A bondsman who takes possession of collateral is deemed fiduciary to which parties?

• A. Only insurer
• B. Only principal
• C. Both principal and insurer
• D. Neither

Answer: (C)

Holding collateral creates a fiduciary relationship because the bondsman is entrusted with someone else’s property to secure the bond. In a surety arrangement, the principal provides the promise to fulfill obligations and the insurer assumes the risk of loss. The collateral is held to protect the insurer if the principal defaults and to back up the performance of the bond, so the bondsman must manage it with loyalty and prudence for both sides. That means the bondsman owes fiduciary duties to the principal, who provided the collateral to safeguard the bond, and to the insurer, who relies on that collateral to cover potential losses. Since the collateral serves and protects both parties, the bondsman is a fiduciary to both the principal and the insurer.