As a condition of licensure, contractors are required to post some form of security deposit with the State or Local Contractors License Board. Surety Bonds are commonly used for this purpose. A Contractors License surety bond is a contract in which a surety company promises the State of Local Government that the contractor will comply with the State of Local Contractors Licensing Laws.Generally, the contractor's obligation is to avoid committing violations of their Contractors Licensing Laws that are grounds for disciplinary action against their license. The law should describe specific violations that the bond will cover. If the contractor does not comply with the conditions of the bond, a consumer, supplier, or an employee may file a claim against the bond.A surety bond should not be confused with an insurance policy since there are important distinctions between the two. One important difference is that the contractor remains liable for his or her own obligations and must repay the surety for losses incurred by the surety as a result of the contractor's actionsSourced by :
http://www.cslb.ca.gov/Resources/GuidesAndPublications/ContractorsLicenseBondsGuide.pdf