License and Permit Bonds
These bonds are required of those who must obtain licenses or permits from cities, towns, or political subdivisions before they can proceed with various activities. These bonds, although used for a variety of purposes, usually guarantee that the persons who post them will comply with statutes, regulations or ordinances that regulate their activities. An operator of a liquor store, for example, may have to post such a bond guaranteeing that liquor will be sold in strict compliance with alcoholic beverage control laws. Electricians and plumbers also must post these bonds guaranteeing that their work will conform to the specifications of a given building code.
There are two broad classifications of license and permit bonds:
Those that indemnify a governmental
body for the principalís failure to comply with an applicable law.
Those that give a third party
the right to pursue the principal -- in the third partyís own name -- for
loss or damage incurred by that third party due to the default of the principal.
A license or permit bond carries a term that corresponds with the period covered by the license or permit issued to the principal. The right to file a claim under the bond continues for varying periods, depending upon the state in which it was issued. Termination of a license or permit bond depends upon the following:
whether or not termination is allowed by law;
the ordinance under which the bond is required;
the terms of the bond itself.