Indemnification of Surety by Subcontractor on Contractor's Bond is a contractual agreement between a subcontractor and a contractor’s surety. It states that the subcontractor shall indemnify the surety against losses and liabilities incurred by the surety due to the subcontractor’s breach of contract. The surety will be protected from any financial losses resulting from the subcontractor’s failure to perform its obligations under the contract, or failure to pay any debts owed to the contractor. The indemnification may include expenses, costs and attorney's fees incurred by the surety in enforcing its rights or defending against a claim. There are two types of Indemnification of Surety by Subcontractor on Contractor's Bond: 1. Primary Indemnity Agreement: This agreement holds the subcontractor responsible for any losses or liabilities the surety incurs due to the subcontractor’s breach of contract. 2. Secondary Indemnity Agreement: In this agreement, the subcontractor agrees to pay the surety only after the contractor has failed to fulfill its obligations and the surety has paid out for any losses or liabilities.
Indemnification of Surety by Subcontractor on Contractor's Bond
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FAQ
Typically, an insurance contract dictates that the insurer, also known as the indemnitor, agrees to compensate the other party involved (the insured or the indemnitee) for any damage or losses in return for premiums paid by the insured.
A general indemnity agreement is a separate legal contract between the surety and the contractor that guarantees the indemnitor (contractor) assumes full liability, giving the indemnitee (surety) legal protection in case it has to pay a claim on the bond.
An indemnitor is a company or person agreeing to take on the obligation that would typically be placed on a surety if an individual defaults on a bond issued to him. If the applicant doesn't qualify for reasons of risk by the standards of the surety, an indemnitor might be necessary for the bond process.
Indemnification in a Contractor-Subcontractor Relationship A contractor remains liable to the property owner when one of its subcontractors fails to use due care in their work on the job.
Indemnity bonds are issued by 3rd party institutions such as banks or insurance companies.
The payment or performance bond surety assumes an obligation of its principal with the understanding that either the principal or some third party, known as an indemnitor, will indemnify or hold the surety harmless if the principal fails to fulfill the underlying bonded obligation and the surety sustains a loss.
While the bond itself is created by the obligee, an indemnity is a separate agreement that the surety requires the principal to sign prior to issuing the bond that guarantees the principal is responsible for repaying any money paid by the surety in the process of settling a claim.
Indemnity is the backbone of many surety bonds. In short, indemnity compels a party to compensate another party. Regarding a surety bond, this means that the obligee has the legal right to collect from the surety if the principal of the bond fails to uphold their end of the bond.