Chapter 7 — Underwriting Explained
What Is the Role of Indemnity in Surety?
An indemnity agreement is generally an agreement that may establish obligations of the Principal and/or applicable indemnitors in favour of the Surety in connection with a bond. Its terms vary, and its legal effect should be understood before it is signed.
Direct answer
Indemnity is the arrangement between the Surety and the Principal, and often other indemnitors, that sits behind the bond. The bond runs in favour of the Obligee; the indemnity arrangement concerns the relationship between the Surety and those who stand behind the Principal. What it requires depends on the document actually signed.
Two different relationships
The bond
An undertaking by the Surety in favour of the Obligee, in respect of the obligation described in the bond. See What Is a Surety Bond?.
The indemnity arrangement
An agreement that may create obligations owed to the Surety — for example concerning information, cooperation, or reimbursement — depending on its wording and applicable law. It is not the same document as the bond and does not necessarily mirror it.
Recovery rights
Depending on the applicable indemnity agreement, bond terms, circumstances and law, the Surety may have rights of recovery against the Principal and/or applicable indemnitors. It should not be assumed that any payment by a Surety automatically creates an identical recovery obligation in every case; that depends on the documents, the facts and applicable law.
Not all indemnity agreements are the same
Wording differs between insurers and between transactions. Provisions concerning who signs, what is covered, how obligations are triggered and how long they last are all matters of the particular document. Reading one indemnity agreement does not tell you what another says.
Practical points
- Read the actual indemnity agreement in full before signing, including any schedules.
- Note exactly who is being asked to sign and in what capacity.
- Ask about anything you do not understand, and obtain appropriate professional legal advice where the legal effect is unclear.
- Keep a signed copy with your bond records.
Important considerations
This guide is educational and does not interpret any particular indemnity agreement, state what any clause means, or set out what liability may follow. Those depend on the applicable documents, circumstances and law.
Key considerations
Evaluation, underwriting, documentary requirements, financial assessment, collateral requirements, terms, premium, approval and issuance remain functions of the applicable insurer or Surety. SuretyPH does not underwrite applicants, calculate bonding capacity, assign risk scores, set premiums, determine collateral, approve or decline applications, determine final bond terms, issue bonds or determine contractual or indemnity liability.
Key takeaway
The bond runs to the Obligee; the indemnity arrangement concerns the Surety's relationship with the Principal and any indemnitors. Terms vary between documents, so read the actual agreement and take legal advice where its effect is unclear.
Related topics
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