Fidelity Bonds

Protect an insured against the dishonest or fraudulent acts of employees.

Although most employees are not required to provide a written statement of their intended honesty during the work day, this honesty is assumed. If the oblige (employer) suffers a loss due to employee dishonesty, the oblige will be reimbursed and the surety (insurance company) will seek reimbursement from the principal (the employee).

In most cases, the surety has problems obtaining reimbursement from a dishonest employee for obvious reasons. As a result, contrary to basic surety assumptions, fidelity bonds are written with certain predictions of loss and are priced accordingly.

There are numerous individual fidelity bonds, but all of them can be divided into one of three general classes:

  • Individual
  • Scheduled
  • Blanket

An Individual fidelity bond covers one person as its name suggests.

Scheduled fidelity bonds can be either name schedule or position schedule. To schedule something is to list it. Fidelity bonds written on a name schedule basis would list the names of the individuals to be bonded. When written on a position schedule basis, fidelity bonds list the positions to be bonded. In both cases, the amount of the bond or penalty would also be listed.

Blanket fidelity bonds provide “blanket protection” for an employer, covering all employees without exception. As a result, if a covered loss occurs, there is no need to identify the dishonest employee; the employer need only prove that the loss occurred.

In contrast, under an individual bond or name schedule bond or position schedule bond, the employer collects for a loss only if a person listed under one of those bonds committed the dishonest act causing the loss.

There are two types of blanket bonds:

  • Commercial blanket bond;
  • Blanket position bon.

Under the commercial blanket bond, the bond’s penalty (limit) is the maximum amount applicable to any single loss, regardless of the number of employees involved.

In contrast, the blanket position bond’s penalty applies to each employee involved.

For example, five employees might join together to embezzle $200,000 from their employer. Under a $100,000 blanket bond, $100,000 would be paid to the employer. Under a $100,000 blanket position bond, $500,000 or five times $100,000 would be available.