A Disadvantage of Co-Principals on a Customs Bond from a Claim Perspective

Posted on: January 29th, 2013 • In Bonds

To further expand on the disadvantages of co-principals on a customs bond, unfortunately, when Customs issues a notice of penalty, liquidated damage, supplemental duty bill or other violation notice on a bond with multiple co-principal’s, there may be confusion as to which entity on the bond is liable for the claim. In certain instances as described below, valuable time could be lost trying to identify the responsible party.  In addition, Customs bonds have tail liability, meaning, although a Customs bond has been terminated, the principal or co-principals are still liable for activity that occurred during the term of the bond.  As such, by the time a notice of penalty, liquidated damage or supplemental duty bill is issued, there could have been a change in the co-principals’ relationship resulting in termination of  the Customs bond the co-principals share, and the filing of separate bonds.  Also, there is a potential that a notice of penalty, liquidated damage or supplemental duty bill may be issued in the future under the terminated bond which had co-principals, and the principal whose transaction resulting in default is no longer in business or cannot meet its obligations.  Therefore, the other co-principals, being jointly and severally liable, now have the legal responsibility to respond to the violation and may not have the necessary access to pertinent import records and documents which may support cancellation or mitigation of the claim.  In the end, the surety will look to all co-principals to provide proof of payment or cancellation of the claim, to prevent payment under the bond and request for indemnification.

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