In short.
- Where a surety bond is lodged with a Spanish public authority, the insurer pays on first demand from the Caja General de Depósitos (the State General Deposit Fund) or an equivalent fund (RGLCAP art. 57.3), without the benefit of excussion (LCSP art. 112.1) and without being able to raise unpaid premium or any defences it holds against the policyholder (art. 112.3).
- Whether there was a breach is argued beforehand, in the forfeiture procedure, where both the contractor and the insurer are interested parties with a right to be heard (Deposit Fund Regulation, art. 16.1.c; LCSP art. 112.2). Once payment has been demanded, there is very little room to resist the insurer.
- Payment does not extinguish the policyholder's debt: every payment made by the insurer must be reimbursed to it (Insurance Contract Act, art. 68), and that is where the counter-indemnities signed when the facility was set up come into play.
When a surety bond claim is made, nobody indemnifies you. The insurer pays the public authority or the client making the call and then asks you to reimburse every euro: article 68 of the Spanish Insurance Contract Act says so. If your company has just received notice that a guarantee is being forfeited, the problem is not one of cover: it is one of procedure —what you can argue and when— and of cash flow.
What does calling a surety bond mean?
Every surety bond is a triangle: the policyholder, the company that must perform (contractor, concession holder, developer); the insured or beneficiary, which requires the guarantee (a public authority or a private client); and the insurer, which gives its undertaking to the beneficiary. The types of guarantee and how they are put in place are explained in guarantees and bonds.
The "loss" is the policyholder's failure to meet its legal or contractual obligations, under article 68 of the Insurance Contract Act (Ley de Contrato de Seguro). That same article closes with the sentence that sets surety apart from every other class of insurance: any payment made by the insurer must be reimbursed to it by the policyholder. Payment does not extinguish the debt of the party in breach: it is advanced to the beneficiary and recovered from the policyholder.
Calling, forfeiting, claiming
The Public Sector Contracts Act (Ley de Contratos del Sector Público, LCSP) and the Regulation of the Caja General de Depósitos speak of incautación (forfeiture); in everyday language the bond is called or enforced; and for advance payments on homes the Building Act (Ley de Ordenación de la Edificación, LOE) speaks of claiming against the insurer. It is the same phenomenon: the beneficiary demands the guaranteed amount because it considers that the policyholder has failed to perform.
On-demand guarantee versus accessory guarantee
This is the heart of every call. The classic civil-law guarantee (fianza) is accessory: the guarantor can require the debtor's assets to be exhausted first (the benefit of excussion, article 1830 of the Spanish Civil Code, save in the cases listed in article 1831) and can raise the defences inherent in the debt (article 1853).
A surety bond given to a public authority works the other way round:
- No benefit of excussion (article 112.1 LCSP).
- No defences derived from the policyholder: the insurer cannot raise against the insured those it holds against the policyholder (article 112.3 LCSP; article 57.4 of the RGLCAP; article 29.b of the Deposit Fund Regulation).
- Unpaid premium cannot be raised: it neither allows the contract to be terminated nor releases the insurer (article 112.3 LCSP).
- Payment on first demand from the Caja General de Depósitos or its equivalents (article 57.3 of the RGLCAP; article 29.b.4 of the Deposit Fund Regulation).
The practical consequence: the beneficiary is paid first and the merits are argued afterwards, between policyholder and beneficiary. The insurer is not the forum where the question of breach is decided.
For private contracts there is no single statutory text: the form of certificate or policy governs. It is worth looking for wording such as "on first demand", "joint and several" or "waiving the benefits of excussion, order and division": if it is there, the effect will be very similar.
Bank guarantee on first demand: the same mechanism
A bank guarantee payable on first demand —also known as a demand guarantee— has the same effect. One given to a public authority must be joint and several, expressly waive the benefit of excussion and be payable on first demand from the Deposit Fund (article 56.1.a of the RGLCAP). Its forfeiture follows a parallel route: a demand for payment addressed to the guarantor bank and enforced collection if it does not pay (article 28 of the Deposit Fund Regulation).
When a bank guarantee is called, as with a surety bond, the beneficiary is paid on its demand and the merits are argued later. Calling a bank guarantee and calling a surety bond do not differ in how payment is obtained, but in the instrument and its financial effect. For how a bank guarantee works and a comparison of cost and impact on the CIRBE (the Bank of Spain's central credit register), see bank guarantee vs surety bond.
How a surety bond is called in public procurement, step by step
The guarantee only answers for the items listed in article 110 LCSP; what they are and when the guarantee is forfeited are covered in our guide to the LCSP performance guarantee (garantía definitiva). Here, how payment is obtained. For guarantees deposited with the State's Caja General de Depósitos, the procedure is governed by its Regulation (Royal Decree 937/2020):
- Act declaring the breach. It must be immediately enforceable within the meaning of article 98.1 of Law 39/2015 on the Common Administrative Procedure (article 16.1.a of the Regulation). Without that act there is no forfeiture.
- Notice of commencement to the guarantor and to the guaranteed party, so that they can make representations at a hearing (article 16.1.c, referring to article 82 of Law 39/2015). The insurer is an interested party (article 112.2 LCSP).
- Request for forfeiture to the Deposit Fund, stating the amount. The Fund may ask for defects to be remedied within 10 days (article 16.3).
- Demand for payment to the insurer, stating the method and time limit for payment in accordance with the General Collection Regulation (Reglamento General de Recaudación) (article 33.3 of the Deposit Fund Regulation). The time limit is the one set by the collection rules.
- If the insurer does not pay, the Fund proceeds against it through enforced collection (vía de apremio) (article 33.5). In addition, the authority may reject new surety bonds from insurers with amounts still unpaid 30 calendar days after the first demand (article 57.1.a of the RGLCAP). This is not a payment deadline, but it explains why insurers meet these demands.
Forfeiture must be requested within the limitation period in article 23 of the Insurance Contract Act (article 33.6 of the Regulation), which is two years for non-life (property and liability) insurance.
After payment, the contractor remains exposed:
- If penalties or damages are taken from the performance guarantee, it must top up or replenish it within 15 days of enforcement; otherwise it gives grounds for termination (article 109.2 LCSP).
- If the guarantee falls short, the authority recovers the difference through enforced collection (article 113.2 LCSP) and, in doing so, ranks ahead of any other creditor (article 113.1).
- If the contract is terminated through the contractor's fault, it must compensate any loss exceeding the guarantee (article 213.3).
The Autonomous Communities and local authorities have equivalent deposit funds with their own rules: please confirm the steps with the contracting authority.
Have you received notice that forfeiture proceedings have begun? Let us review the file and the insurer's position together.
Calls under private contracts: advance payments on homes
The private example with the most detailed statutory regime concerns the sums that buyers pay in advance to a developer (Law 38/1999, LOE, first additional provision, paragraph Two.1):
- If construction does not begin or is not completed within the agreed period, the buyer makes a formal, verifiable demand on the developer; if the advance is not returned within 30 days, the buyer claims against the insurer (or directly, where it is not possible to claim against the developer) (letter h).
- The insurer must pay within 30 days of the claim (letter h) and cannot raise the defences it holds against the developer or unpaid premium (letter e).
- Having paid, it is subrogated and seeks recovery from the developer (letter j), which may not dispose of the home (by sale or any other transfer) without first indemnifying the insurer (letter k).
The requirements for the policy and the special account are covered in off-plan deposit guarantees.
For the developer or contractor as policyholder, the call means a reimbursement claim and a restriction on its own asset. The covers for the sector are set out in insurance for construction companies. For other private surety bonds the procedure is set by the certificate; what the law requires of each activity is covered in guarantees required by law.
Can the policyholder challenge the call?
Yes, but you need to know where. There is room in the administrative procedure, before payment:
- The hearing opened by the notice of commencement.
- An appeal against the act declaring the breach.
- An application to suspend that act: forfeiture requires an immediately enforceable act (article 16.1.a of the Deposit Fund Regulation) and, once suspended, it ceases to be one.
These are avenues, not outcomes. If you receive notice of forfeiture, please consult your legal adviser; time limits for appeal run from the date of notification.
There is almost no room against the insurer once it has received a first-demand call. Its payment does not prejudge who is right: that continues to be argued with the beneficiary.
Two practical recommendations: inform your broker and the insurer as soon as the notice of commencement arrives, not when the demand for payment does; and gather site records, certificates of work done and contract correspondence from day one.
Before you sign a surety facility, we review the certificate and the counter-indemnities you are asked for. Talk to us.
After payment: reimbursement, recourse and counter-indemnities
The basis is article 68 of the Insurance Contract Act: every payment must be reimbursed by the policyholder. The Spanish Civil Code offers, by analogy with the civil-law guarantee, a frame of reference. A guarantor who pays must be indemnified for the debt, statutory interest, costs and losses (article 1838). It is also subrogated to the creditor's rights (article 1839); for homes, subrogation is express (LOE, letter j). Which items the insurer actually claims depends on what the policy provides.
The same framework allows a guarantor to seek security even before paying in certain cases (article 1843): hence an insurer may ask for it if it perceives that the risk is deteriorating.
This is where the counter-indemnity comes in: the undertakings the policyholder signs when the facility is set up, in the policy or in a separate agreement, to secure reimbursement. As a matter of market practice, they may take the form of guarantees from shareholders or the parent company, deposits or pledges; their actual content depends on each contract. Our surety bond page describes how a facility is structured and which counter-indemnities tend to accompany it.
A call could also weigh on the next renewal and on the available capacity of the facility.
How to reduce the risk of a call
- Review the form of certificate required by the tender documents or the contract before bidding.
- Monitor expiry dates: in contracts lasting more than five years, a surety bond with a shorter term must be renewed or replaced at least two months before it expires, or the guarantee will be forfeited (article 109.4 LCSP). We cover this in our guide to the LCSP performance guarantee.
- Request express cancellation on completion: the surety bond remains in force until the insured authorises its cancellation (article 57.2 of the RGLCAP).
- Document performance and respond to the hearing within the time allowed.
The role of an independent broker
When a bond is called, the insurer is an interested party and, at the same time, your company's future creditor. As an independent brokerage, we act on the client's mandate, not the insurer's. We support you through the forfeiture procedure and in coordinating with the insurer. Before you sign, we review certificates and counter-indemnities and compare what different insurers require. After a call, we help you rebuild the facility. We do not guarantee the outcome of any procedure or the cost of a renewal: we do ensure that every decision is taken with complete information.
Frequently asked questions
Can the insurer refuse to pay because the contractor did not pay the premium? Not with a surety bond given to a public authority: unpaid premium neither extinguishes the insurance nor releases the insurer (article 112.3 LCSP). The same applies to the guarantee of advance payments on homes (LOE, first additional provision, Two.1.e).
Does the insurer learn of the forfeiture before it is asked to pay? Yes. The commencement of the procedure is notified to the guarantor and the guaranteed party so that they can make representations (article 16.1.c of the Regulation of the Caja General de Depósitos), and the insurer is an interested party (article 112.2 LCSP). It is advisable to coordinate with the insurer and your broker from that notice onwards.
What can the insurer claim from me besides the amount paid? It depends on what the policy and the counter-indemnities provide. As a frame of reference, by analogy with the civil-law guarantee, the Spanish Civil Code entitles whoever pays on another's behalf to the debt plus statutory interest, costs and any applicable damages (article 1838).
Can I prevent the surety bond from being called? The avenues lie in the administrative procedure: the hearing, an appeal against the act declaring the breach and an application for suspension. Without an immediately enforceable act, the Deposit Fund does not forfeit the guarantee (article 16.1.a of its Regulation). No outcome is guaranteed.
What happens if the surety bond does not cover everything the authority claims? The difference is recovered from the contractor through enforced collection (article 113.2 LCSP) and, if the contract is terminated through its fault, it must compensate any loss exceeding the guarantee (article 213.3 LCSP).
Sources and legislation
- Law 50/1980 on Insurance Contracts (Ley de Contrato de Seguro), articles 23 and 68.
- Law 9/2017 on Public Sector Contracts (Ley de Contratos del Sector Público, LCSP), articles 109, 110, 112, 113 and 213.
- Royal Decree 1098/2001, General Regulation of the Public Administration Contracts Act (RGLCAP), articles 56 and 57.
- Royal Decree 937/2020, Regulation of the Caja General de Depósitos, articles 16, 28, 29 and 33.
- Spanish Civil Code, articles 1830, 1831, 1838, 1839, 1843 and 1853.
- Law 38/1999 on Building Regulation (Ley de Ordenación de la Edificación, LOE), first additional provision.
- Law 39/2015 on the Common Administrative Procedure of Public Administrations, articles 82 and 98.
- Royal Decree 939/2005, General Collection Regulation (Reglamento General de Recaudación).
Consolidated texts published in the BOE (Spanish Official State Gazette), consulted on 12 October 2026.
The specific procedure depends on the type of guarantee, the form of certificate and the authority or deposit fund with which it was lodged; this guide describes the Spanish national legal framework. Counter-indemnities and the effect of a call on the facility are matters of market practice: their terms are set by each insurer following its solvency assessment. This information is for guidance only and does not constitute legal or binding advice. New Brokers Correduría de Seguros, S.L., registered with the DGSFP under reference J0140.
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