Public Official Bond Claims Guide

Those who enter into public office may be required to hold a Public Official Bond. These bonds are used to protect the obligee (the entity that requires the bond) and/or the public from the elected official’s misconduct. Public officials covered by this bond can range from a governor to local school board members. Sometimes, a master bond will allow coverage for multiple people, like a school board. 

These bonds are issued by a third party (in this case, Jet Insurance Company). Jet provides a dual benefit: the public and obligee have an avenue for reimbursement for financial losses caused by the official’s actions while an official can rest assured that Jet will fight against false claim accusations. 

How to Avoid Claims

Public Official Bonds are typically categorized as performance bonds, meaning that the bond is conditioned on the public official faithfully performing the duties of the office they were elected into. If the public official fulfills the obligations of the office and complies with state legislation, that should be enough to prevent any bond claims. But, claims can arise from damages arising from the public official engaging in fraud, dishonesty, and in some cases, neglect or omission of their duties. 

Claims can be filed by either the obligee or any member of the public that was injured by the official’s actions, depending on the terms stated on the bond form. The amount of the claim cannot be more than the bond’s limit, which is typically assigned by the obligee in an amount that would be appropriate based on the duties of the public official. 

There is a statute of limitations for the filing of claims, too. Claims can be submitted while the bond is active. Some states may allow claims to be filed during something called a “liability tail”, meaning that there is an extended period of time after the bond has ended for claims to be filed. It is important to mention that if this is allowed, the action that caused the claim must have occurred while the bond was active. Bond forms will typically indicate whether a liability tail exists. 

Public Official Claims Process

When a person or the obligee believes that damages have occurred because of a public official’s breach of duty, they can set in motion the bond claim process that is composed of the following stages: complaint, investigation, judgment, and recovery/indemnification.

Complaint

The first thing an injured party would do in response to a believed violation would be to bring the complaint to the obligee. A formal, written complaint would prompt an investigation to determine whether a violation actually occurred and if damages were sustained from said violation. 

Investigation

The obligee will review the complaint and any evidence that has been submitted. 

Judgment

Once the investigation is complete, the obligee will indicate if the public official has violated the duties of office. If a violation occurred, the obligee will recommend disciplinary action, which may include taking action on the bond by filing a claim. 

Recovery/Indemnification

Once a claim has been filed, Jet will review the judgment to verify whether the violation is covered under the bond’s terms and if there are any steps available to alleviate the claim. 

Jet will absolutely provide compensation to the injured party for damages covered by the bond on behalf of the public official at fault. Once the claim is paid out, the public official will need to repay Jet in the amount of the bond claim. This is an industry-wide standard and any surety company would need to be repaid following a claim payout, as bonds only cover instances that could be prevented by following the regulations set forth. 

Here’s an Example…

One of the most common claims that can occur against a public official is embezzlement. Let’s pretend that a fictional person, Anne Gable, is elected as the manager of the Town of Cordelia. As the township manager, Anne is in charge of the accounting and handling of all funds the town receives. However, the town discovers suspicious activity in the flow of funds, so the claims process begins. 

The Town of Cordelia will put together a formal complaint against Anne and begin an investigation. All available records and receipts will be evaluated to look for discrepancies in the town’s finances, such as government departments, employee benefits, or other operations. The Town finds that Anne was in violation of her duties as township manager and has embezzled money. 

Following the investigation, the Town prescribes corrective action, such as firing Anne, for starters, and placing criminal charges. As for the missing funds, one of the methods that can be used for reimbursement is the Public Official Bond. The Town shall lay claim on the bond, which covers embezzlement since it is a breach of duty. Jet will have to pay out the Town of Cordelia; but Anne is still liable for her actions and will need to pay Jet back.