Tree trimming can be dangerous business: the heights required and power equipment used add layers of peril that aren’t contemplated in other types of businesses. Luckily, general liability, workers compensation, automobile liability and other policies are available to cover these dangers.
Many customers of tree trimmers/arborists require additional coverage beyond these insurance policies. That’s because in the contracting business, customers understand there is a risk that the contractor won’t meet the obligations of the contract. This type of risk – risk faced by the customer – is covered by bonds.
Bonds keep a tree trimming business running smoothly. These bonds don’t have to be expensive or complicated. But we commonly hear the question: “If I’ve already got the basic business insurances covered, why would I need a bond?”
The State Won’t Give You a License Without One
You may not be able to get a contractor license from the state in which you do business without a contractor license bond, also known as a performance bond. These are required in some states in order to license a contractor and ensure that the contractor will provide ethical services in a professional manner by complying with all laws and ordinances, regulations and standards that apply to the business activity being licensed.
Who are the parties to the bond? You (the contractor), the state licensing board (the obligee) and the insurance company issuing the bond (the surety). The bond is filed with the contractor licensing board in order to obtain a license.
How is the premium determined? Premium is determined by the amount of the bond requested and underwriting assessment of your business including but not limited to prior history with other contractors, clients, etc. and your company’s current financial stability.
Contract Fulfillment Is the Name of the Game
Your client wants to make sure that the job they hired you to do actually gets done well and on time. A surety bond goes a step further than the licensing bond and protects your client in the event you are unable to fulfill your contractual obligations.
A surety bond is used to indicate commitment to fulfillment of contractual terms, though on some jobs this bond may be mandatory to obtain the work. Please check your bid paperwork or contract carefully to determine if a surety bond may be required for your job. Municipalities may require this type of bond, but private contracts are just as likely to include it in contract terms.
Who are the parties to the bond? You (the contractor/subcontractor), your general contractor or client (the obligee) and the insurance company issuing the bond (the surety).
How is the premium determined? Premium is determined by the amount of the bond requested and underwriting assessment of your business including but not limited to prior history with other contractors, clients, etc. and your company’s current financial stability. Other factors include the size and time requirements of the job.
Bonds Protect You From Subcontractors …and Employees
Despite your best efforts to employ honest, quality people, sometimes an employee or subcontractor may not perform to your company standards. Protection from this instance can be found in a fidelity bond.
A fidelity bond is actually a type of insurance policy, somewhat different from a bond. There are two different types of fidelity bonds: first-party and third-party. You may need only one or the other, or you may need both.
- First-party fidelity bonds protect your business against intentional wrongful acts committed by your own employees. These may include forgery, theft, and fraud. These types of acts are usually excluded under a standard property insurance policy since they are committed by employees. This is sometimes called employee dishonesty or crime coverage.
- Third-party fidelity bonds protect your business against intentional wrongful acts committed by people who work for you on a contractual basis (such as consultants, subcontractors or independent contractors). Usually you would require this type of bond from the subcontractor.
How is the premium determined? Premium is determined by the amount of the bond requested, the type of business and the number of employees.
While insurance and bonds are both good types of business protection on their own, a comprehensive business insurance plan should include both categories of coverage. Bonds can fill in the gaps in liability policies lending to greater peace of mind for you and for the client who hires you.