What type of bond involves a third party indemnifying a bonding company against potential losses?

A surety bond is a specific type of bond where a third party, known as the surety, provides a guarantee to a borrower or to an obligee that a principal will fulfill their obligations as per the terms of a contract. In this arrangement, if the principal fails to meet their obligations, the surety becomes responsible for compensating the obligee for any losses incurred. This essentially creates a safety net for the obligee and allows them to recover losses through the bonding company, which indemnifies them against potential financial harm.

In contrast, a fiduciary bond ensures that a person managing another's assets (like an executor of an estate or a guardian of a minor) will fulfill their duties properly. A third party indemnity agreement is a broader term that may not specifically pertain to the bond context and typically involves any arrangement where one party agrees to compensate another for certain damages or losses. A performance bond is more focused on ensuring that a contractor completes a project as agreed upon, rather than indemnifying a bonding company against potential losses.