5.4 Safekeeping, Accounting & Timely Return of Collateral

5.4 Collateral Custody and Return

Collateral secures the surety; it is not premium or agency revenue. The core provisions are F.S. 648.442 and 648.571, together with Rules 69B-221.120 and .135.

Acceptance and receipt

Collateral must be reasonable in relation to the bond. Acceptable security may include the forms listed in F.S. 648.442(1), but a quitclaim deed may not be taken.

At acceptance, give a written, numbered receipt with a detailed account of the collateral and provide the indemnitor copies of the related documents required by subsection (1). Rule 69B-221.120 is the collateral-security receipt rule; Rule .105 is not.

Fiduciary custody

Before forfeiture, collateral is held:

• in the insurer's name;
• by the agent in a fiduciary capacity; and
• separate from the agent's other funds or assets.

If cash collateral or its equivalent exceeds $5,000, the entire amount goes immediately to the insurer. If cash exceeds $50,000 per bond, the amount over $50,000 must be payable to the insurer by the specified cashier's-check, postal-money-order, certificate-of-deposit, or wire-transfer method and held by the insurer.

An interest-bearing collateral account may benefit the person who provided the collateral. The agent, insurer, and MGA may not make pecuniary gain on it.

Conversion after forfeiture

Before converting collateral to cash to satisfy a forfeiture, the agent or insurer gives the indemnitor and principal 10 days' written notice by certified mail to their last known addresses.

Conversion must occur in a reasonable time. Return the amount above the bond face value minus actual and reasonable conversion expenses. Those expenses ordinarily may not exceed 20 percent of the bond face value unless a court allows proven actual reasonable expenses above that amount.

Return after discharge

F.S. 648.571 supplies the deadline:

• discharge provided to surety or agent → return collateral within 21 days;
• written request plus diligent inquiry, but no court discharge within 7 days → bond automatically cancels and collateral is due within 21 days after the written request.

The rightful owner named in the receipt receives the collateral unless a legal assignment provides another disposition.

Liability and penalty

If an agent or MGA fails to return collateral after final termination of liability, F.S. 648.442 makes the surety liable to return the actual collateral or pay as provided by the section if it cannot be located.

F.S. 648.571 requires DFS to impose an administrative fine equal to five times the collateral amount for a violation, in addition to criminal penalties. F.S. 648.442(11) classifies a violation of that section as a third-degree felony.

Exam traps

• No blanket face-value cap: the initial standard is reasonable relation to the bond.
• No invented three-banking-day rule: more than $5,000 cash/equivalent goes immediately to the insurer.
• Interest on collateral benefits its provider; BUF interest under F.S. 648.29 benefits the agent.
• The 21-day return rule is F.S. 648.571, not subsection 648.442(3).