Section 11.1 Introduction

• Library: Insurance Practice 2015

Suretyship is of great antiquity. But this chapter will be limited to discussion of corporate surety bonds, which have evolved only during the past century. Formerly, suretyship was undertaken as a personal obligation. Suretyship, in highly developed form, is recorded in the ancient codes of Hammurabi and the Roman law. The Bible makes reference to sureties in the Book of Proverbs. One verse, Proverbs 11:15 advises, “He that is surety for a stranger shall smart for it: and he that hateth suretiship is sure.”

There are many types of surety bonds. Problems of coverage and rights of parties vary according to the bond contract and the circumstances giving rise to each case. There has been a progressive evolution in concepts of underwriting and application of legal principles to surety problems. Counsel should be aware of the impact of the many uniform codes upon secured transactions, of class actions, and of third-party claims.

The common-law surety, an individual, was a “child of the law,” for that surety had all the rights and defenses of the usual contracting party and many special ones as well. The distinctive nature of surety law revolves around the extraordinary equitable rights and benefits that have developed for the surety’s benefit. But much of this special aura has been swept aside in the modern doctrine of “compensated surety,” which applies to corporate sureties.

A commercial surety is engaged in the business of insurance and is subject to a statutory prohibition against unfair or deceptive acts or practices in...