documents showing significant liquidity, - correct answer The producer may facilitate underwriter interviews to help determine the contractor's experience in meeting past contractual obligations
A surety bond credit line covers the contractor's normal, anticipated bond needs. If a special situation develops that would cause a contractor to exceed the credit line, then - correct answer The contractor and the producer should discuss the merits of the case with the underwriter to determine the desirability of an increased credit line
Which one of the following is a factor of marketing that requires the surety producer to have education, training, knowledge, skill, and organization to provide professional service that clients need? - correct answer Product
Each of the following steps is performed toward the beginning of the development of a contract surety business plan EXCEPT: - correct answer Change goals and action steps as the agency's strengths and market conditions change
Which one of these categories of court bonds is underwritten on the basis of the principal's financial capacity? - correct answer Judicial bonds
According to the law, companies that write credit enhancement financial guarantees - correct answer Cannot write any other type of insurance within that company
Alex is a contract surety bond underwriter. He expects that a surety producer will perform certain prequalification tasks before submitting a contractor as a prospective bond principal. Which one of the following prequalification responsibilities would include a clear and concise review of the contractor's company history, management, type of work, bidding history, trade and bank credit relationships, and five-year financial trend? - correct answer Performing a credit analysis
A pre-set credit line has which one of the following benefits? - correct answer The limit enables the surety producer to service the contractor's normal bond needs more effectively and within the terms and conditions of the credit line
A surety producer has developed a favorable percentage of the local bond market and has earned a reputation among local contractors for professional quality service. She has established which one of the following? - correct answer Position
Which one of the following categories of court bonds is written primarily on the basis of an attorney's character and reputation for trustworthiness? - correct answer Fiduciary bonds
When selecting a surety company for a bonding relationship with a contractor, - correct answer The producer should consider the surety's suitability factors to the contractor's needs, including the sureties philosophies, financial capacity, stability, and comfort with the projects
Field underwriting activities generally include which one of the following? - correct answer Providing service to producers and policy holders
As a loss control practice concerning large public official bonds, a surety may ask for which of the following to confirm that the governmental body has established an approved list of banks? - correct answer Designation of depsitory
Which one of the following is the only entity or individual that can make a claim against a public official bond? - correct answer The government body that requires the bond
Sally is the plaintiff in a court case. After losing her case in a lower court, she is appealing the judgement to a higher court. As the plaintiff, she is required to obtain an appeal bond. An appeal bond for the plaintiff's case guarantees the payment of which of the following? - correct answer Costs of the appeal
Which one of the following types of bonds are the most hazardous license and permit bonds that sureties write? - correct answer Reclamation and environmental protection bonds
Which one of the following special characteristics of fidelity bonds is described by the following statement: The nature of the employment relationship provides the employees an opportunity to learn the firm's routines; schedules; and the existence, absence, or relative effectiveness of management controls. - correct answer Property exposed to loss is accessible
Which one of the following explains why a surety does not impose its own limitations on a public official bond? - correct answer Because the law prescribes conditions for claims
The fidelity loss control measure of divided responsibilities, under which employees who regularly handle cash do not also handle merchandise, is impractical for some small businesses. To address this situation, which of the following practices should the employer perform? - correct answer Make frequent spot checks
Financial reports are important in bond underwriting not only because they reveal an applicant's financial condition, but also because they reflect which one of the following about the applicant? - correct answer Overall management ability
An indemnity agreement does what to a surety's rights arising from common law? - correct answer Extends them
Keith claimed that his brother Charlie had unlawfully taken possession of his car. Keith was required to secure a bond in order to take the car back until the court rendered a decision. The bond guarantees that the car will remain in the same condition and will not be sold or otherwise disposed of. Which one of the following types of bonds was Keith required to obtain? - correct answer Replevin bond
Thomas is underwriting a fidelity bond application for a new firm that is not profitable due to high capitalization expenses. At the very least, Thomas should verify which one of the following? - correct answer That the firm's founders have meaningful, sufficient experience in related work
Deborah recently accepted a position as a home office underwriter for Jackson Insurance Company. Home office underwriting activities generally include which one of the following? - correct answer Formulating underwriting policy
Gina is a surety bond underwriter for Southern Surety. When evaluating an applicant/principal for a surety bond, she considers both subjective and objective factors. Which one of the following is an important subjective factor for Gina to consider? - correct answer Character
The contract surety indemnity agreement is - correct answer The form most surety professionals think of when they hear the term "GAI" (general agreement of indemnity)
Generally, which one of the following types of individuals cause most public official bond losses? - correct answer Dishonest individuals
Courts often order attachment bonds to secure property when which one of the following individuals is within the court's jurisdiction? - correct answer A nonresident defendant
An example of a litigation bond used by a plaintiff or defendant in a lawsuit is a - correct answer Replevin bond
Compliance bonds with third-party liability allow a direct right of action against which party for damages a third party may suffer because of the principal's acts? - correct answer Surety
As a fidelity loss control measure, Stanton Industries should require that all employees take an annual vacation of at least how many consecutive days? - correct answer Five
A feature differentiating surety from insurance is that surety involves three parties, which include - correct answer Obligee, principal, and surety
Owners of most small businesses provide sureties with financial reports that - correct answer Contain the same data they give to their banks to apply for loans
Jonathan served as the Parks and Recreation Commissioner for his township for many years. After he retires, it was discovered that the accounts had not been kept up to date over the last 18 months and could not be reconciled. Jonathan's public official bond paid for the discrepancy in funds. This is an example of which one of the following types of performance problems that a public official bond would cover? - correct answer Nonfeasance
A fiduciary bond form has no cancellation provision. Therefore, the term of the bond continues until which one of the following events occurs? - correct answer The court has relieved the fiduciary of all responsibilities
AC Surety provided a forfeiture bond for Nolan Mining Company. Forfeiture bonds require the surety to pay what percentage of the bond penalty if the principal fails to complete the obligation? - correct answer 100
Thomas is a field underwriter for Stanton Insurance. Field underwriting activities generally include which one of the following? - correct answer Selecting insureds
Compliance-only or privilege bond penalties are usually - correct answer Nominal
Which one of the following in a bond applicant's personal and employment history provides the surety underwriter with evidence of good character? - correct answer Timely trade payment record
In evaluating capacity for continuity planning, the underwriter considers what two factors? - correct answer Continuity of management and continuity of ownership
Working capital is the conventional measure of a firm's liquidity. By accounting standards, working capital is calculated as - correct answer Current assets minus current liabilities
As the new risk manager for Stanton Construction, Julie is trying to establish a successful contractor-producer-underwriter relationship. She realizes that it is in the contractor's best interest to ensure that the underwriter and producer remain fully informed. All of the following is necessary information that Julie should provide to the underwriter and producer EXCEPT: - correct answer Her education and work history
Kevin is a surety bond underwriter, who specializes in contract bonds. When evaluating a contractor's capacity, he likes to review the performance records for jobs completed in the past 5 years, and the contractor's work program for current and future jobs. Which one of the following would most likely cause Kevin to conduct a more careful underwriting evaluation? - correct answer Multi-year future jobs in new geographical areas
As a contract bond underwriter, Julian strives to maintain a successful contractor-producer-underwriter relationship. He is in frequent contact with the producer and contractor, and visits project sites with them. The contractor may also allow Julian to be in contact with the contractor's accountant, banker, and commercial insurance producer. Which one of the following attributes of a successful contractor-producer-underwriter relationship does this illustrate? - correct answer Ongoing dialogue
Which one of the following attributes of the contractor-producer-underwriter relationship requires periodic visits to the contractor's office, visits with the contractor, and meetings with the contractor's key people concerns? - correct answer Ongoing dialogue
Depending on the size and type of contract, either the plant or the equipment, or both, can be a crucial measure of a contractor's - correct answer Capacity
J&J Construction has applied for a contract bond with Goshen Surety. Jeremy, the bond underwriter is reviewing the contractor's financial statements and schedule of contracts in progress. When looking at the schedule of contracts in progress, he compares the job estimates with profit margins on past jobs that were similar in size, type, and duration. Jeremy notes that the profit margins on the previous jobs are significantly lower than the estimates shown in the current job schedule. This is an indication of which of the following? - correct answer The contracts in progress schedule may reflect an optimistic forecast
Working capital is calculated as current assets minus current liabilities. All of the following would be considered current assets on a contractor's balance sheet, EXCEPT: - correct answer Accounts payable
The underwriter must address the contract provisions for completing the work on time. Which one of the following is one of the standard solutions if the contractor does not complete the work on time? - correct answer Liquidated damages
Extending a line of credit to bond a contractor's future project is particularly useful for which one of the following situations? - correct answer A larger contractor with frequent bond requests
Which one of the following is the producer's ultimate objective in the contractor-producer-underwriter relationship? - correct answer To be as responsive as possible to the contractor's needs while presenting business that is reasonably consistent with the surety's underwriting standards
As part of the underwriting process, providing the surety with reliable and timely financial information and informing the surety of the business plan is the responsibility of which of the following? - correct answer Contractor
Which of these is one of the three factors that are focused on the contractor and are considered when underwriting contract bonds for construction? - correct answer Capacity
MAB Construction's balance sheet showed that it had current assets of $7 million and current liabilities of $5 million. What is MAB Construction's working capital? - correct answer $2 million
Hank is a contract surety bond underwriter. When monitoring the underwriting information of a contractor, an explanation is generally needed if the underwriter notices the contractor's bid reflects a difference from the next highest bid in excess of what percent? - correct answer 10%
William is the surety producer and Jack is the surety underwriter for Stanton Construction. Stanton Construction is a large contractor that makes frequent bond requests. William and Jack have worked with Stanton Construction for a couple of years, and have an understanding of the contractor's projects and capabilities. Which one of the following could the surety do to strengthen its relationship with Stanton Construction? - correct answer Extend a line of credit for future jobs.
Julie is a bond underwriter. She is reviewing the balance sheet of a contractor applying for a contract bond. Which one of the following figures would give her an indication of the contractor's ability to pay debts on a timely basis? - correct answer Working capital
Suzanne, a contract bond underwriter, is reviewing an applicant's financial statements. She wants to evaluate the degree of variability in contract volume, gross profits, overhead, and net profit over a period of time. Which one of the following financial statements should Suzanne review? - correct answer Income statement
The information that the surety underwriter organizes for the background investigation of a principal includes - correct answer Public information, including the principal's legal filings, such as lawsuits, judgements, tax liens, bankruptcies, reorganizations, and Uniform Commercial Code filings
As a surety underwriter, Peter must evaluate documents and information that is provided by the principal. Which one of the following documents could alert Peter of questionable assets or cash flow problems - correct answer Age of accounts reports
Which one of the following is a true statement regarding the North American Industry Classification System (NAICS)? - correct answer The NAICS provide business classification codes along with trade line classifications, which indicate business products or services
Johnny started baking and selling bread out of his home on weekends. His business was doing well, so he decided to buy a truck and expand the business to include deliveries to a few local restaurants. After two years, Johnny was struggling to stay on top of his bills and needed to reorganize. Which one of the following chapters of the Bankruptcy Reform Act allows small business owners to repay creditors over a period of time and retain possession of their assets? - correct answer Chapter 13
Which one of the following includes sections of the Consumer Credit Protection Act that apply directly to the surety industry? - correct answer Titles VI and VII
Which one of the following identifies the government entity that has added specific requirement to meet the guidelines set out under Regulation B and provides explanations and clarifications? - correct answer The Federal Reserve Board [Show Less]