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premiums, and attempting to assure performance of the bonds on
behalf of the surety.
When petitioner writes a bond, he collects 10 percent of the
face amount of the bond from a defendant as his earned premium.
Pursuant to the agreement, petitioner: (1) Pays 13 percent of
the premium collected to Associated, the surety, as a bond cost;
(2) pays an additional 10 percent of the premium collected, or 1
percent of the face amount of the bond, to an indemnity fund
known as a "Build Up Fund" (BUF); and (3) keeps the remainder of
the premium.1
The surety company that issues a bond is principally liable
to California for assuring a defendant's court appearance. In
the event a defendant fails to appear, the surety company has to
pay a late surrender fee or forfeiture to California. If a
defendant is not brought to court within 180 days of a failure to
appear, the court issues a summary judgment in the amount of the
bond, resulting in a loss on the bond. The agreement, however,
shifts ultimate liability for expenses and forfeitures on each
bond from Associated to petitioner, who is personally liable for
1 During 1988, petitioner executed bonds in the amount of
$5,995,543, earning premiums on such bonds in the amount of
$599,554. Petitioner collected $581,567 of the earned premiums.
During that year, petitioner paid bond costs to Associated in the
amount of $77,942 (representing 13 percent of the premiums earned
on the bonds sold) and paid $59,955 into his BUF accounts
(representing 10 percent of the premiums earned on the bonds
sold).
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Last modified: May 25, 2011