Category Archives: Fidelity Bonds

Crime Coverage, Fidelity Bonds, Uncategorized

Why do I need Fidelity/Crime Insurance?

fidelity-bond-image
Why do I need Fidelity/Crime Insurance?

Fraud and embezzlement in the workplace is on the rise, occurring in even the finest work environments.

  • 82% of workplace crime is carried out by employees
  • 1 in 4 employees has either committed or witnessed workplace fraud and abuse
  • 1 in 4 employees committing fraud against their employer has been with the company for more than 10 years
  • Only 1 in 3 of those who have witnessed a workplace crime bother to report it

These crimes can go on for years and when discovered the impact can be huge. Smaller companies are especially vulnerable to Fidelity crimes because the trust factor is increased due to the closeness of the employees.

Most business insurance policies either exclude or provide only nominal amounts of coverage for loss of money and securities as well as employee dishonesty exposures.

Employee dishonesty causes as much as 20% of the nation’s business failures.

White collar crime can have serious financial consequences, even threatening a private company’s survival. Bernard Fleischer & Sons, Inc. offers a solution to handling crime losses such as dishonesty, forgery, robbery, safe burglary, computer fraud and other criminal acts committed by employees, leased employees, volunteers or someone required to be bonded under ERISA, through a Crime Insurance Policy. For more information about Fidelity/Crime Bonds call 1.800.921.1008 or visit our website to get a free no obligation Fidelity/Crime Insurance quote.

Crime Coverage, Fidelity Bonds

Overview of crime coverages

 

Today’s business environment is constantly evolving, and executive liability and crime exposures are rapidly changing
right along with it. Making sure your client’s insurance coverage is keeping pace is now even easier with the new
enhancements:
Multitude of coverages to suit every need
Below are some of the highlights of coverages
Loss from forgery or alteration of covered

instruments (including business credit card
instruments)
• Loss of money, securities and other property
on your premises or banking premises
• Loss of money, securities and other property
while in transit
• Loss from acceptance of unpaid money orders
and counterfeit money (including coins and
travelers checks)
• Loss from computer crime (including computer

Fidelity
Includes coverage for employee theft, ERISA fidelity and
employee theft of client property for direct loss of, or
direct loss from damage to money, securities and other
property.
–
Claim example:
An employee leveraged her role as
executive director to procure payment to fraudulent
vendors and to procure gift cards and other goods for
personal benefit.
Forgery or Alteration
Includes coverage for loss sustained through forgery or
alteration of outgoing negotiable instruments made or
drawn by you, or drawn on your account(s), or made or
drawn by one acting as your agent.
–
Claim example:
A signature of another person was
fraudulently signed on a check and cashed at the
insured’s bank . An affidavit
of forgery was executed claiming that the person’s
signature that appears on the check was not placed on
the check by that person.
On Premises
Includes coverage for direct loss from damage, money or
securities located inside the premises directly caused by
theft, robbery or safe burglary.
–
Claim example:
Rent checks from eight different
residents were stolen from inside the insured’s
premises. Loss was discovered after notices were sent
out to residents advising that payments were overdue
and one of the residents advised that his check had
already been cashed.
In Transit
Includes coverage for direct loss of money or securities
directly caused by theft, disappearance, damage or
destruction while in transit outside the insured’s
premises and in the care and custody of a messenger or
armored vehicle company.
–
Claim example:
A company lost money was stolen from its messenger’s
truck while in transit.
Money Orders and Counterfeit Money
Includes coverage for direct loss caused by the insured’s
good faith acceptance of worthless money orders or
counterfeit money.
–
Claim example:
A company received a counterfeit
cashier’s check for payment of delivered equipment.

Crime Coverage, Fidelity Bonds

Crime Insurance what is it?

Crime Insurance
For Private and Non-Profit Organizations

 

Crime insurance AKA Fidelity addresses the most common fidelity threats, including losses due to employee dishonesty, credit card forgery, computer fraud and theft and disappearance and destruction of property.  With crime protection from Bernard Fleischer & Sons, Inc, you can obtain a wide range of coverages to help protect your business against financial loss due to certain crimes.

You know and trust the people who work for you, but
that trust may be misplaced. After all, one third of all
employees admit to stealing from their employers. And
we’re not talking about the pens and paper: The median
loss from employee fraud is $175,000.*
Maintenance of strong, enforceable internal controls
should be a priority for any entity. Yet even the best
internal controls, no matter how well conceived,
frequently fall short of stopping a trusted employee
from engaging in fraudulent activity. In fact, the
median time length of occupational fraud schemes is
18 months, and the number one way that an employer
discovers a crime is by accident.*
Fidelity and Crime Coverage provides an important
backstop against the actions of a thieving employee. With
this coverage, your company’s assets are protected at
the time of a crime’s discovery, regardless of whether it
occurred prior to or during the policy period.
Why you need protection
Employee dishonesty is costly and pervasive.A high
percentage of business revenue was lost as a result
of occupational fraud and abuse. And, when it comes to
occupational fraud and abuse, your business’ size doesn’t
matter — no business is safe.
Claim scenarios
Stolen inventory –additional inventory of
products for alleged seasonal sales pushes. In reality, a
portion of that inventory was sold “out the back door”
unbeknownst to corporate headquarters.
Embezzlement –
An employee altered company deposit slips after
the owner of the company had approved them. The
employee would prepare two deposit slips: one
depositing funds into the company’s account, the other
depositing funds into the employee’s bank account.
Payroll fraud
A payroll employee had access to payroll checks and
vacation checks. Over an eight-year period, the clerk
issued duplicate checks on all legitimate employee
vacation pay.
False payment
In less than a year, a sales supervisor located outside
of the United States When customers legitimately purchased
and received goods, the employee stole their payments
for his own use. The employee attempted to cover up
the loss by substituting fraudulent checks drawn upon
other third party entities.
Billing scheme
Four employees colluded to defraud their employer
through a phony billing scheme. The employees, including
a supervisor, established fictitious vendors and submitted
bills for work performed by other, genuine vendors.
Innovative risk management services

 

To learn more about our fidelity and crime coverage,
talk with us 212 566-1881
Bid and Performance Bonds, Bond Issues, Bonds FYI, Curator Bond, Custodian of Veteran Bond, Employment Agency Bond, Fidelity Bonds, Georgia title bond, Guardianship Bond, Insurance Issues, New Car Dealer Bond, News, On the Blog, Personal Representative/ Administrator/ Executor Bond, Probate Bonds, Probate/Fiduciary Bonds, Process Server Surety Bonds, Receiver/ Assignee Bond, Surety Bonds, Third Party Administrator, Trustee Bond, Uncategorized, Used car Dealer Bond

Glossary of Surety & Fidelity Bonds and Terms

Template-05

GLOSSARY OF SURETY BOND TERMS

SURETY BOND: An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period. ACCOUNTING METHODS: For construction or building contractors, the two methods of accounting, both realistic and preferred by surety companies, are (a) the Completed Contract method, and (b) the Percentage-of-Completion method.

ADMINISTRATOR: A fiduciary appointed by a probate court to manage or distribute the assets of an estate of a person who died without leaving a will.

ADMINISTRATOR CUM TESTAMENTO ANNEXO OR WITH WILL ANNEXED: One appointed by a probate court to administer the estate where the deceased left a will but failed to name an executor or the one named as executor fails to qualify.

ADMINISTRATOR, CUM TESTAMENTO ANNEXO, DE BONIS NON: One appointed by a probate court to succeed an executor who has died, resigned, or been discharged before the administration is complete.

ADMINISTRATOR DE BONIS NON: One appointed by a probate court to succeed an administrator who has died, resigned or been discharged before the administration is complete.

ADMINISTRATOR PENDENTELITE: One appointed to preserve the assets of a decedent’s estate where the will is contested or other circumstances occur which delay qualification of an executor if there is a will or the appointment of an administrator if there is no will.

ADVANCE PAYMENT BOND: Guarantees repayment or liquidation by the principal of moneys advanced in connection with a construction or supply bond or other type of contract.

AGGREGATE LIABILITY CLAUSE: A clause in a third party license bond which limits the surety’s liability to the bond penalty regardless of the number of claims made against the bond.

ALCOHOL BOND: A general term describing a bond given in compliance with federal or state laws or regulations governing the sale, manufacture or warehousing of alcohol for beverage or non-beverage purposes. Where the alcohol is intended for beverage purposes, the bond is frequently referred to as a liquor bond or intoxicating liquor bond.

ANNUAL BOND: One written to cover contractors or bids awarded or submitted during an annual period or for a period terminating within a fiscal year.

APPEAL BOND: One filed in court by a party against whom a judgment has been rendered, in order to stay execution of the judgment pending appeal to a higher court, in hope of reversing the judgment. The bond guarantees that the judgment will be paid if the appeal fails.

APPLICATION: A questionnaire which must be completed, when required, by an applicant for a bond. It gives the company information about the applicant and contains his/her agreement to indemnify the surety in the event of loss, as well as his/her promise to pay the premium.

ASSETS: The items on a balance sheet showing the book value of property owned. For a surety this could include all funds, property, securities, etc., or the property of an estate, whether real or personal.

ATTACHMENT BOND – PLAINTIFF’S: Attachment is taking a defendant’s property into custody by a summary process from the court in advance of the trial on the merits of the case. It is taken as security for the payment of any judgment that may be recovered by the plaintiff in the action. Attachment is allowed only where the plaintiff alleges a statutory ground for it (e.g. defendant is a nonresident or is about to leave the jurisdiction or remove or conceal his/her property). The bond, which the plaintiff is required to furnish, provides for indemnity to the defendant against loss or damage in case it is finally decided that a statutory ground did not exist or the plaintiff fails to recover a judgment against the defendant.

ATTACHMENT – DEFENDANT’S BOND TO DISCHARGE OR RELEASE: When an attachment has been issued, a defendant may discharge the attachment by giving the bond conditioned for the payment of any judgment that may be rendered against him/her in the action, with interest and costs.

BID BOND: Given by a bidder for a supply or construction contract to guarantee that the bidder, if awarded the contract within the time stipulated, will enter into the contract and furnish the prescribed performance bond. Default will ordinarily result in liability for the difference between the amount of the principal’s bid and the bid of the next low bidder who can qualify for the contract. In any event, however, the liability of the surety is limited to the bid bond penalty.

BLANKET FIDELITY BOND: A bond which covers loss of money, merchandise, or other property owned by the insured or in which he/she has a pecuniary interest when such loss is due to dishonesty of his/her employees. All employees are covered under the bond unless specifically excluded.

BLANKET POSITION BOND: A blanket fidelity bond which covers all of the insured’s employees for a uniform amount on each so that if loss is caused by dishonest or fraudulent acts of two or more employees in collusion, recovery up to the amount of the bond may be made on each identifiable participating employee.

BLUE SKY BONDS: Many states control the sale of securities under regulations known as Blue Sky Laws. These laws are designed to prohibit the sale of worthless securities. The bonds required of security dealers indemnify purchasers against loss caused by false representations. The term Blue Sky Law originated when a court complained that certain stock was backed only by the blue sky.

BOND: Generally speaking, it is an agreement whereby one party, called the surety, obligates itself to a second party, called the obligee, to answer for the default of a third party, called the principal.

CANCELLATION CLAUSE: A clause in a bond which permits the surety to terminate its future liability by serving written notice upon the obligee.

CLAIMANT’S BOND: In cases where, pending final decision on the merits, property is released to one not a party to the litigation, who claims to be the owner thereof. The claimant may be required to give bond conditioned for the return or redelivery of the property if ordered to do so by the court.

CO-FIDUCIARY: One who serves as a fiduciary jointly with another, such as a co-administrator, co-executor, co-guardian, etc.

COLLATERAL: Anything of value pledged with the surety to secure it against loss by reason of default of the principal.

COLLUSIVE LOSS: A loss caused by two or more dishonest employees acting in consort.

COMMERCIAL BLANKET BOND: A blanket fidelity bond issued in a stated amount on all regular employees of commercial establishments covering against loss from employees’ dishonest acts.

COMMISSIONER OF INSURANCE: The official charged with enforcement of the laws pertaining to insurance in his/her state. In some jurisdictions this official is called the superintendent or director of insurance.

COMMITTEE: One appointed by a court to manage the estate of a person who has been declared incompetent. Also known as conservator or a curator.

COMPLETION BOND: One covering performance of a construction project that names as an obligee a lender or similar party in a position to invoke the performance features of the bond for its benefit without an obligation to provide funds or to complete.

CONDITION: The technical name of one of the four parts of a bond. The condition is not a qualification of coverage as with an insurance policy, but is the essence of the guarantee.

CONSERVATOR: A person, official, or institution designated to take over and protect the interests of an incompetent.

CONTINUITY CLAUSE: The clause in a bond, or rider attached to a bond, under which that bond, subject to its terms, assumes liability for any loss due to acts which occurred while a prior bond was in force, but which were not discovered until after the expiration of the discovery period of the prior bond.

CONTRACT BOND: A guarantee of the faithful performance of a construction contract and usually the payment of all labor and material bills related to it. In those situations where two bonds are required – one to cover performance and the other to cover payment of labor and materials – the former is known as a performance bond, and the latter as a payment bond.

CONTRACT PRICE: The whole sum of money which passes from an owner to contractor when final settlement is made between the two under the contract, the basis for the premium charge on most types of construction and supply contract bonds.

CONVERSION: The wrongful taking of property entrusted to one’s care.

CORPORATE SURETY: A corporation licensed under various insurance laws, which under its charter, has legal power to act as surety for others.

COST BOND: One required of a litigant conditioned for the payment of the costs of the litigation, such as fees of the court clerk, sheriff, etc.

CO-SURETY: One or two or more surety companies directly participating in a bond. Their obligation to the owner is joint and several, but often a limit of liability for each surety is stated as between themselves.

COUNTERSIGNATURE: A signature of a licensed domiciled agent or representative required by the laws of some states to validate the bond.

COURT BONDS: A general term embracing all bonds and undertakings required of participants in a lawsuit permitting them to pursue certain remedies in the courts.

CUMULATIVE LIABILITY: The aggregate amount of two or more bonds in behalf of the same principal (or in the case of fidelity or blanket bonds, in favor of the same obligee) filed in succession, where the succeeding bond(s) does not extinguish the liability under the prior bond(s) or the liability of the surety is the penalty of the bond times the number of years in force.

CUSTOMS BONDS: These bonds guarantee the payment of import duties and taxes, and compliance with regulations governing the entry of merchandise from foreign countries into the United States.

DEDUCTIBLE: An amount which is to be “deducted” from any loss and which the insured agrees to bear personally.

DEPOSITORY BOND: This guarantees repayment of moneys deposited with a bank in the event of the failure or insolvency of the bank. While this is now a negligible line of surety business, it was once a large one. The Federal Deposit Insurance Corporation (FDIC) now guarantees the payment of bank deposits.

DEPOSITORY LIABILITY: A public official is liable for public funds which he/she deposits in a bank and cannot pay over because of insolvency or failure of the bank. In many states, statutes provide for the designation of depositories for public funds and for the furnishing of collateral security by such depositories. Such laws, if interpreted strictly, usually exempt the public official and his/her surety from liability for loss through failure of any of the designated and qualified depositories.

DEPOSIT PREMIUM: The advance premium required by a surety company on those forms of bonds which are subject to premium adjustment.

DISCOVERY BOND: A form of fidelity bond which covers against dishonest or fraudulent acts of employees, provided such loss is discovered any time after the bond becomes effective and before it is terminated, irrespective of when the dishonest or fraudulent acts were committed.

DISCOVERY PERIOD: Under certain bonds and policies, provision is made to give the insured a period of time after the cancellation of a contract in which to discover whether a loss was sustained that would have been recoverable had the contract remained in force. This period usually varies from six months to three years. The period may be determined by statute; in certain bonds, it is of indefinite duration because of statutory requirement.

DISHONESTY INSURANCE: A generic term describing fidelity bond coverage guaranteeing against loss caused by dishonest officers or employees of a commercial firm or by dishonest public officials or employees.

EARNED PREMIUM: The premium amount which would compensate the surety for the protection furnished for the expired portion of the term of the bond.

EFFECTIVE DATE: The date from which bond coverage is provided.

ENDORSEMENT: A form attached to the bond to add to, alter, or vary its provisions. Sometimes called a rider.

EXCESS BOND: Additional coverage over a primary bond protecting against certain perils (usually dishonesty) applying only to loss above a specified amount.

EXCLUSION: A provision in a bond referring to perils or property not covered.

EXECUTOR: One named in a will to distribute and settle the estate of the testator.

EXPENSE RATIO: The percentage of the premium used to pay all costs of acquiring, writing, and servicing the bond.

EXPERIENCE: The loss record of either an individual or a class of coverage.

EXPERIENCE RATING: A plan available for fidelity bonds whereby surcharges or discounts are applied to premiums developed by those risks based on the actual past experience of such risks.

EXPIRATION: The date upon which a bond will cease to provide coverage unless previously cancelled.

FAITHFUL PERFORMANCE BOND: A type of bond where the coverage goes beyond protection against loss due to dishonesty or fraudulent acts of the principal; it provides protection to the named insured against loss by reason of the failure of the persons covered hereunder to faithfully perform their duties as prescribed by law or by the constitution and bylaws of the insured or their equivalent.

FIDELITY BOND: A bond which will indemnify an insured for loss caused by a dishonest act or fraudulent act of an employee covered under the bond. Also known as dishonesty insurance.

FIDUCIARY: A person who occupies a position of trust, particularly one who manages the affairs or funds of another.

FIDUCIARY BOND: Required of administrators, executors, guardians, committees, etc., guaranteeing faithful performance of duty in accordance with the laws applicable to the trust. Frequently called a probate bond because the bond is customarily filed in a probate court.

FINANCIAL GUARANTEE BOND: A bond that guarantees payment of a sum of money whether or not the exact amount is known or stated. Common types are: court bonds (appeal, etc.), lease bonds which guarantee payment of rent, etc.

FINANCIAL RESPONSIBILITY LAW: A statute requiring motorists to furnish, either before or after an accident, evidence of ability to pay damages. Such evidence may be furnished by a surety bond.

FINANCIAL STATEMENT: A balance sheet which the surety requires of an applicant for a bond (particularly a contractor), setting forth his/her financial position as of a given time or period.

FIXED PENALTY BOND: A bond for which the amount is expressed in terms of a stated and definite sum of money.

FORFEITURE BOND: A bond where the full penalty is payable upon breach of the condition regardless of the amount of loss or damage.

GARNISHMENT – BOND TO DISCHARGE OR RELEASE: When money or property belonging to a defendant has been attached while in the hands of a third party, the proceeding is called a garnishment and the third party is called the garnishee. The bond is similar to a release of attachment bond.

GROSS LOSS: The amount of loss before giving effect to reinsurance. Usually reported inclusive of claim expenses. It may also be considered as the loss without allowance for collection of salvage.

GUARDIAN AD LITEM: One appointed to preserve the assets of the estate of a minor during a litigation which delays the appointment of a general guardian.

GUARDIAN OR GENERAL GUARDIAN: A fiduciary appointed by the court to administer the estate of a minor.

HAZARD: A term applied to certain conditions which may create or increase the probability of a loss, because of a given peril.

HOLD-OVER PUBLIC OFFICIALS: Those who are elected or appointed to succeed themselves in office or who continue beyond the limits of their terms until their successors are appointed or elected.

IMMIGRANTS BOND: A class of federal bonds covering aliens who enter the United States legally.

INCOME TAX BONDS: These are given to guarantee payment of federal income taxes due or claimed to be due. They are direct financial guarantees and collateral usually is required.

INDEMNIFY: To compensate for actual direct loss sustained under a bond. There can be no recovery on a bond until the obligee has actually suffered a loss.

INDEMNITOR: One who enters into an agreement with a surety company to hold the surety harmless from any loss or expense it may sustain or incur on a bond issued on behalf of another.

INDEMNITY BOND: A general term describing any bond which protects the obligee against direct loss which may arise as a result of failure on the part of a principal to perform.

INDEMNITY TO SHERIFF OR MARSHAL: A sheriff or marshal, in the execution of the process of the courts, may incur liability for damage to a third party through an act or acts which turn out to be wrongful. Either official when requested to take some particular action, may require a bond of the party making the request. The bond covers the liability of the sheriff or marshal in that connection.

INDIVIDUAL FIDELITY BOND: A bond covering a single employee for a specified amount to protect the employer in the event of the employee’s dishonesty.

INJUNCTION – PLAINTIFF’S BOND TO SECURE: An injunction is a judicial process whereby the defendant is required to do or refrain from performing a particular act. An order granting an injunction may be on the condition that the plaintiff furnish a bond to indemnify the defendant against loss in case it is decided that the injunction should not have been granted.

INJUNCTION – DEFENDANT’S BOND TO DISSOLVE: When an injunction has been issued, the court may order the injunction dissolved upon the giving of a bond. The bond guarantees payment the plaintiff may sustain as a result of the performance of the act or acts originally enjoined. It is then the privilege of the defendant to proceed as if the injunction had never been issued.

INSURING CLAUSE: That part of a bond or policy which recites the agreement of the insurer to protect the insured against some form of loss or damage. Also known as an insuring agreement.

INTESTATE: One who dies without a legal will.

INTERNAL REVENUE BONDS: A class of federal bonds which guarantee compliance of producers of distilled spirits, tobacco, etc., with applicable laws and regulations, as well as the payment of taxes.

JOINT CONTROL: An arrangement by written agreement between a fiduciary and a surety, acknowledged by the bank in which funds are deposited or securities lodged so that the funds or securities are controlled by both parties; usually all checks are required to be signed by the fiduciary and countersigned by an authorized representative of the surety and access to the securities can be had only in the presence of an authorized representative of the surety.

JOINT VENTURE: A joining of the financial resources and skills of several contractors to undertake contracts of construction too large for their individual and separate abilities.

JUDICIAL BOND: A general term applied to all bonds filed in court.

LABOR AND MATERIAL BOND: A bond given by a contractor to guarantee payment for the labor and material used in the work which he/she is obligated to perform under the contract. This liability may be contained in the performance bond, in which case a separate labor and material bond (payment bond) is not given.

LIABILITY: This is a broad term denoting any legally enforceable obligation.

LIBEL – BOND TO DISCHARGE OR RELEASE: When a warrant for the seizure of a ship has been issued, the marshal is required to stay execution of the process, or discharge the ship if process has been levied, on receiving from the owner of the ship a bond or stipulation conditioned to comply with the decree of court in the action.

LICENSE BOND: Used interchangeably with the term “permit bond” to describe bonds required by state law, municipal ordinance or regulation, to be filed prior to the granting of a license to engage in a particular business or a permit to exercise a particular privilege. Such bonds provide payment to the obligee for loss or damage resulting from violations by the licensee of the duties and obligations imposed upon him/her.

LIEN: A charge upon real or personal property for the satisfaction of a debt.

LIMIT OF LIABILITY: The maximum amount which a surety company will pay in case of loss. Sometimes called the bond penalty.

LOSS RATIO: The percentage of losses to premiums.

LOST INSTRUMENT BOND: A bond given by the owner of a valuable security (stock, bond, promissory note, certified check, etc.) which is alleged to have been lost or destroyed. It protects the issuer of the security against loss which may result from the reinsurance of a duplicate or, in some instances, payment of cash value thereof.

MAINTENANCE BOND: The normal coverage provided by a maintenance bond is a guarantee against defective workmanship or materials. However, maintenance bonds sometimes incorporate an obligation guaranteeing “efficient or successful operation” or other obligations of like intent and purpose.

MECHANICS LIEN – BOND TO DISCHARGE: A lien against real estate may be filed for an amount claimed to be due for labor or materials furnished for the construction of a building or other improvement upon the property. Pending final determination of the owner’s liability, the owner may discharge the lien by giving bond conditioned for the payment of any amount that may be found due to claimant with interest and costs.

MINIMUM PREMIUM: The least amount a surety company may charge for a particular bond for a designated period.

MISCELLANEOUS INDEMNITY BONDS: Bonds which do not fit any of the well recognized divisions or subdivisions.

MORAL HAZARD: The possibility of loss caused or accentuated by dishonesty or carelessness of the insured or others.

NAME SCHEDULE BOND: A fidelity bond which covers the employees listed in a schedule, each for a specified amount.

OBLIGEE: The party in whose favor a bond runs; the party protected by the bond against loss. An obligee may be a person, firm, corporation, government, or an agency of a government.

OBLIGOR: Sometimes called the principal, or one bound by the obligation. Under a surety bond, both principal and surety are in a sense, obligors, since the surety must answer if the principal defaults.

OPEN DEFAULT BOND: Where a judgment has been entered by default, the defendant may, under certain circumstances, have the case reopened and tried on its merits, upon giving a bond conditioned for the payment of any judgment that may be rendered in the action.

OPEN PENALTY BOND: A surety bond written without a limit on the liability of the principal or surety. Under the regulations of the federal government and the laws of many of the states, surety companies are not permitted to obligate themselves on any one bond for an amount greater than a specified percentage of their capital and surplus (qualifying power).

OUTSIDE EMPLOYEE: An employee, such as a salesmen, messenger, etc. whose duties keep him/her away from his/her headquarters.

PENAL SUM: The maximum amount for which a surety company may normally be held liable under the bond. Also called the bond penalty. See also limit of liability.

PERFORMANCE BOND: A bond which guarantees faithful performance of the terms of a written contractor for furnishing supplies or for construction of all kinds. Performance bonds frequently incorporate payment bond (labor and materials) and maintenance bond liability.

PERSONAL SURETY: An individual who acts as surety for another, who may or may not charge a fee for his/her guarantee, and usually is not regulated by any government agency, such as is the corporate surety.

PETITIONING CREDITORS’ BOND: When a petition is filed to have a person adjudged a bankrupt, an application is made to have a receiver or a marshal take charge of the property of the alleged bankrupt prior to the adjudication, the petitioners are required to give bond to indemnify the alleged bankrupt for such costs, counsel fees, expenses, and damages as may be occasioned by such seizure, in case the petition be dismissed or withdrawn by the petitioners.

POSITION SCHEDULE BOND: A fidelity bond which covers employees who may, while the bond is in force, occupy and perform the duties of the positions scheduled in the bond, each position being covered for a specific amount.

POWER OF ATTORNEY: The authority given one person or corporation to act for and obligate another, to the extent set forth in the instrument creating the power.

PREMIUM: The fee to be paid for the bond. The cost of the bond.

PRINCIPAL: The one who is primarily bound on a bond furnished by a surety company.

PROBATE BOND: One that guarantees an honest accounting and faithful performance of duties by administrators, trustees, guardians, executors, and other fiduciaries. So called because such bonds are customarily filed in a probate court. Also known as fiduciary bond.

PRO RATE CANCELLATION: Cancellation of a bond when the portion of the premium returned is the full proportionate part due for the unexpired period. Distinguished from short rate cancellation.

PUBLIC OFFICIAL BOND: A bond that guarantees faithful performance of duty of a public official in a position of trust; also provides for an honest accounting of all public funds handled by him/her. Such bond is given to comply with a statute and, therefore, carries whatever liability the statute imposes.

QUALIFYING POWER: The largest net amount of risk which may be carried by a surety company on a bond.

RATE: The cost of a unit of bond coverage. Such unit is usually in the denomination of $1,000.

RATE MANUAL: A book published by the Surety Association of America or by individual surety companies giving rates and classifications for bonds.

RECITAL: That portion of a surety bond usually commencing with the word “Whereas” which describes the transaction for which the bond is given. In the case of a guarantee of a contract it generally incorporates the contract by reference.

RECOVERY: Reimbursement received by a surety from a reinsurer, or by a subrogation, or from salvage following a loss.

REFUNDING BOND – RATE LITIGATION: This term is applicable to any bond conditioned for future return, if ordered, of money which the principal was allowed to charge and retain pending final determination or decision in a contested matter.

REMOVAL BOND: Where a case originally brought in a state court is removed to the federal court, the defendant is required to give bond for the payment of costs in federal court if the case is found to have been improperly removed. Similar bonds may be required on removal of a case from one state court to another.

REPLEVIN – PLAINTIFF’S BOND TO SECURE: Replevin is an action to recover possession of specific articles of personal property. The replevin bond, which the plaintiff is required to furnish, is conditioned for the return of the property, if return is ordered, and for the payment of all costs and damages adjudged to the defendant.

REPLEVIN – DEFENDANT’S BOND TO RECOVER PROPERTY REPLEVIED: Where personal property has been replevied, the defendant may, by the furnishing of a bond, regain possession of the property, pending final decision on the merits. The bond is conditioned for redelivery of property to the plaintiff, if ordered to do so, or otherwise to comply with a court order or judgment.

RETROACTIVE RESTORATION: A provision in a bond whereby, after payment of a loss, the original amount of coverage is automatically restored to take care of undiscovered losses as well as future losses.

RIDER: A printed form of special provision added to a bond. Sometimes called an endorsement.

SALVAGE: That which is recovered from the principal or an indemnitor to offset in whole or in part the loss and expense incurred by a surety in satisfying obligations it has sustained under a bond.

SCHEDULE BOND: One that covers loss resulting from dishonest or fraudulent acts of employees who are listed either by name or by positions scheduled in the bond.

SEQUESTRATION BOND: Substantially the same as Attachment Bond – Plaintiff’s.

SHORT RATE – SHORT RATE CANCELLATION: The charge required for bonds taken for less than a year, and in some cases, the earned premium for bonds cancelled by the insured before the end of the term of the bond; i.e., the earned premium plus an expense charge.

SHORT TERM BONDS: Those covering fiduciaries whose duties are to collect the assets of the decedent, pay the debts, and distribute the remainder according to law. These bonds are usually less than two years duration.

STATUTORY BOND: A term generally used describing a bond given in compliance with a statute. Such a bond must carry whatever liability the statute imposes on the principal and the surety.

STAY OF EXECUTION: A bond to stay or suspend execution on a judgment. It guarantees the payment of the judgment upon termination of the stay.

SUBCONTRACT BOND: One required by a general contractor of a subcontractor, guaranteeing that the subcontractor will faithfully perform the subcontract in accordance with its terms and will pay for labor and material incurred in the prosecution of the subcontracted work.

SUBDIVISION BOND: Many municipalities provide by ordinance that a developer who undertakes to lay out a housing or industrial subdivision shall give bond with surety to guarantee that, within a specified time, improvements on the property, such as streets, sidewalks, curbs, gutters, and sewers will be constructed.

SUBROGATION: The legal or equitable process by which a surety company obtains from a third party recovery of an amount paid out by the surety to the obligee or a claimant under the bond.

SUPERSEDEAS BOND: This is a bond to supersede or take the place of a judgment, and coverage is substantially the same as under a defendant’s appeal bond.

SUPERSEDED SURETYSHIP: When a company writes a bond to take the place of another bond which is cancelled on the effective date of the new bond, a rider is generally attached (unless the bond itself contains a superseded suretyship provision) agreeing to pay losses that would have been recoverable under the first bond except for the expiration of the discovery period.

SUPPLY BOND: A bond which guarantees faithful performance of a contract to furnish supplies or materials. In the event of a default by the supplier, the surety must indemnify the purchaser of the supplies against the loss occasioned thereby.

SURETY BOND: An agreement providing for monetary compensation should there be a failure to perform specified acts within a stated period.

SURETYSHIP: Refers to obligations to pay the debts of, or answer for, the default of another. It assumes a legal relationship based upon the contract in which one person (the surety) undertakes to answer to another (the obligee) for the debt, default, or miscarriage of a third person (the principal) resulting from the third person’s failure to pay or perform as required by an underlying contract.

TERM: A period of time for which a bond is issued.

TESTATOR: One who makes a will.

THIRD PARTY BOND: A license bond which gives parties other than the named obligee a right of action in their own name to recover loss or damage resulting from a breach by the licensee of his/her obligations under the law, ordinance or regulations under which the bond is required.

TREASURY LIMITS: These are qualifying limits imposed upon surety companies by the United States Treasury Department.

TRUSTEE: One named in a will or deed of trust to manage property for the benefit of another.

UNDERWRITER: An officer or employee of a surety company who has the responsibility for accepting risks.

PLEASE NOTE:

This document is provided for informational purposes ONLY and is not intended to serve as legal advice and is no substitute for consulting legal counsel.

Fidelity Bonds

Employee Theft: the sPOILER of a Retailer’s Holiday Sales

To Apply for a Fidelity or Dishonesty Bond: http://www.bfbond.com/?bondType=Fidelity  While the holiday season is the most profitable time for retailers, the unfortunate reality is that it is also the most prevalent time of the year for employee theft. 

Increased store traffic, management’s attention on keeping stock available, and the barrage of seasonal employees create an environment ripe for crimes of opportunity. According to the Centre for Retail Research, U.S. Retailers’ losses from employee theft last year were in excess of $18.4 billion. Retailers usually focus their efforts on reviewing and updating their security policies and ensuring their employees are properly trained and aware that the company will prosecute any employee theft. However, they shouldn’t stop there. Retailers can protect themselves from potentially exorbitant losses with proper fidelity insurance.  

Most large retailers have fidelity policies, yet each year many sophisticated companies leave millions of dollars of fidelity insurance assets untapped.  Most of these insurance assets remained untapped because the retailer was unaware it had coverage for the loss; the retailer didn’t understand the impact of certain provisions in the policies; or the retailer failed to properly file a claim or abide by other conditions in the policies.   

What Losses Are Covered Under Fidelity Policies? Fidelity-insurance policies cover loss of money, securities, or inventory resulting from crime to the company. Basic fidelity-insurance coverage protects against employee dishonesty, theft, disappearance and destruction, embezzlement, forgery or alteration, robbery, safe burglary, computer fraud, counterfeit money orders and currency, credit card forgery, and other criminal acts.  

Liabilities covered by fidelity insurance usually fall into two main categories: (1) Employee Dishonesty Coverage—pays for losses caused by dishonest acts of your employees such as embezzlement, forgery or alteration, fraud and theft; and (2) Money and Securities Coverage—pays for money and securities taken by burglary, robbery, theft, disappearance and destruction.  Fidelity policies also may include broad coverage grants for investigation costs or specific endorsements granting coverage for these costs. Costs to investigate losses and substantiate fidelity claims can be expensive for retailers, so it is beneficial to understand what, if any, investigation cost coverage you have and if you lack investigation cost coverage to consider speaking with your broker to purchase the coverage. 

Provisions in Fidelity Policies Every Retailer Should Understand Fidelity policies cover losses for employee dishonesty, but the definition of “employee” varies substantially between policies. Some policies contain broad definitions of employees that include salaried and hourly employees, directors and officers, consultants, check processors, and temporary and seasonal workers including employees provided by employment contractors or temp agencies.  

Most fidelity policies’ definition of “employee,” however, is much narrower and may cover only salaried employees the company compensated, directly controlled, and had direct authority to hire and fire. Retailers should review the definition in their own fidelity policy and ensure that it captures all employees it wants covered, paying specific attention to how seasonal and temporary workers are treated.  If your policy does not cover seasonal and temporary workers or any other individual necessary for your operations, prior to the discovery of a loss you can still talk to your broker and add an endorsement to broaden the definition of employee. Often, the increase in premium for these endorsements is minimal. 

Most fidelity policies are triggered by the “discovery” of a loss. This can impact which policy must respond to the loss, as well as the time the policyholder’s obligation to provide notice to its insurance company arises.  Some policies deem discovery to have taken place on the date the retailer becomes aware of facts that would lead a reasonable person to assume a loss had occurred. Other policies deem discovery to have taken place on the date the retailer learned an employee had committed a “dishonest act.” Who within the company that must be made aware of the loss before the policy is triggered also varies from policy to policy.  

The typical “cancellation” or “termination” clause in a fidelity policy provides that coverage for an employee is terminated as soon as the retailer learns of any dishonest or fraudulent act committed by the employee, whether the act was committed while in the employment of the insured or otherwise and regardless of whether the type of dishonesty is covered by the insurance. Retailers need to take heed of this provision when hiring employees, when reprimanding employees, and when learning of any dishonest or fraudulent act.  For example, if a retailer conducts a background check prior to hiring and discovers the potential employee passed bad checks 10 years ago but hires the employee anyway, the retailer may very well not be covered if that particular employee ends up stealing from the company. Similarly, if a longtime employee makes a minor mistake that could be deemed a dishonest act, i.e. not paying for a lunch under the honor system in the employee lunch room, and the company merely issues a reprimand based on years of service, again it is possible that losses caused by that particular employee will no longer be covered under your fidelity coverage. If the same employee later conspires to mastermind a theft ring depleting your inventory, you may not have coverage available. 

Simply put, what you know about your employees may cause you to lose coverage. Retailers need to understand the parameters of the cancellation clauses in their fidelity policies and when hiring or keeping employees that have committed dishonest or fraudulent acts, no matter how small, retailers should notify their insurance company and ask whether the insurer would be willing to continue to cover the employee through an endorsement. If the insurance company refuses, the retailer should carefully consider whether it is willing to take the risk or whether it should terminate the employee. How Retailers Can Maximize Their Fidelity Coverage Following the Discovery of Employee Theft 

Once you have determined that an employee theft has occurred, it is essential to follow four simple steps to maximize your coverage.  First, immediately notify your fidelity carrier in accordance with the procedure and deadlines in the policy. Notice requirements vary among policies—some policies require notice in as little as 30 days after the discovery of a loss and in some jurisdictions failure to abide by notice provisions may bar all coverage. 

Second, review the investigation-cost coverage under your policy and tailor your investigation to obtain the full benefit of your insurance assets. Even if your fidelity policy does not explicitly provide coverage for investigation costs, if your investigation is tailored properly some costs may be recovered under a standard “recovery clause” found in most fidelity policies (i.e., you tailor your investigation to obtain recovery and determine the scope and extent of the loss).  Third, fidelity policies usually contain strict proof-of-loss provisions that require a policyholder to swear under oath and provide details and documentation of the loss within a specific period of time, often within 120 days. In some jurisdictions untimely filing of the proof of loss can result in a bar of all coverage, and policyholders need to carefully track proof-of-loss deadlines in their policies. 

Fourth, reach out to experienced coverage counsel for large or complicated losses. Experienced coverage counsel can assist you in reviewing your rights under the insurance policy, navigating the policy traps and exclusions, tailoring your investigation plan, and filing your proof of loss in a way that maximizes recovery and minimizes the risk of litigation. 

If you take the time to understand your fidelity coverage and reach out to experienced coverage counsel when needed, you can maximize your insurance assets to avoid employee theft dissipating your seasonal profits.

Great article found on the web

William G. Fleischer, CIC President 

29 Broadway, Suite 1511 New York NY 10006 

212 566-1881 ext 111 wfleischer@bfbond.com 

www.bfbond.com 

 

 

Fidelity Bonds

Fidelity Bonds May Be Just What Your Company Needs

Fidelity bonds are like a kind of insurance policy for employers and companies that serve to protect the ownership and management of a business in the event that any of their employees steals monies, misappropriates funds, or acts in a dishonest fashion that ends up causing the business to suffer a financial loss. These types of bonds cover acts of theft, forgery, and embezzlement of funds that are the responsibility of the employee or placed within their care. These types of security are not liability bonds and do not apply to a series of other work related costs and damages including: employee mistakes or errors, poor or shoddy performance or workmanship, accidents at the workplace, and on the job injuries.

One common type of fidelity bonds is an ERISA bond. This is a form of bond whose name comes from the Employee Retirement Income Security Act (ERISA). The ERISA legislation was passed in 1974 to provide protection for employee benefit and pension plans. One requirement of the ERISA legislation is that businesses that currently operate a registered employee benefit or pension plan must obtain a bond or surety in the amount of ten percent of the worth of the employee benefit plan. In accordance with the overall purpose of the ERISA legislation, this provision is to protect employees and their benefit plans against inappropriate or illegal actions that may be taken by employers in the management and operations of these benefit plans.

Another popular form of fidelity bonds are criminal insurance bonds. Their main purpose is to protect business owners against deliberate criminal acts on the part of their own employees. These types of bonds do not replace the need to closely screen new hires for criminal backgrounds, but they do provide some measures to allow the business to recoup any such financial losses which may occur later.

Fidelity bonds may not be able to guarantee that employees won’t bite the hand that feeds them by stealing from their employers, but they are a useful tool for management of a company to use as part of any employee anti-theft program. This anti-theft program should also focus on two other main areas. One is to ensure that the people who walk in your front door as employees are not likely to walk out the back with your products, goods, services, money, or corporate information.

The second is a firm and unwavering policy to severely punish employee theft, regardless of whether that theft occurs in the warehouse or the executive boardroom. This policy should be well known and well publicized to employees as part of an introduction or orientation to their new workplace. They need to know that theft of any of the employer’s belongings or property will bring swift discipline that might include dismissal for a first offense. These programs, along with sureties and insurance, can help to protect not only the employer’s property, but the integrity and honesty of all employees.

Contact www.bfbond.com to learn more about how to insure your business properly.