4- D Surety Bonds and Fidelity
Coverages Questions and Answers
A fidelity bond provides a guarantee that an employee will NOT perform certain acts,
such as theft or fraud. Who is the obligee in a fidelity bond?
A. The employee
B. The customer
C. The employer
D. The insurer - ANSWER-C. The employer
A reclamation bond:
A. Guarantees that principal and interest will be paid per the terms of the contract or
promissory note
B. Guarantees that an issuer of a copy of a lost financial instrument will not suffer an
economic loss if the owner of the instrument later finds and negotiates the original
C. Guarantees a principal will faithfully perform his duties as prescribed by law or the
bylaws of the obligee
D. Guarantees the health, safety, and welfare of the public during and after mining
operations, and guarantees land will be restored to its original condition - ANSWER-D.
Guarantees the health, safety, and welfare of the public during and after mining
operations, and guarantees land will be restored to its original condition
ABC Construction recently won a bid to reconstruct the town park. After a few months of
work, ABC Construction realizes they won't make any money on the project and walk
away, leaving the park half-finished. Luckily, the town had required ABC Construction to
hold a surety bond from Parker Sureties, who can now step in to finance the completion
of the job. Which of the following statements is TRUE?
A. Parker Sureties will have to pay half the remaining costs for completing the park
B. Parker Sureties will not be able to seek recompense from ABC Construction
C. Parker Sureties will have to pay 75% the remaining costs for completing the park
D. Parker Sureties can seek recompense from ABC Construction - ANSWER-D. Parker
Sureties can seek recompense from ABC Construction
ABC Insurance decides to take on the role of a surety, guaranteeing the performance of
Gradient Industries in the construction of a new shopping complex. ABC Insurance
wants to provide themselves a safety net in case Gradient Industries fails to deliver and
ABC Insurance ends up on the hook for millions of dollars. ABC Insurance turns to a
fourth company, who agrees to indemnify ABC Insurance in the even Gradient
Industries fails to perform. This fourth party would be considered a / an:
A. Indemnitor
, B. Principal
C. Trust
D. Obligee - ANSWER-A. Indemnitor
ABC Park Construction recently won a bid to reconstruct the town park. They secure a
suretyship from Parker Sureties and begin work on the project. Parker Sureties
occasionally comes by to check on the progress of the project, and to make sure things
are staying on schedule and on budget. Parker Sureties is exercising:
A. Micro-management
B. Joint control
C. Fidelity stewardship
D. Surety stewardship - ANSWER-B. Joint control
Acme Construction enters into a contract to build a shopping mall for XYZ Associates.
Having never worked with Acme Construction before, XYZ Associates demands a
surety bond to guarantee the work of Acme Construction. ABC Insurance Company
agrees to underwrite the bond. In this example, XYZ Associates is the:
A. Insurer
B. Principal
C. Obligee
D. Surety - ANSWER-C. Obligee
All of the following are examples of court bonds, EXCEPT:
A. Injunction bond
B. Attachment bond
C. Replevin bond
D. Financial guarantee bond - ANSWER-D. Financial guarantee bond
As a requirement for getting his California adjuster license, Danny is required to submit
proof of bonding with his application. He purchases a surety bond from PBJ Bonds. In
this contract, Danny is considered the:
A. Guarantor
B. Obligor
C. Obligee
D. Indemnitor - ANSWER-B. Obligor (The obligor (a.k.a. principal) is the party that first
agrees to fulfill an obligation, and is the one who purchases the bond)
Define Collateral - ANSWER-A principal's cash or valuable property kept in reserve by
the surety. In case of default, it is forgeit to the surety.
Define Penal Sum - ANSWER-Specified maximum amount that a surety might have to
pay if the principal fails to perform as promised.
Coverages Questions and Answers
A fidelity bond provides a guarantee that an employee will NOT perform certain acts,
such as theft or fraud. Who is the obligee in a fidelity bond?
A. The employee
B. The customer
C. The employer
D. The insurer - ANSWER-C. The employer
A reclamation bond:
A. Guarantees that principal and interest will be paid per the terms of the contract or
promissory note
B. Guarantees that an issuer of a copy of a lost financial instrument will not suffer an
economic loss if the owner of the instrument later finds and negotiates the original
C. Guarantees a principal will faithfully perform his duties as prescribed by law or the
bylaws of the obligee
D. Guarantees the health, safety, and welfare of the public during and after mining
operations, and guarantees land will be restored to its original condition - ANSWER-D.
Guarantees the health, safety, and welfare of the public during and after mining
operations, and guarantees land will be restored to its original condition
ABC Construction recently won a bid to reconstruct the town park. After a few months of
work, ABC Construction realizes they won't make any money on the project and walk
away, leaving the park half-finished. Luckily, the town had required ABC Construction to
hold a surety bond from Parker Sureties, who can now step in to finance the completion
of the job. Which of the following statements is TRUE?
A. Parker Sureties will have to pay half the remaining costs for completing the park
B. Parker Sureties will not be able to seek recompense from ABC Construction
C. Parker Sureties will have to pay 75% the remaining costs for completing the park
D. Parker Sureties can seek recompense from ABC Construction - ANSWER-D. Parker
Sureties can seek recompense from ABC Construction
ABC Insurance decides to take on the role of a surety, guaranteeing the performance of
Gradient Industries in the construction of a new shopping complex. ABC Insurance
wants to provide themselves a safety net in case Gradient Industries fails to deliver and
ABC Insurance ends up on the hook for millions of dollars. ABC Insurance turns to a
fourth company, who agrees to indemnify ABC Insurance in the even Gradient
Industries fails to perform. This fourth party would be considered a / an:
A. Indemnitor
, B. Principal
C. Trust
D. Obligee - ANSWER-A. Indemnitor
ABC Park Construction recently won a bid to reconstruct the town park. They secure a
suretyship from Parker Sureties and begin work on the project. Parker Sureties
occasionally comes by to check on the progress of the project, and to make sure things
are staying on schedule and on budget. Parker Sureties is exercising:
A. Micro-management
B. Joint control
C. Fidelity stewardship
D. Surety stewardship - ANSWER-B. Joint control
Acme Construction enters into a contract to build a shopping mall for XYZ Associates.
Having never worked with Acme Construction before, XYZ Associates demands a
surety bond to guarantee the work of Acme Construction. ABC Insurance Company
agrees to underwrite the bond. In this example, XYZ Associates is the:
A. Insurer
B. Principal
C. Obligee
D. Surety - ANSWER-C. Obligee
All of the following are examples of court bonds, EXCEPT:
A. Injunction bond
B. Attachment bond
C. Replevin bond
D. Financial guarantee bond - ANSWER-D. Financial guarantee bond
As a requirement for getting his California adjuster license, Danny is required to submit
proof of bonding with his application. He purchases a surety bond from PBJ Bonds. In
this contract, Danny is considered the:
A. Guarantor
B. Obligor
C. Obligee
D. Indemnitor - ANSWER-B. Obligor (The obligor (a.k.a. principal) is the party that first
agrees to fulfill an obligation, and is the one who purchases the bond)
Define Collateral - ANSWER-A principal's cash or valuable property kept in reserve by
the surety. In case of default, it is forgeit to the surety.
Define Penal Sum - ANSWER-Specified maximum amount that a surety might have to
pay if the principal fails to perform as promised.
