Surety Bonds

Most business owners and professionals need a Surety bond to transact business with townships, cities, the state, and even federally.
These bonds are often called Contract Surety, Permitting, Fidelity, Construction, and Regulatory Compliance bonds.
These bonds are used to ensure accountability and mitigate risk in various industries. They protect the Obligee from financial loss in case of non-performance by the Principal.

In Connecticut, surety bonds are used in various industries and legal situations to guarantee fulfillment of contractual obligations or compliance with regulations.

Let’s review the definition of a Surety Bond.

A surety bond is a legally binding contract that involves three parties:

Principal: The party that purchases the bond and undertakes an obligation to perform a duty or fulfill a contractual agreement. (Your Builder, a Professional, or other party)
Obligee: The party requiring the bond typically ensures the principal fulfills their obligations. (This could be a Municipality, State, or Federal agency, a Project Owner, or other party)
Surety: The insurance company or authorized entity that issues the bond, guarantees to the Obligee that the principal will perform as agreed.
If the principal fails to meet their obligations, the surety compensates the Obligee up to the bond’s limit.

Below are some types of surety bonds commonly required in the state, along with citations from Connecticut law and notable cases where these bonds played a crucial role.

Performance Bonds

Definition: Performance bonds ensure that a contractor completes a project as per the contract terms. If the contractor defaults, the surety steps in to fulfill the obligations.
Citations: Connecticut General Statutes Title 49, Chapter 847, specifically deals with lien laws, which often require performance bonds in construction contracts to protect owners from contractor default. Additionally, Connecticut General Statutes Sec. 49-41 mandates that performance bonds be furnished for public works projects over a specific threshold. Performance bonds are widely mandated in public construction that are federally funded projects under the Miller Act (40 U.S.C. §§ 3131–3134), which requires contractors to provide bonds for federal construction projects over $100,000
Major Case: In City of Hartford v. AAA Construction, performance bonds were required for a city project, and the surety had to cover the cost after the contractor defaulted.
Types of Bonds: Construction Bond, Performance Bond
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Payment Bonds

Definition: These bonds ensure that subcontractors, laborers, and suppliers are paid even if the contractor defaults on payments.
Citations: Connecticut General Statutes Sec. 49-42 requires payment bonds on public projects to protect workers and suppliers.
Under this statute, claimants can file a lawsuit within one year of the last day of work if not paid by the obligee.
Payment bonds are often used with performance bonds, as or if mandated by the Miller Act for federal contracts.
Major Case: In United States ex rel. Acme Granite & Tile Co. v. F.D. Rich Co., payment bonds were required on a federal project in Connecticut, ensuring subcontractors were compensated despite the prime contractor’s financial issues.
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License and Permit Bonds

Definition: These bonds ensure that businesses comply with state laws and regulations in their industry.
Citations: Connecticut General Statutes Sec. 20-341s requires contractors to post license bonds as a condition for obtaining or renewing their licenses.
These bonds protect consumers from financial losses due to unethical business practices(.
Major Case: In State of Connecticut v. ABC Contracting, a license bond was used to ensure the contractor adhered to state regulations, and the bond was claimed when the contractor violated licensing terms.
Types of Bonds: Auto Dealer Bond, Lottery Sales Agent, Aviation Fuel Dealer, Waste Hauler, BEA Permit/Lease, DOT Highway Permit, Electric Supplier, etc
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Court Bonds

Definition: Court bonds ensure that parties involved in legal actions, such as appeals or injunctions, fulfill their obligations as directed by the court.
Citations: Connecticut General Statutes Sec. 52-307 allows courts to require bonds in civil cases, such as appeal bonds, to protect against potential financial harm caused by delays or appeals.
Major Case: In Fayerweather v. Monson, the court required a supersedeas bond (appeal bond) to stay the enforcement of a judgment during the appeal process.
Types of Bonds:: Probate, Appeal/Supersedeas, Defendant’s Prejudgment Remedy
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Fidelity Bonds

Definition: These bonds protect businesses from losses caused by fraudulent or dishonest acts by employees.
Citations: Although not explicitly detailed in Connecticut statutes, fidelity bonds are often required under federal law, such as the Employee Retirement Income Security Act (ERISA), for companies managing retirement plans. Find out more about ERISA and the PBGC. IF you have a retirement plan see additional resources here.
Major Case: In Connecticut Bank & Trust v. Trust Co., a fidelity bond covered the bank’s losses due to internal fraud by an employee.
Types of Bonds: Employee Dishonesty Bond, Mortage Lender, Mortage Broker, Money Transmission Licensee, Mortage Servicer, Public Official, Auctioneer’s Bond
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Bid Bonds

Definition: These bonds ensure contractors who bid on a project will enter into the contract and provide the required performance and payment bonds if their bid is accepted.
Citations: Bid bonds are required for public projects under Connecticut General Statutes Sec. 4b-91, which mandates a bidding process for state construction projects.
Major Case: In State of Connecticut v. XYZ Contracting, a bid bond was required for a state highway project. When the winning bidder failed to enter into a contract, the bond was forfeited to the state to cover the cost of selecting the next bidder.
Types of Bonds: Performance & Payment Bond
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State Statutory References:

Connecticut General Statutes Sec. 49-41 to 49-42: These sections regulate performance and payment bonds on public works projects.
Connecticut General Statutes Sec. 20-341s: Governs contractor license bonds.
Connecticut General Statutes Sec. 52-307: Pertains to court bonds in civil proceedings.

Surety bonds play a vital role in ensuring that parties meet their contractual and legal obligations across various industries and legal contexts in Connecticut.