A Claim Was Filed Against Your Bond. What Happens Now

What a claim is, and what it is not

A claim is somebody telling the surety that you did not do what the bond guaranteed you would do. On a California contractor license bond that might be a homeowner alleging defective or abandoned work. On a payment bond it is usually a subcontractor or supplier saying they were not paid. On a performance bond it is the project owner saying the job is not getting finished.

It is an allegation. The surety does not write a check because someone asked. It investigates, and claims are regularly denied, withdrawn, or settled for a fraction of what was demanded. What the claim does do immediately is start a file with your name on it and a clock attached.

The reservation of rights letter

The first thing most contractors receive is a reservation of rights letter. It reads badly the first time. In substance it says: we are investigating this claim, and by investigating it we are not waiving any defense we have — not against the claimant, and not against you.

That is standard. It is how a surety avoids being argued later to have accepted liability simply because it looked into the matter. It is not an accusation, it is not a finding, and it does not mean the surety has taken the claimant's side. Read it, note what it asks for, and answer it.

What the surety will ask you for

The investigation is documentary. Expect a request list, and expect it to be broad, because the claims analyst is trying to reconstruct a job they were not on:

• The contract and every change order, including the ones agreed by phone and never papered.
• Your written account of what happened, in sequence and with dates. This carries far more weight than contractors expect.
• Payment records. On a payment bond claim, proof of what the claimant was actually paid and when usually decides the file on its own.
• Correspondence. Emails and texts with the owner or the claimant, including the unflattering ones. They will surface eventually.
• Photos, daily logs, and inspection records. Contemporaneous evidence beats recollection every time.

The contractors who come out of claims well are the ones who send a complete, organised response quickly. It is the same discipline that makes a clean submission packet work, applied under pressure.

What silence costs

The surety has to close the file whether or not you participate. If it has the claimant's version and nothing from you, paying is frequently the cheapest defensible outcome — and then you reimburse it. Going quiet does not make a claim go away; it converts a disputable claim into a paid one that you owe.

Most indemnity agreements also impose a duty to cooperate. Failing to respond can itself be a breach, independent of whether the underlying claim had merit.

If the surety pays

Then the indemnity agreement does what it was always going to do. The surety pays the obligee or claimant up to the bond amount — on a license bond, up to $25,000 — and you reimburse it for that payment plus its investigation, adjusting, and legal costs. Owners who signed personally are on the hook personally.

Many sureties will also ask for collateral earlier than that, once a reserve is set, under the deposit provision in the indemnity agreement. If cash is the constraint, how collateral works is worth reading before that conversation, not during it.

What it does to your bonding afterward

A paid claim is a real mark. It shows up when you apply next, it is one of the more common reasons a bond gets declined, and it can move you into hard-to-place territory for a while. On a license bond it can also raise your rate at renewal.

But it is rarely terminal, and underwriters read the story, not just the line item. A single claim from a disputed job, documented, responded to, and resolved, with a contractor who has run clean since, is underwritable. What is hard to underwrite is a pattern, or a claim the contractor cannot explain because they were not paying attention while it happened. If credit or cash flow was the underlying cause, funds control is often what gets a program restarted.

What to do this week

• Acknowledge the letter. Confirm receipt and give the analyst a direct contact. Silence starts badly.
• Pull the file before you argue. Contract, change orders, payment records, photos, correspondence. Facts first.
• Tell your broker. Not to hide anything — so the file is presented properly and so you are not surprised at renewal.
• Get counsel if the amount is material. Especially where the claim overlaps a lien, a stop payment notice, or a live dispute with the owner.

If you want a plain read on where a claim leaves your program, send us the surety's letter and the bond number. If you are trying to get bonded again after one, start with hard-to-place bonds or a quote. This is general information, not legal advice, and underwriting always applies — we never promise guaranteed approval.