Which statement best distinguishes a SURETY BOND from an INSURANCE policy?
Explanation
Suretyship involves three parties — principal, obligee, surety — and the surety guarantees the principal's obligation to the obligee, with a right of indemnity back against the principal. Insurance is a two-party transfer in which the insurer absorbs the insured's fortuitous loss and does not seek reimbursement. (b) describes insurance and labels it a bond, which is why contractors are surprised when a surety pursues them after paying a bond claim. (c) simply reverses the two definitions. (d) reverses who gets paid: the bond pays the obligee, and liability insurance defends and indemnifies the insured.
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