When obtaining your HVAC contractor license from the state or local licensing authority, you’re usually required to get a surety bond. The purpose of the bond is to guarantee your compliance with the applicable contractors license regulations. It also serves as proof of the quality of your work and your ability to complete the tasks to which contracted.

In order to fully understand the function of bonds, it’s also good to consider what surety bond claims are, when they can be filed, and how to tackle them. Only by getting the complete picture can you know the best course of action if a claim is filed against your surety bond.

Let’s explore in detail the claim process and learn more about how to avoid claims.

When and how can a claim be filed on your HVAC license bond?

It’s useful to remind ourselves how surety bonds work in order to put the claim process in perspective. The bond is a contract between your business, the licensing authority, and the surety provider. Its aim is to guarantee your legal compliance and not to protect your business, which is the function of insurance.

Thus, the contractor license bond is designed to cover a set of specific violations that are stipulated in the state or local regulations. In case you commit such a violation, a consumer, employee, or supplier can file a claim against the bond. The usual reasons for consumer claims include low quality work leading to damages to property, completion delays, or fraud in the execution or performance of the job. Employees and suppliers can file claims in case they have not received their due payments or fringe benefits (for eligible workers).

The person or entity submits the claim to the surety provider. Then, the surety starts a thorough investigation to check the validity of the claim. Often the circumstances are disputable, so the claim may need to be resolved in court. If the surety has sufficient proof, it will accept the claim and cover the penalties up to the bonding amount. Afterwards, you will have to reimburse it for all costs. If, however, the claim cannot be proven, the surety will assist you in challenging it legally.

The best course of action when a claim is filed

Even if you don’t agree to a claim that is filed against your HVAC business, a claim is not something you can brush aside. Both the surety that has underwritten your bond and the licensing authority approach surety claims quite seriously. Thus, it’s in your interest to follow the procedure in order to have the best outcome of the situation. Usually this means providing proof of your diligence on a project or, in case the claim is proven, finding a reasonable settlement with the claimant. It’s a good idea to seek legal advice from the start to ensure you know where you’re standing

If you get contacted from your surety regarding a claim, it’s best if you respond as soon as possible with a detailed explanation of your position and a full set of documentation proving your point. In this way, you can safeguard your interests and make sure that all information reaches the underwriter. That’s how they can make a decision whether the claim has a solid proof or not.

In some cases, your local or state licensing authority might inform you that a complaint against you has been filed with them. While this is not a claim on your bond, it might translate into that as well. If the license provider deems the claim legitimate, disciplinary action can be taken against your business, which can mean also the cancellation of your license. Thus in this case it’s also a good approach to file your official response immediately and address the problem with your point of view and all due documentation.

Avoiding claims is the wisest approach

A surety claim can turn into a nightmare, especially if not handled properly. In case the claim is proven, you’ll face serious financial damage. It might also lead to losing your contractor license and then having difficulties in obtaining one in the future. Let’s not forget that the problematic situation can have negative repercussions for your business reputation.

While this may sound like preaching to the choir, the wisest course of action in your HVAC business operations is to do your best to avoid claims. In practical terms, this means strictly abiding by state and local regulations, diligently completing your work and due payments to subcontractors and suppliers

Another useful tip is to keep accurate records of your contracts and their amendments or cancellations and of all payments made and received. Having everything in writing can save you in case of an unjustified claim. Timely and transparent communication with your subcontractors and suppliers is also crucial. If you keep them informed about your current circumstances, they may be more willing to allow you more time to pay invoices and not to file claims against you.

While surety bond claims are sometimes an unpleasant fact of life, there are ways to avoid them and to take meaningful course of action if you still get one filed against you. The key is an honest and open approach combined with being diligent both in your work and in your business documentation.

What is your experience with claims on HVAC contractor license bonds? Please share your thoughts in the comments below.

About the author:

Ralitsa Golemanova is a surety bonds expert and an active blogger in the construction field. She is a regular contributor on the Lance Surety Bond Associates blog.