Burand’s Agency E&O Blog: Tip #26

Bond Specifications & Company Ratings. Do you check?

When commercial clients need a bond, they almost always have a contract that requires the bond meet certain specifications. Among those specifications is the bond be issued by an insurance company with a certain rating. That rating can be a Treasury rating and/or an A.M. Best rating.

Regardless of the rating entity, the rating is required for the entire period. Therefore, if the carrier is downgraded below the required rating, the bond may no longer meet the contractual specifications, which likely then requires the bond be rewritten midterm.

If an agency fails to notify the insured their bonding company no longer meets their contractual requirements, havoc and E&O suits may ensue. Therefore, an excellent practice is to create a spreadsheet which lists the contractual requirements your clients have, the carrier with which the bond is placed and that carrier’s associated rating. Then check regularly for changes to the carrier’s rating. Some rating entities offer an automatic notification if you sign up for it.

Hopefully you will never have to deal with a bonding company being downgraded below any of your clients’ requirements, but if you do, you absolutely don’t want to be caught not notifying them.