Indemnity Bonds: As set forth above, bid bonds, performance bonds and payment bonds are indemnity bonds. These bonds are not insurance policies. If a covered claim arises against a commmercial general liability policy, the insurer has a contractual obligation to indemnify and defend the insured (. the party obtaining the policy) and cannot seek repayment from the insured for amounts paid out as a result of a covered claim. If a claim arises and is paid out on a bid bond, performance bond or payment bond, the surety (the party issuing the bond) will look to the contractor to indemnify and defend it. So, if a claim is asserted against Contractor XYZ’s performance bond, the surety is going to look to Contractor XYZ to defend the lawsuit and to pay any damages.
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