Who is the Surety?
The Surety, typically an insurance company, is the party which guarantees performance by the Principal to the Obligee; or failing in performance, the Surety will make good to the Obligee the loss sustained due to lack of performance by the Principal. Who is the Obligee? The Obligee is the beneficiary of the bond. How does Suretyship differ from insurance? With insurance, the insurance company indemnifies the insured against loss. As an example, if the insured incurs a loss by fire, and has purchased the appropriate insurance, the insurance company will reimburse the insured for their loss up to the insurance policy limit. With a bond, the insurance company (Surety) will reimburse a third party (Obligee) for the loss caused to them by the Principal. In the event the Surety is required to pay the Obligee on behalf of the Principal, the Principal is required to reimburse the Surety. A Surety is essentially extending credit to the Principal. The Surety is not insuring the Principal against
