Business FinancesQuestion 659 of 1605
Under Bus. & Prof. Code §7071.11, when claims against a contractor's $25,000 license bond exceed the bond's penal sum, the bond proceeds are distributed in which order of priority?
a.Pro rata among all valid claimants, regardless of category
b.First to the surety to recoup premium, then to the CSLB for fines, then to claimants
c.First-in-time, first-in-right by claim filing date
d.First to claims for wages and benefits (employees and trust funds), then to consumer claims by residential property owners, then to other claimants — with valid claims within each priority sharing pro rata if insufficient
Explanation
Bus. & Prof. Code §7071.11 establishes a tiered priority for distributing license-bond proceeds when claims exceed the $25,000 penal sum: (1) employee wage/benefit/trust-fund claims, (2) damages to a residential property owner under a home improvement contract who paid for work not completed, (3) damages to a non-residential property owner, and (4) other valid claims. Within each priority, pro rata sharing applies if proceeds are insufficient. First-in-time rules apply to mechanics' liens, not §7071.11 bond distributions. The surety/CSLB priority option is not in the statute.
Law Reference: Bus. & Prof. Code §7071.11Practice all 1605 questions free — no signup required.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)