How Dealers Can Avoid Disaster When Facing Bond Claims

Responding appropriately to a claim against your bond can mean the difference between staying in business or having your license pulled


One of the most common misconceptions about auto dealer bonds is that they are in place to protect you, the dealer.

This is untrue. Auto dealer bonds are in place to protect the state in which you are licensed in, as well as protect your customers.

No matter how long you’ve been in business, you are at risk for claims against your auto dealer bond. Although you can work to prevent bond claims, the day might arrive when a claim comes through your dealership doors.

Knowing how to appropriately respond to a claim against your bond can mean the difference between staying in business or having your license pulled.

What are bond claims?

A bond claim is a complaint saying that you have not fulfilled the duties of your license. Anyone can make a claim against your bond.

Generally, the claim cannot be for more than the total amount of the bond. For example, if you have a $50,000 auto dealer bond for your dealership, someone cannot make a claim against your bond for $1 million. Some states even the limit the amount each claimant can claim.

Common bond claims against auto dealers

The most common claims in the dealer industry include the following:

  • Misrepresenting a vehicle during a sale
  • Fraud
  • Not paying sales taxes or other mandated fees
  • Titling issues, such as conveying a clear title when the title is not actually clear

Although these actions are usually intended, there are instances where you might not even realize you’re doing something wrong, and someone might make a claim against your bond.

Don’t worry—you will have the chance to work this out during the bond claim process.

What does the bond claim process look like?

First things first: If a claim is filed against your bond, don’t panic. Do not close your dealership and run.

This will only look bad to the claimant and the surety company. Instead, remain in place and work to take care of the claim.

You are expected to take care of any claims that occur on your bond. This is your obligation under the indemnity agreement you signed when you purchased your bond.

What if I don’t take care of the claim?

If you fail to take care of the claim, the surety company will usually start an investigation to determine the claim’s validity. It will reach out to both you and the claimant.

One of two things will happen:

  1. The surety will investigate the claim and determine it to be invalid. No further action will be taken with the investigation, but you might be liable for any costs the surety incurred during the investigation process.
  2. The surety will investigate the claim and determine it to be valid.

If the surety finds the claim to be valid, it will remind you of your obligations under the bond.

It will expect one of the following responses from you: a response to the claim, a resolution to the claim (this typically involves compensating the claimant for any financial loss or damages incurred), or a valid defense to the claim.

If you resolve the claim, the claim process ends.

If you fail to respond to, resolve, or provide a valid defense the claim, the surety company will make a decision based upon the information and documentation provided by the claimant. In some cases, this could lead to the surety company paying the claim for you.

If the surety company steps in and pays the claim for you, it will come to you for reimbursement of the settlement and any legal costs associated with it.

This is one way a surety bond differs from an insurance policy. While an insurance company does not expect to be paid back for a claim, a surety company does.

You are responsible for cooperating with the surety company during the entire claim process. You are also responsible for reimbursing the surety for any lost payments, including all costs associated with the claim.

Again, this is all outlined in the indemnity agreement you signed when you purchased your auto dealer bond. You can reference your responsibilities and obligations under your auto dealer bond in the indemnity agreement you signed.

Will my bond be cancelled?

If a surety company pays out on a claim, your bond will likely be cancelled. This is to prevent future loss against the surety.

Without a bond in place, your license will likely be suspended or revoked, and you will not be able to continue conducting business.


For this reason, the best course of action during a bond claim is to satisfy the claim and remain cooperative with the surety company during the entire process.

Be honest and communicate effectively. Effective communication is needed during the process to make sure the claim is evaluated with all the facts.

Bond claims are not inherently bad, but how you handle a claim could mean you get to stay in business another day.

Crystal Ignatowski is a marketing content developer for Surety Solutions, a nationwide surety bond producer licensed in all 50 states, the Virgin Islands, Guam, and Puerto Rico. Crystal has written various articles for the industry. Her work has been published in Independent Agent magazine, on HubSpot, and elsewhere.

Crystal Ignatowski

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