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When surety bonds are issued, they carry zero risk for the surety company. The bond outlines the agreement between the principal, the surety company, and the obligee. Although the bond does not address reimbursement to the surety, an indemnity agreement is crucial. This two-party contract transfers risk from the principal to the surety company. The principal assumes the risk, while the surety company is absolved of liability. In the context of surety bonds, the importance of an indemnity agreement cannot be understated.
