Study guide
16.1 Surety and Fidelity Bonds
Arkansas Property & Casualty Insurance State
Track your progress as you read
Finished sections get a check mark.
1 Standalone Coverage Map
Standalone Coverage Map
2 Introduction: Arkansas Property & Casualty Insurance Exam Overview
Arkansas Property & Casualty Exam Overview
3 National Portion: Insurance Fundamentals
1.1 Risk, Hazards, Perils, and the Law of Large Numbers 1.2 Insurable Interest, Indemnity, and Other Insurance Principles 1.3 Insurance Contract Law and Elements 1.4 Policy Structure: Declarations, Insuring Agreement, Conditions, Exclusions 1.5 Parties, Agents vs. Brokers, and Authority
4 National Portion: Property Insurance Concepts
2.1 Causes of Loss / Named-Peril vs. Open-Peril 2.2 Valuation: ACV, Replacement Cost, and Functional Value 2.3 Coinsurance and the Coinsurance Formula 2.4 Deductibles, Limits, and Loss Settlement 2.5 Common Property Policy Conditions and Clauses
5 National Portion: Dwelling Policies (DP)
3.1 Dwelling Policy Forms DP-1, DP-2, DP-3 3.2 Dwelling Coverages A-E and Other Coverages 3.3 Dwelling Perils, Conditions, and Endorsements 3.4 Mobile Home and Specialized Dwelling Coverage
6 National Portion: Homeowners Policies - Forms & Section I
4.1 Homeowners Forms HO-2 through HO-8 and Eligibility 4.2 Section I Coverages A-D and Additional Coverages 4.3 Section I Perils Insured Against and Exclusions 4.4 Replacement Cost vs. ACV and Loss Settlement in Homeowners
7 National Portion: Homeowners Policies - Section II & Endorsements
5.1 Section II Coverages E (Liability) and F (Medical Payments) 5.2 Homeowners Conditions and Duties After Loss 5.3 Common Homeowners Endorsements (scheduled property, water backup, ordinance or law)
8 National Portion: Personal Auto Policy - Liability & Injury
6.1 Personal Auto Policy Structure and Eligibility 6.2 Part A Liability and Supplementary Payments 6.3 Part B Medical Payments 6.4 Part C Uninsured/Underinsured Motorists
9 National Portion: Personal Auto Policy - Physical Damage & Duties
7.1 Part D: Coverage for Damage to Your Auto 7.2 Exclusions and Part E: Duties After an Accident 7.3 Part F: General Provisions, Endorsements, and No-Fault Concepts
10 National Portion: Liability Insurance Concepts
8.1 Negligence, Torts, and Legal Liability 8.2 Defenses, Damages, and Vicarious Liability 8.3 Occurrence vs. Claims-Made Triggers 8.4 Bodily Injury, Property Damage, and Personal/Advertising Injury
11 National Portion: Commercial Property Insurance
9.1 Commercial Package Policy Structure and Common Policy Conditions 9.2 Building and Personal Property Coverage Form (BPP) 9.3 Causes of Loss Forms (Basic, Broad, Special) 9.4 Business Income and Extra Expense 9.5 Commercial Property Endorsements and the BOP
12 National Portion: Commercial General Liability - Coverages
10.1 CGL Coverage A: Bodily Injury and Property Damage Liability 10.2 CGL Coverage B: Personal and Advertising Injury, Coverage C: Medical Payments 10.3 Who Is an Insured and Supplementary Payments
13 National Portion: Commercial General Liability - Limits, Triggers & Exclusions
11.1 CGL Limits of Insurance and Aggregates 11.2 Occurrence vs. Claims-Made CGL and Retroactive Dates 11.3 Key CGL Exclusions and Endorsements
14 National Portion: Commercial Auto Insurance
12.1 Business Auto Coverage Form and Covered Auto Symbols 12.2 Commercial Auto Liability and Physical Damage 12.3 Motor Carrier / Trucking and MCS-90 12.4 Garage Coverage Form and Garagekeepers 12.5 Commercial Auto Endorsements
15 National Portion: Workers Compensation
13.1 Workers Compensation Statutory Background and Benefits 13.2 Part One (Workers Comp) and Part Two (Employers Liability) 13.3 Premium Basis, Experience Modification, and Classification 13.4 Other States, USL&H, and Federal Acts 13.5 Workers Comp Exclusions and Endorsements
16 National Portion: Other Commercial Lines - BOP, Crime & Marine
14.1 Businessowners Policy (BOP) in Depth 14.2 Crime and Fidelity Coverage 14.3 Inland Marine and Nationwide Marine Definition 14.4 Ocean Marine Coverages (Hull, Cargo, Freight, P&I)
17 National Portion: Other Commercial Lines - Specialty & Professional
15.1 Farm and Agricultural Coverage 15.2 Commercial Umbrella and Excess Liability 15.3 Professional Liability and Errors & Omissions 15.4 Directors & Officers and Employment Practices Liability
18 National Portion: Other Commercial Lines - Surety, Flood & Specialty
16.1 Surety and Fidelity Bonds 16.2 National Flood Insurance Program (NFIP) 16.3 Cyber, Aviation, and Other Specialty Lines
19 National Portion: Insurance Regulation & Market Conduct
17.1 State Regulation, Licensing, and the McCarran-Ferguson Act 17.2 Rates, Forms, Solvency, and Guaranty Associations 17.3 Producer Authority, Fiduciary Duty, and Company Operations
20 National Portion: Ethics & Unfair Trade Practices
18.1 Unfair Trade Practices and Unfair Claims Settlement 18.2 Producer Ethics, Errors & Omissions Exposure, and Fiduciary Conduct 18.3 Privacy, Fraud, and Consumer Protection
21 Chapter 1: Arkansas P&C Insurance Regulation & Licensing
1.1 Arkansas Insurance Department 1.2 Arkansas P&C Producer Licensing Requirements 1.3 Arkansas Producer Responsibilities
22 Chapter 2: Arkansas Property Insurance
2.1 Arkansas Homeowners Insurance 2.2 Arkansas Commercial Property Insurance
23 Chapter 3: Arkansas Casualty & Auto Insurance
3.1 Arkansas Auto Insurance Requirements 3.2 Arkansas Liability Insurance 3.3 Arkansas Workers' Compensation Insurance
24 Chapter 4: Arkansas Ethics & Professional Conduct
4.1 Ethical Practices and Consumer Protection
16.1 Surety and Fidelity Bonds
Key Takeaways Explain This Topic AI
Surety is a three-party guarantee (principal, obligee, surety); insurance is a two-party indemnity contract.
Surety expects no losses and seeks reimbursement from the principal, so the contract is conditioned on principal default, not fortuitous loss.
Contract bonds (bid, performance, payment) follow the federal Miller Act on public projects; fidelity bonds cover employee dishonesty.
ISO Commercial Crime form CR 00 21 (loss-sustained) vs. CR 00 20 (discovery) governs the trigger for when a covered loss is reported.
A penal sum (bond penalty) caps the surety's liability; bid bonds typically run 5 to 20 percent of the bid amount.
Last updated: June 2026
Surety as a three-party guarantee
Surety bonds are tested heavily on the national exam because candidates confuse them with insurance. A surety bond is a three-party arrangement, while an insurance policy is a two-party contract. Memorize the three roles and never swap them on the exam.
Principal - the party who agrees to perform an obligation (the contractor, the licensed professional, the court-appointed fiduciary).
Obligee - the party protected by the bond and to whom performance is owed (the project owner, the government agency, the public).
Surety - the company that guarantees the principal's performance and pays the obligee if the principal defaults.
The defining trap: in insurance , the insurer absorbs losses as a cost of doing business and prices them into the premium. In suretyship , the surety expects zero losses and, after paying a claim, has a legal right of reimbursement (indemnity/subrogation) against the principal. The premium is closer to a service fee for the credit guarantee than a charge for expected losses. This is why surety underwriting looks like credit underwriting: capital, capacity, and character (the "three C's").
A second structural difference: surety bonds are typically non-cancelable by the surety once issued, whereas an insurance policy can usually be canceled mid-term. The principal also signs a general indemnity agreement (GIA) promising to repay the surety, often pledging personal and corporate assets - the mechanism behind the surety's reimbursement right.
Contract bonds and the Miller Act
Contract (construction) bonds are the most commonly tested surety category. On federal public-works contracts over the statutory threshold, the Miller Act requires the contractor to furnish bonds; many states copy this in "Little Miller Acts." Know the three contract bonds:
- Bond Guarantees Typical amount
- Bid bond The bidder will enter the contract and post final bonds if awarded 5% to 20% of bid (often 10%)
- Performance bond The contractor will complete the project per specifications Up to 100% of contract price
- Payment bond Subcontractors and suppliers will be paid Often 100% of contract price
The penal sum (bond penalty) is the maximum the surety will pay. Worked example: a contractor bids $2,000,000 on a public project with a 10% bid bond . The bid bond penalty is $200,000. If the contractor refuses the award and the next-lowest bid is $2,150,000, the surety's exposure is the $150,000 re-procurement cost, well within the $200,000 penalty, so the surety pays $150,000.
Other tested surety types: license and permit bonds (guarantee a licensee follows the law - for example, a contractor or mortgage broker license bond protecting the public), public official bonds (guarantee honest performance by elected/appointed officials), judicial/court bonds (appeal bonds, attachment bonds, and fiduciary bonds for executors, administrators, and guardians), and subdivision/site-improvement bonds (guarantee a developer installs roads and utilities).
Exam tip: a maintenance bond guarantees workmanship for a stated warranty period after completion, and a supply bond guarantees delivery of materials. When a question describes a guarantee that the winning bidder will sign the contract , the answer is the bid bond; will finish the job , the performance bond; will pay subs and suppliers , the payment bond.