Idaho Department of Insurance Final Order against an Individual Surety Highlights the Need for the New NASBP Educational Resource on How to Verify Surety Bonds
Idaho Department of Insurance Enters Final Order Against Individual Surety
A recent Stipulation and Final Order entered by the Idaho Department of Insurance (Department) against an individual surety, Edmund C. Scarborough, serves to emphasize that contractors and subcontractors should verify the authenticity of every contract surety bond before acceptance. By Stipulation filed on December 20, 2013, the Department and Scarborough agreed to, among other things, the following:
- Scarborough admits that, by issuing payment and performance bonds in connection with an Idaho Department of Transportation construction project as alleged in the Verified Complaint, he acted as a surety insurer and transacted surety insurance in the state of Idaho in violation of Idaho Code § 41-305. [Scarborough violated the Code by transacting surety insurance in Idaho without a certificate of authority issued by the Director of the Department.]
The Final Order, signed by the Director of the Idaho Department of Insurance, and also filed on December 20, 2013, provides in part as follows:
- [T]he Director . . . does hereby conclude that Edmund C. Scarborough did violate Idaho law as stated in the Stipulation.
- IT IS FURTHER ORDERED that Edmund C. Scarborough, shall not now nor in the future transact surety insurance or issue or deliver surety bonds as an unlicensed individual, as an individual surety, or in direct or indirect affiliation with any other unlicensed person or entity (i) in the state of Idaho, (ii) to or for Idaho residents, (iii) to or for any obligee or principal whose principal place of business is located in or who is a resident of the state of Idaho, regardless of where the project is located; or (iv) for public or private construction contracts located or to be performed in the state of Idaho, including but not limited to federal construction projects governed by or subject to the Federal Acquisition Regulations System, 48 C.F.R. Title 48, or its subsequent equivalent.
- IT IS FURTHER ORDERED that an administrative penalty in the amount of Fifteen Thousand Dollars ($15,000.00) is imposed against Edmund C. Scarborough, which penalty is due and payable immediately.
The Stipulation and Final Order includes a Notification Regarding Reportable Proceedings, which states that this is considered a reportable administrative proceeding and is, therefore, a public record. The Notification provides that “[t]his information will be reported to the National Association of Insurance Commissioners (NAIC) and will appear in the Idaho Department of Insurance’s online searchable database.” The Notification further provides that “this proceeding must be disclosed on any license application and must be reported to any and all states in which you hold an insurance license.”
This Stipulation and Final Order from the Idaho Department of Insurance reminds us that unauthorized individual sureties are still issuing bonds and there continues to be a tremendous need for contractors and subcontractors to verify the authenticity of surety bonds before accepting them. To review the entire Final Stipulation and Order, click here.
NASBP Issues New Educational Document on How to Verify Surety Bonds
In response to the critical need to educate contractors and subcontractors on how to verify bonds and in conformance with its mission to provide educational resources to the industry, in January 2014, NASBP released an easy-to-understand, one-page document that explains how consumers of surety credit can verify bonds through a two-step process, which confirms that the surety is licensed in the jurisdiction of the project and that the bond has been authorized by that surety. A very brief restatement of this two-step process follows:
- Check the authority of the surety to issue the surety bond:
- Contact the state insurance department to determine if the surety is admitted in the
jurisdiction of the project.
- Consult the U.S. Department of the Treasury List of Approved Sureties, Department Circular 570.
- Verify that the surety actually authorized the issuance of the surety bond. Contact the surety directly to receive verification that the surety bond has been duly authorized.
NASBP believes that its “Always Verify Your Bond!” is an important document to educate contractors, subcontractors, and owners about how to verify bonds. By undertaking this two-step process, consumers of surety credit can avoid obtaining bonds from unauthorized sureties. You can access the document on the NASBP homepage at www.nasbp.org or by clicking here.
Bond producers may find it useful to keep on hand copies of NASBP’s “Always Verify Your Bond!” to educate clients about the bond verification process. Stay tuned for more educational documents from NASBP!
The author of this article is Martha Perkins, General Counsel at NASBP. Martha Perkins can be reached at mperkins@nasbp.org or (202) 686-3700.
This article is provided to NASBP members, affiliates, and associates solely for educational and informational purposes. It is not to be considered the rendering of legal advice in specific cases or to create a lawyer-client relationship. Readers are responsible for obtaining legal advice from their own counsels, and should not act upon any information contained in this article without such advice.