Fidelity Bonds

A fidelity bond is when the surety agrees to indemnify an employer for any loss it may sustain through the dishonest acts of its employees (an employee is defined as someone for whom the employer pays all taxes, benefits, etc. – not contract labor) – either acting alone or in collusion with others.

The bond is purchased by the employer, listed as the obligee on the bond, because it is the employer who benefits up to the penal sum of the bond should the employer sustain a loss from the dishonest acts of its employees.

Several companies offer 3rd party endorsements to cover employees of the Insured who provide services for clients of the insured at the client’s place of business. Coverage includes theft of the property of others.

 Some bond forms include a conviction clause while the majority of Crime policies only require proof of a loss.

Why fidelity bonds resemble insurance:

 Fidelity loss is predictable such as fire, liability and other common perils.

 It is a two party agreement between the insurance company and the Insured (the Obligee on the bond form).

 The bond form sets out conditions and limitations similar to an insurance policy.

Crime Policy vs. Dishonesty Bond
Many companies now write a Crime Policy with various insuring agreements, the first of which is Employee Theft coverage.

Theft is defined as unlawful taking of property.   Broader coverage because it is for whatever reason, malicious or for a financial benefit.

Dishonesty is defined as a criminal act alone or in collusion with others.   The intent is a financial benefit for the employee; the consequence is a loss to the employer.

Common fidelity bonds include:

 Business Services bond – offers 3rd party liability coverage

 Janitorial Service bond

Types of Employee Dishonesty coverage include:

 Blanket bond – most common coverage offered by companies writing crime policies

 Covers all employees without specifically naming them or their position.

 The amount shown on the bond is the limit of aggregate liability.

 Position schedule bonds.

 Primarily for non-profits where specific officers are named, or public official bonds.