What Exactly Is A Bonding Company?

November 01, 2015 / Uncategorized

We often get questions about the notary bond and E&O Insurance. People also want to know what a bonding company is so we thought it might be informative to give you some information that might be helpful.

So you want to become a notary or maybe it's time to renew your commission and you need to buy a notary bond? It's all so confusing. What is a bond and why do I need it. And then I hear something about E&O Insurance. What is E&O Insurance?

Let's start with the bond as this is what the bonding agency is all about. A **notary bond** is really called a surety bond. It is issued by an insurance company through an insurance agency. Huckleberry Notary Bonding, Inc. is a notary bonding insurance agency. As with all insurance agencies, their must be a licensed insurance agent that works for the agency and is appointed to sell notary bonds by the insurance company that underwrites notary bond.

A notary surety bond is a contract among three parties: The principal (you, the notary who will be performing thenotarization), the obligee (the person who is the recipient of the obligation—the person you are notarizing for, and the surety (the insurance company who ensures that the principal's obligations will be performed).

Through this agreement, the surety agrees to uphold the contractual promises made by the principal if the principal fails to uphold its promises to the obligee. In plan language, if you make a mistake notarizing a document, the insurance company will pay for the mistake with a caveat. Read on.

Suretyship bonds originated hundreds of years ago as a mechanism through which trade over long distance could be encouraged. They are frequently used in the construction industry but surety bonds are also used in other situations such as a notary bond. A key term in nearly every surety bond is the penal sum. This is a specified amount of money which is the maximum amount that the surety (insurance company) will be required to pay in the event of the principal's (you, the notary) default.

The principal will pay a premium in exchange for the bonding company's financial strength to extend surety credit. In the event of a claim, the surety will investigate it. If it turns out to be a valid claim, the surety will pay it and then turn to the principal for reimbursement of the amount paid on the claim and any legal fees incurred. So even though you are backed by the bond, if there is a mistake, the surety company can come after you for reimbursement.

So here is where E&O Insurance comes into the game. E&O Insurance (Errors and Omissions Insurance) is your protection in case you make a mistake on a notarization. If there is a claim against you, E&O Insurance is your protection. E&O insurance is not the same as a Notary surety bond. Bonds are required by law for Notaries in most states and offer protection to the public but only up to the penal sum (the bond's face amount). The Notary is responsible to the surety company for the amount paid out. E&O Insurance is your protection against the payout.

Can anyone be a bonding agent?

No. The bonding agency is really an insurance agency and must be staffed by licensed Insurance Agents. Notary Bonding Companies are governed by the same strict standards as all Insurance Companies and must abide by the State Statutes set up for Insurance Companies.

For example, there are some very specific rules that must be followed when a bonding company offers to assist you in becoming a notary or renewing your notary commission.

Here are a couple to think about:

  • When a bonding agent offers a potential customer a package that usually includes the state fee, notary bond and a seal, each item price must be disclosed or it is a violation of State Statutes. So if you see an ad offering you a package for a specific price, the individual item prices must also be listed.
  • A bonding company cannot use any advertisement that would mislead or cause a person to believe that the state is responsible for the insurance sales activities. This could occur if the name of the company leads a person to believe they are dealing directly with the state. Bonding Companies are private companies and are in no way affiliated with the state.
  • The state fee is set by the state and cannot be changed by the bonding company.
  • The bond is priced by a rate that is filed with the state.
  • The seal is offered by the bonding agency and can be set to whatever price the bonding agency sets.
  • The bonding agency cannot offer you anything for "free" in order to induce you to buy from them.

Rest assured that Huckleberry Notary Bonding, Inc. adheres to laws governing notary bonding agencies and makes every attempt to be fair, honest and competitive. Our customers can depend on us and trust us. We are committed to providing a special brand of service with a caring and friendly attitude that cannot be obtained anywhere else. And, we always take the extra step to assure the best quality and service.

Our desire is to go the "extra mile" for you. It's our way of showing you that you can depend on us and trust us. Otherwise, we are no different than our competition.