Page 30 - Insurance Times April 2021

met. Sometimes there is under bidding of jobs to win the has either been placed on notice of an alleged default, or
project. Cash flows can be a challenge. There are weather learnt of a pending action. This action may place the
related delays with catastrophe conditions. Sometimes contractor into default under the contract.
there are delays in project delivery, sometimes with
The process from the Insurer perspective is very detailed
escalation in material costs also.
and involves litigation and investigation in some situation.
The following are the key aspects of the claims process from
When a project covered by a Surety Bond, the bond provider
the insurer/ surety provider perspective.
gets prepared to assume responsibility in the event that, a Contract Review
subcontractor or any vendor makes complaints on X Surety undertakes extensive review of contract
nonpayment issues. Further, the project owner would raise documents.
alarm when the project is not completed in time or within
the cost and budgets agreed. X Determines full extent of responsibility of all parties
to each other.
It is vital to understand the claims process from the claimant Contract Progress
perspective and further see for the insurer. The claims X Surety, with cooperation of contractor and owner,
process from a claimant perspective can be understood from will try to determine what transpired between
Figure 11 below. those parties.

Figure 11 - Claims process - surety bond claimant
X Have both parties operated in accordance with the
There are two very important practices terms and conditions of the contract.
in the surety industry regarding claims: X What are responsibilities & defenses, of the
A surety will respond to claimants, under either a contractor and surety - determine and assign tasks.
performance bond or a payment bond, and begin an Legal Position
investigation because of receiving a notice of a claim. X Using its own professional legal staff and/or outside
With a performance bond or payment bond, the surety counsel specializing in construction and surety law,
must be satisfied that its contractor owes a debt before X Surety will evaluate its obligations to both the
it will pay it. owner and the contractor.
Owner
B. Claims Process- Surety Bond Provider/ Insurer X The duty of surety to owner is spelled out in the
The claims investigation is the surety's first action once it. bond & contract.

30 The Insurance Times, April 2021