7.1 Powers of Attorney, Managing General Agents, and Build-Up Funds

The Power of Attorney

Definition and Function

OAC 3901-1-66(C)(2) defines a power of attorney as "a legal instrument that is used by an authorized surety company to delegate authority to a licensed general agent or surety bail bond agent for the posting of surety bail bonds with a court of law up to a specified monetary amount." The power does three things:

1. It is the agent's express authority to bind the surety on that bond (Section 4.1).
2. It sets a dollar ceiling, the face amount, for that one use.
3. It is the court's evidence that a real, authorized insurer stands behind the bond.

Powers also matter for court registration. The registration packet includes a certified copy of the agent's appointment by power of attorney from each insurer the agent represents (ORC 3905.87(B)).

The Anti-Stacking Rule (OAC 3901-1-66(D))

A surety bail bond agent shall not submit more than one power of attorney for any single bond, charge or charges, as is assigned a number by a court of proper jurisdiction.

Stacking means combining two or more powers to reach a bail amount that no single power covers. It is prohibited because each power's face amount reflects the surety's underwriting limit for that agent. Stapling powers together would let an agent expose the insurer to risk it never approved on a single bond.

The Five Submission Rules (OAC 3901-1-66(E))

Scenario: Bail is $75,000 on a single indictment. Agent Lee holds $50,000 and $25,000 powers. Lee may not submit both. Lee must obtain a single power of at least $75,000 from the surety or its MGA, or decline the bond.

Who May Execute Powers

• Only a licensed, appointed agent (ORC 3905.84). An unlicensed office employee may handle some forms under supervision but never a power of attorney, bond form, or collateral receipt (ORC 3905.931(A)).
• No signing or countersigning in blank, and no authorizing anyone to countersign the agent's name, except a licensed, appointed agent the agent directly employs (ORC 3905.933(A)).
• Immigration bonds require a power that expressly allows immigration bonds (OAC 3901-1-66(F)(2)).

Because every power is single-use and must be current and unaltered, agencies keep a power inventory log: each power received, used (with court and case number), voided, or returned. That log also supports the three-year records duty in ORC 3905.90.

Managing General Agents

A managing general agent (MGA) is "any person that is appointed or employed by an insurer to supervise or otherwise manage the bail bond business written in this state by surety bail bond agents appointed by the insurer" (ORC 3905.83(B)). In practice, an MGA often:

• recruits and supervises agents;
• issues powers to agents within limits the insurer sets;
• collects the insurer's share of premium; and
• holds agents' build-up funds in trust.

MGAs appear throughout the bail statutes. They receive address-change notices (ORC 3905.89), inspect agents' records (ORC 3905.90), must keep build-up funds in trust (ORC 3905.91), and receive large cash collateral forwarded by agents (ORC 3905.92(A)(5)).

Build-Up Funds (ORC 3905.91)

A build-up fund (BUF) is money set aside from the agent's side of each bond under the agent's contract with the insurer or MGA. It builds a reserve that stands behind the agent's book of business. Ohio does not leave BUF handling to contract. It sets these statutory rules:

Worked Example

An agent writes a $20,000 bond. The filed premium is $2,000, and the agent's contract requires a BUF contribution of 15% of premium.

• BUF on this bond: 15% x $2,000 = $300, which is within the 40% cap ($800).
• The $300 goes immediately into the agent's build-up trust account, and the accounting records it against this bond.
• Interest earned belongs to the agent.
• If the agent's contract ends in 2027 but this bond is not discharged until 2028, the BUF for it is not due until 2028. The insurer or MGA must then pay within six months.

Exam Traps

• The BUF belongs in trust for the agent. It is not the insurer's operating money.
• 40% of premium is a statutory ceiling, not the typical rate.
• The six-month deadline runs from when the funds are due, meaning after both contract termination and discharge of the related liabilities, not from the termination date alone.