Contractor license bonds are legally enforceable contracts binding together three separate parties.
Principal = Construction professional buying bond (ie. Plumber, Roofer, Brick Layer, etc.)
Obligee = Entity requiring the contractor to be bonded (General Contractor, homeowner, City or Municipal Permit Department, etc.)
Surety = Company issuing bond (through our agency-currently using RLI, OR Surety and CBIC)
If a contractor fails to fulfill the terms of the contract, the obligee can present a claim against the bond for compensation for damages. In turn, unlike traditional insurance, a surety will not absorb the loss. The contractor is expected to reimburse the surety for any money it pays for the claim settlement. The surety Underwriters consider the policies they write to have no risk. However, in the underwriting process, some types of bonds are dependent on the individuals application information and credit.