When you apply for a surety bond, you will be evalated by a surety bond underwriter. This individual will look at your business and financial history to ensure that you will behave responsibly and ethically under the contract of your bond.
Before your surety bond becomes effective, the surety company will require you to sign a personal indemnity agreement. A personal indemnity agreement is an agreement between you and the bond company that states that you will compensate the surety company for any losses.
Here's how the personal indemnity agreement works:
If the surety company has to pay out on a claim, they will come to you for reimbursement. You are required to pay back every penny the surety company paid out on a claim. You are required to do this because you signed an indemnity agreement.
Who Signs the Indemnity Agreement?
If you have to sign an indemnity agreement, you may feel uncertain. Who are you signing for? Your bond may be part of a business agreement, and you are the owner of the business, but you are not the entire business.
Nonetheless, the surety company needs to ensure that someone will take responsibility and guarantee the bond.
If your company happens to go out of business, the surety company needs to know that it will be able to be reimbursed for any payments it has made. This is why you sign the agreement as an individual: it allows the surety company to look to your assets for reimbursement.
Indemnity Agreement Clauses
Be sure to read your indemnity agreement carefully. There are many great resources available that specifically relate to what to be aware of in your indemnity agreement.
For example, there's a huge difference between "defending against reasonable claims" and "defending against all claims". More on indemnity clauses.