Podcast
Questions and Answers
What type of total loss occurs when property is so badly damaged that it has no value?
What type of total loss occurs when property is so badly damaged that it has no value?
- Constructive Total Loss
- Partial Loss
- Actual Total Loss (correct)
- Total loss of a part
A Constructive Total Loss occurs when salvaging the cargo is cost-effective compared to its value.
A Constructive Total Loss occurs when salvaging the cargo is cost-effective compared to its value.
False (B)
What are the three main 'Cs' used in credit appraisal for qualifying for a Surety Bond?
What are the three main 'Cs' used in credit appraisal for qualifying for a Surety Bond?
Character, Capacity, Capital
A __________ Bond protects a company against dishonest acts of employees.
A __________ Bond protects a company against dishonest acts of employees.
Which type of total loss is characterized by a loss of one shipper's cargo without affecting others?
Which type of total loss is characterized by a loss of one shipper's cargo without affecting others?
Suretyship refers to a guarantee of performance.
Suretyship refers to a guarantee of performance.
What is meant by 'Capacity' in relation to qualifying for a Surety Bond?
What is meant by 'Capacity' in relation to qualifying for a Surety Bond?
What is required for the accounting information when qualifying a contractor?
What is required for the accounting information when qualifying a contractor?
A completed work record should include projects from the past 3 years.
A completed work record should include projects from the past 3 years.
What is the formula for calculating working capital?
What is the formula for calculating working capital?
The surety will require names and addresses of principal suppliers and _______.
The surety will require names and addresses of principal suppliers and _______.
Which of the following factors affects working capital?
Which of the following factors affects working capital?
A business plan is unnecessary when qualifying the contractor.
A business plan is unnecessary when qualifying the contractor.
What are accounts receivables and payables required for?
What are accounts receivables and payables required for?
Which of the following can cause delays in a construction project? (Select all that apply)
Which of the following can cause delays in a construction project? (Select all that apply)
Voluntary default occurs when a contractor is forced to withdraw from a contract due to financial obligations.
Voluntary default occurs when a contractor is forced to withdraw from a contract due to financial obligations.
What must the obligee do to file a claim under a performance bond?
What must the obligee do to file a claim under a performance bond?
A bond that guarantees payment to subcontractors and suppliers is known as a __________ bond.
A bond that guarantees payment to subcontractors and suppliers is known as a __________ bond.
What can a surety do if they find a contractor in default?
What can a surety do if they find a contractor in default?
The premium for a performance bond must be paid after the contract is completed.
The premium for a performance bond must be paid after the contract is completed.
Name one important function of a Labour & Material Payment Bond.
Name one important function of a Labour & Material Payment Bond.
To make a claim, written notice must be provided to the contractor, owner, and __________.
To make a claim, written notice must be provided to the contractor, owner, and __________.
What does the calculation for net worth involve?
What does the calculation for net worth involve?
The completed contract method recognizes job profit or loss only when the project is completed.
The completed contract method recognizes job profit or loss only when the project is completed.
What does the percentage of completion method help to reveal?
What does the percentage of completion method help to reveal?
The formula for calculating net worth is: Net worth = Assets - __________.
The formula for calculating net worth is: Net worth = Assets - __________.
What is one advantage of the completed contract method?
What is one advantage of the completed contract method?
The Work in Progress Report is used to enhance a contractor's financial state understanding for underwriters.
The Work in Progress Report is used to enhance a contractor's financial state understanding for underwriters.
What are the three ways a contractor can provide guarantees to the surety company?
What are the three ways a contractor can provide guarantees to the surety company?
What are Subordination Agreements also called?
What are Subordination Agreements also called?
New Contractors are at an advantage when seeking bonding due to their extensive track record on completed projects.
New Contractors are at an advantage when seeking bonding due to their extensive track record on completed projects.
What factors might affect the issuing of a bond?
What factors might affect the issuing of a bond?
Special contract conditions can affect the ability of the contractor to successfully perform the ______.
Special contract conditions can affect the ability of the contractor to successfully perform the ______.
Which of the following is true about the conditions that can affect a contractor's performance?
Which of the following is true about the conditions that can affect a contractor's performance?
The surety is more likely to provide a bond if the contractor has a poor performance record.
The surety is more likely to provide a bond if the contractor has a poor performance record.
What is the primary purpose of licensing for businesses?
What is the primary purpose of licensing for businesses?
Flashcards
Actual Total Loss
Actual Total Loss
Complete loss or irreparable damage to insured cargo, resulting in zero value.
Constructive Total Loss
Constructive Total Loss
Cargo recovery cost exceeds its salvageable value.
Total Loss of a Part
Total Loss of a Part
Only one shipment is lost, others remain intact.
Surety
Surety
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Personal Suretyship
Personal Suretyship
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Corporate Suretyship
Corporate Suretyship
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Fidelity Bond
Fidelity Bond
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Character (in bonding)
Character (in bonding)
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Capacity (in bonding)
Capacity (in bonding)
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Capital (in bonding)
Capital (in bonding)
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Claim Filing Procedures
Claim Filing Procedures
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Contractor Default Effects
Contractor Default Effects
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Labor & Material Payment Bonds
Labor & Material Payment Bonds
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Working Capital
Working Capital
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Net Worth
Net Worth
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Profitability
Profitability
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Completed Contract Method
Completed Contract Method
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Percentage of Completion Method
Percentage of Completion Method
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Indemnity Agreements
Indemnity Agreements
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Third-Party Indemnities
Third-Party Indemnities
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Collateral Security
Collateral Security
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New Contractors Bonding
New Contractors Bonding
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Poor Performance History
Poor Performance History
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Bond Issuance Factors
Bond Issuance Factors
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Study Notes
Marine Cargo Insurance Policies
- Total losses in marine insurance indicate a complete loss of the insured cargo, categorized into three types.
- Actual Total Loss: Property is completely lost or irreparably damaged, resulting in zero value.
- Constructive Total Loss: The costs to recover the cargo exceed its salvageable value.
- Total Loss of a Part: Only one shipper's cargo is lost, while other shipments remain intact.
Surety Bonds
- Definition of Surety: Assurance of certainty and security; Suretyship implies a guarantee of performance.
- Types of Suretyship:
- Personal Suretyship: A guarantor commits to honoring the obligations if the debtor defaults.
- Corporate Suretyship: Involves bonds like Fidelity Bonds (protects against employee dishonesty) and Surety Bonds (ensures third-party obligations are fulfilled).
Qualifying for a Surety Bond
- Assessment based on the "Three Cs":
- Character: Evaluation of the management performance of the principal.
- Capacity: Assessment of the principal’s ability to meet contractual deadlines.
- Capital: Verification of financial stability to complete projects.
Claims and Performance Bonds
- Claim Filing Procedures:
- Obligee must inform the surety of default within time limits.
- Obligee needs to prove a default and adherence to contract terms.
- Effects of Contractor Default:
- Surety can step in to complete the contract or seek competitive bids for completion.
Labor & Material Payment Bonds
- Guarantees payment to subcontractors and suppliers, minimizing construction delays and reducing costs.
- Ensures credit availability and fosters timely procurement of materials and labor.
Determining Bond Limits
- Working Capital: Represents funds available for ongoing expenses; calculated as Current Assets minus Current Liabilities.
- Net Worth: Amount remaining post liquidation of assets minus liabilities, indicating business growth.
- Profitability: Evaluated through working capital and net worth assessments.
Interpreting Financial Statements
- Completed Contract Method: Recognizes profits only upon completion, potentially distorting financial positions.
- Percentage of Completion Method: Preferred for ongoing projects, allows real-time profit/loss recognition based on work completed.
Contractor Guarantees
- Sureties may require additional guarantees to manage default risks:
- Indemnity Agreements: Allow surety recovery for losses incurred.
- Third-Party Indemnities: Secure guarantees for unpaid claims.
- Collateral Security: Often cash or letters of credit to back claims.
Eligibility for Bonding
- New Contractors: Often disadvantaged due to limited track records; must optimize bonding capabilities.
- Contractors with poor performance histories may struggle to secure bonding unless issues are addressed.
Bond Issuance Factors
- Sureties assess various factors such as project nature, location risks, bond limits, completion dates, special contractual conditions, and regular payments from the owner to ensure contractors can fulfill obligations.
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Description
This quiz covers essential concepts of marine cargo insurance policies, including various types of total losses. It also explores the definitions and types of surety bonds, along with the criteria for qualifying for a surety bond. Test your understanding of these important insurance concepts.
