A surety bond is generally required of individuals who handle and/or sell a producer’s agricultural products (grain, fruit, feed, fertilizer, or any other agricultural commodity that is marketed for human or livestock consumption).
The purpose of the surety bond is to financially ensure that the dealer will uphold license regulations and, most importantly, make all necessary payments to producers they obtain their agricultural products from. In some states, the bond also covers the costs of annual inspection fees charged by the governing state regulator—this could be the local Commissioner or Department of Agriculture.
If either of these requirements go unpaid, funds from the bond will cover such overdue producer payments and/or the state regulator’s inspection fees, as well as any other charges that have accumulated from the dealer violating the terms of their license.
As a direct provider of surety bonds, Jet Insurance Company is legally obligated to pay out justified claims. However, Jet wants to protect customers from bond claims as much as possible, so let’s go over how to avoid a claim and what to do should an official claim be filed.
The surety bond goes by a few names—keep in mind this isn’t an extensive list and for the sake of clarity, we will refer to it as the Agricultural Products Dealer Bond in this article.
Bonds Covered In This Article
Agricultural Products Dealer Bond
Commodity Dealer Bond
Cotton Merchant LACC Bond
Dealer and/or Commodity Handler Bond
Farm Produce Dealer, Broker, and/or Commission Merchant Bond
Feed Dealer Bond
Feeder Pig Dealer Bond
Fertilizer Dealer Bond
Fruit and Vegetable Dealer Bond
Grain Dealer Bond
Hop Dealer Bond
Livestock Market Agency or Dealer Bond
Mint Dealer Bond
Wholesale Potato Dealer Bond
How to Avoid Feeding Into a Bond Claim
The following is not a complete and thorough list but includes the main actions that can lead to a claim on an Agricultural Products Dealer Bond:
- Making false statements regarding the grade, condition, or quality of agricultural goods
- Failure to file sales reports with the state regulator (may be required monthly, quarterly, or annually)
- Subsequently failing/refusing to pay mandated state fees (e.g. inspection and/or licensure fees)
- Failure to pay a producer for agricultural products handled and/or sold by the dealer
Agricultural Products Dealer Bond Claim Process
Who Can File a Claim on an Agricultural Products Dealer Bond?
Producers who have not received payment for their goods can pursue a claim against the Agricultural Products Dealer Bond. In most cases, the producer will need to file a complaint with their state regulator first, and if it is found that the complaint is valid the regulator may file a bond claim on behalf of the damaged producer.
In addition, the state regulator (obligee) who manages the dealer license may file an official claim if a violation has been committed. Typically, this only occurs if the dealer subsequently fails to fulfill necessary inspection and/or licensing fees and refuses to resolve the matter through immediate payment.
Are There Limits to Claim Filings?
Yes, claims are limited by the amount that may be paid out by the surety provider (Jet) and when a claim may be filed by the obligee or a damaged third party (agricultural products producer).
The amount of liability that is covered by the surety bond is represented by its limit (i.e. dollar amount). Agricultural Products Dealer Bonds are typically required to have a custom limit that is based on either the number of agricultural products sold by the dealer within a certain time period or the estimated inspection/licensure fees to be owed in the following year. The obligee will generally provide information on how to calculate these limits in the state or city statutes.
A claim may be filed on an Agricultural Products Dealer Bond at any point throughout the duration of the bond term, as well as during the cancellation period of 30, 60, or 90 days (whatever is stated on the bond form). Once the liability period has ended, a claim may not be filed against the bond.
What Would an Agricultural Products Dealer Bond Claim Look Like?
Let's use an example:
James is running a business as an agricultural products dealer in the State of Florida. He handles and sells goods for Ted—a producer of various agricultural feeds and fertilizers. James and Ted have been working together for several years, so Ted was surprised when he discovered that James had not only fallen behind on sales payments but has also underpaid him for the last several months. Ted assumes it's a simple mistake and contacts James directly to resolve these payment issues, however, he hears nothing but crickets in return. So, what is Ted to do?
According to the Florida Department of Agriculture and Consumer Services (FDACS), complaints must be filed within six months of the sale or delivery of the agricultural product, so Ted needs to take action as soon as possible.
With this in mind, he ends up filing an official complaint against James immediately and awaits to hear from the FDACS.
The FDACS reviews Ted’s complaint and begins an investigation. During this time, James can resolve the complaint by simply providing Ted with all necessary payments due for the agricultural products sold. Unfortunately, James makes no effort to do so.
With help from the documentation that was provided by Ted, the complaint is found to be justified. The FDACS proceeds to file an Agricultural Products Dealer Bond claim on behalf of Ted and notification is sent to the surety provider (Jet).
Once Jet receives the claim notice, contact is made with the principal (James) and he is asked to provide Jet with all available information and documentation regarding the alleged violation so that we may begin our own investigation.
Alas, it is pretty clear from the invoices and sales receipts provided, as well as witness testimony, that James is past due on producer payments, so the Jet team deems the claim justified. Funds from the Agricultural Products Dealer Bond are sent to the FDACS and will cover what is owed to Ted up to the bond’s limit (claim payouts never exceed the bond amount).
Once Jet has fulfilled the claim payment due to the FDACS, James is then expected to reimburse Jet Insurance Company for the bond funds that were used to cover what was owed to Ted—this is a common mandate as all surety companies require reimbursement for claim payouts. If James is unable or unwilling to fulfill this condition of his Agricultural Products Dealer Bond, he will have problems in the future securing another surety bond for dealer licensing purposes.
Laws in each state vary slightly when it comes to agricultural products, so Jet recommends reading through the dealer license regulations that apply to the state of operation. Take a look at the chart below for further information.