| What Every
Public Official Should Know
1. Why are
License & Permit Bonds needed?
They protect your city against claims arising from a
license or permit issued to someone. They ensure compliance with laws,
ordinances and regulations by license or permit holders. They increase
city revenues by ensuring that fees and charges are paid on time. Consumers
are protected because they may make a direct claim to the surety company
if the license or permit holder acts contrary to your laws or ordinances.
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2.
How can License & Permit Bonds protect your community and your citizens?
A. Before a bonding company is willing to issue
a License & Permit Bond, it subjects the licensee to an investigation.
If the surety finds the applicant to be financially and otherwise qualified
to successfully engage in the trade or profession, it issues the bond.
This pre-qualification service is among the most important that a bonding
company can provide to the local government and to the public.
B. The surety can strongly encourage compliance
with the applicable laws, ordinances or regulations. It can do so by reminding
the licensee of his obligations and of its option to withdraw his bond
if the deficiency or noncompliance is not cured promptly. Historically,
this has proven to be an effective tool in assisting the local government.
As a last resort, the surety can cancel the bond, thereby voiding the
license.
C. Finally, when all other efforts have failed,
the surety pays losses and damages which occur. All corporate sureties
have trained staffs of professionals to handle and pay claims promptly,
efficiently and fairly.
Aren't these types of claims covered by liability
insurance?
Generally, no! Unlike the bond, insurance cannot
usually cover code violations. Public policy generally does not permit
a person to insure against his own violations of law or regulation. Accordingly,
a bond is needed to protect the public from this sort of violation, just
as insurance is needed to protect against accidental acts or omissions.
Liability insurance and surety bonds are both important tools for the
protection of consumers who deal with regulated trades and businesses,
although they perform different services.
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3. Who should be bonded?
(Typical permits/licenses issued by a city
government) Virtually every business or profession, which deals with the
public, is a potential candidate for license and permit bonding. The following
is a list of the License and Permits Bonds that are most commonly required
by local governments:
*General Contractor
*Electrical Contractor
*Heating/AC Contractor
*Plumber
*Excavation Contractor
Auctioneer
Driveway Permit
Garbage Disposa
Gas Appliance Installer
Highway Permit Peddler
Refrigeration Contractor
Roofing/Siding/Insulation Contractor
Sewer and Water Contractors
*Most common types of bonds required by municipalities.
Every city, town, village, or other municipality should have these bonds.
If your municipality requires licenses or permits of occupations other
than those listed, you may consider enacting bond requirements of them
also.
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4. Proof of
how L&P Bonds have helped communities like yours:
Upon inspection of a room addition, an Indiana
City inspector issued a statement of code violations and stopped the contractor
from doing any further work. The contractor then refused to correct and
complete the work and refused to return the down payment. The surety paid
$3,500 to the homeowners.
A Texas consumer hired a cement contractor to
install a new driveway. The work was found to be in violation of city
codes, and a request was made to remove and re-pour the drive. The contractor
failed to respond and the surety paid $1,976 to have the project completed
and approved by the city.
A North Dakota dairy farmer contracted an electrician
to repair and install electrical wiring on his farm. The state inspector
found that an improper and negligent failure to ground the electrical
system caused problems with stray voltage. This resulted in injury to
the livestock. The surety paid the full $2,000 amount of the bond to the
farmer.
A California resident contracted with a construction
company to build a 35-foot driveway that encroached into a highway. The
work was to be completed in three months. Three years later, the work
was still not done. The surety paid the full $1,000 amount of the bond
to have the work completed.
A Minnesota electric contractor forwarded more
than 200 requests for inspection to the Board of Electricity. He informed
the Board that he was unable to reimburse that office for inspection fees
and declared bankruptcy. The surety paid $1,416 to cover the costs of
inspection fees.
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5. How large should
we make the bond amount?
We
recommend $5,000 to $10,000 as the best level for a License & Permit Bond.
The reason is that below this amount there is not adequate public protection;
above this amount, too many applicants won't financially qualify to receive
the bond.
A $5,000 to $10,000 bond helps to screen out
those most obviously unqualified and still affords a good amount of public
protection. Generally, a bond in this amount will only cost the licensee
between $50 to $100.
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6. Is enacting a
bond difficult?
No!
Actually, it's quite simple. If you are unfamiliar with this type of enactment,
we have provided you with a model ordinance. Have your city attorney fill
in the blanks for the type of bond you wish to enact. Then have the ordinance
enacted. It's that simple.
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7. Model Bond Ordinance
or Regulation for a License or Permit Bond.
Applications
for (OCCUPATION) shall be accompanied by a bond in the amount of ______________________($_________)
DOLLARS executed by a surety company authorized to transact business in
this state as Surety on the bond with the applicant as Principal on the
bond, and the (County, City, Town, Village), as Obligee, for its benefit
and that of consumers dealing with the applicant, conditioned that the
applicant shall faithfully perform the duties and in all things comply
with the (INSERT THE LAW, ORDINANCE AND/OR REGULATIONS - MAY INCLUDE SPECIFIC
CITE), pertaining to the license or permit applied for. The aggregate
liability of the Surety, regardless of the number of claims made against
the bond or the number of years the bond remains in force, shall in no
event exceed the amount of the bond. The bond may be terminated at any
time by the surety upon sending 30 days' notice in writing to the political
subdivision with which this bond is filed and to the Principal.
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8. What is CNA Surety's
role?
The
Public Affairs Department will be happy to help you enact new bonding
requirements. For further assistance, please contact us at 1-800-331-6053.
And, if you enact a new ordinance, why not send
us a copy? This will help expedite the bonding of your licensees. Send
all new ordinances and inquires to:
CNA Surety Public Affairs Department
P.O. Box 5077
Sioux Falls, SD 57117-5077
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