The restitution against loss to a third party when the insured fails to fulfill a specific undertaking for the third party's benefit is referred to as:

• A. Disability insurance
• B. An indemnity bond
• C. Fidelity insurance
• D. Casualty insurance

Answer: (B)

An indemnity bond is a form of surety that guarantees restitution to a third party when the insured fails to fulfill a specified undertaking. In this setup, the third party (the obligee) relies on the bond to be compensated if the principal doesn’t perform the contract or obligation promised to the third party. The insurer (the surety) backs the bond, paying the loss up to the bond amount, after which the principal must reimburse the insurer. This is different from disability insurance (which benefits the insured for disability), fidelity insurance (which covers losses from employee dishonesty), or casualty insurance (which covers liability or physical damage). So the described concept is an indemnity bond.