A Tennessee Contractor License Bond is a three-party arrangement between the contractor (principal), Tennessee (obligee), and the surety (guarantor).
The bond is required by the state of Tennessee (obligee) to safeguard the public and clients from potential financial losses or damages resulting from the contractor’s activities. If the contractor fails to meet their duties, the party that has been affected may submit a claim against the bond for reimbursement.
If a client or the general public suffers a financial loss as a result of the contractor’s conduct (for example, unfinished work, breach of contract, or code violations), they can submit a claim against the bond. When a claim is received, the surety (guarantor) investigates it to determine its authenticity. The surety may authorize the claim if it is judged legitimate and falls within the limits of the bond’s coverage.
If the surety authorizes the claim, they will compensate the damaged party up to the amount stipulated in the bond. This payment is intended to offset the financial damages incurred as a result of the contractor’s actions. While the surety settles the claim initially, the contractor is still financially liable for the amount paid out. The contractor is obligated to reimburse the surety firm for any claims paid, including investigation and legal fees.