Understanding Fidelity Bonds

Written by on 1/2/2015 10:00 AM . It has 0 Comments.

You’ve worked hard to build relationships with your clients and customers. You’ve got amazing employees who care about taking care of customers and seeing the business grow. But it only takes one bad apple to destroy everything you’ve built.

As careful as you may be when you hire new employees, there could easily come a time when you hire someone who is dishonest. Their theft of goods or their dishonesty could cost your customers money, time, and property. Wouldn’t you want to know your business is protected and can handle the costs created by the theft or dishonesty of someone you and your customers should have been able to trust? Fidelity bonds can help you do that, but first it helps to understand what they are, what they cover, and what they don’t cover.

What Fidelity Bonds Do Cover

Don’t forget that every bond is different. Some of the coverage options will vary.

Employee Theft and Dishonesty

There are a few things to remember with this type of coverage:

  • The theft or dishonesty can be completed by the employee alone or with help from others.
  • The act must be committed for financial gain outside of salary, bonuses, and other pay and with the intention to cause a loss to the business.
  • Any losses that occur after the initial theft or dishonesty are discovered could be excluded from the bond’s coverage.
  • If an employee is represented by a union, the policy could require the union to pay the costs incurred due to losses caused by dishonest employees.

Good Faith Reliance on False Documents

This type of coverage is fairly specific.

  • The false or forged documents can be certificated securities, deeds, mortgages, titles, securities of debt, and other documents.
  • The loss typically occurs when money is paid out or credit is extended based on the documents themselves.
  • Example: payment made for real property based on a forged title of ownership.

Relying on Counterfeit or Unauthorized Instructions

You may be familiar with losses due to counterfeit check payments or forged signatures on a check. Other situations are also covered.

  • In today’s world, electronic information including instructions is much more prevalent and may be covered by fidelity bonds.
  • Coverage may protect from loss due to stolen customer information on an e-commerce site.
  • It may also protect against loss due to theft of online banking information.

Theft or Fraud

While theft or fraud caused by a dishonest employee is a type of coverage offered by fidelity bonds, general theft and fraud may also be covered.

  • Loss of property, money, and records are typically covered.
  • The loss is typically due to robbery or burglary.
  • The loss may occur to a customer while on the business’s property.
  • The loss may also occur while the property, money, or records in question are in transit.

What Fidelity Bonds Do Not Cover

As with anything, there are some limitations and exclusions to fidelity bonds’ coverage. In most policies, the loss must occur as a direct result of a covered cause. There can be no secondary or intervening reason for the loss. Also, other than in the case of employee dishonesty or theft, the loss caused by errant employees who did not follow policy or made a mistake are typically not covered.

When you’re ready to protect your business, give careful consider to fidelity bonds. Contact Charlotte Insurance with your questions. We’re here to help.

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