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FIDELITY BONDS
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| The word "fidelity" has many meaning and uses. In the Fidelity bond business it means only "honesty". While some of our Surety bonds go beyond honesty and also cover competence and faithful performance, this is not true of Fidelity bonds. The only time a Fidelity bond is likely to cover faithful performance would be if such were required by law --- such as for bankers, or for some semipublic group. When a "servant" hires out to his "master" he is obliged, under the Law of Agency, to be honest or suffer the consequence. Otherwise, he is subject to civil damages to the master as well as a criminal penalty from the state. Since dishonest servants (employees) are not usually financially responsible. the master's (employer's) right to civil damages from the servant is almost worthless. Our industry has developed Fidelity bonds whereby an employer pays us a premium and in return, we assume the hazard of his employee(s) stealing from him. Naturally, some limit must be stated as to the amount in dollars we will cover and the period within which discovery of a loss must be made. But beyond the amount and time limit, the item(s) taken can include money, supplies, fixtures, furniture, machines, tools, equipment, raw or unfinished stock or anything connected with the employer's business. People too often think of "money" as being the only item covered by a Fidelity bond, as you can see the coverage is much broader than that. Fidelity bonds are more like insurance. In fact, a Fidelity bond is much like a fire policy or automobile collision policy, because the person paying the premium (the employer) is the one who is going to collect, if the insured event occurs.
A regular reader of any daily newspaper will easily recall many news items of embezzlements by employees. Quite often these amounts are very large. And, most often: 1) They involved "trusted" employees of many years seniority and who occupied important positions. 2) The thefts extended over many years, proving that no bookkeeping system is "theft-proof". 3)
Restitution by the employee was usually impossible for stolen money
had gone down the drain. In fact, most bankers, credit-reporting companies, and police officials can tell you of some employers being forced out of business to reduce the scope of their operations, because the uninsured loss had impaired their capital. Some employers have found their "credit standing" impaired with their banks and suppliers. These same people who have access to confidential information, can tell you of many more cases that never reach the newspapers. It is reliably estimated that for every dollar received by insured employers, under Fidelity bonds, there is an additional $20.00 taken from uninsured employers. These uninsured employee losses are estimated to total 500 million dollars annually. Of this estimated 500 million dollar annual loss suffered by businesses, only about 10% is covered by Fidelity bond coverage. Besides fire, dishonesty causes more loss to businesses each year than any other single cause. Naturally, uninsured employers don't advertise these losses nor their lack of foresight in not having Fidelity coverage. The only conclusion that can be reached is the Fidelity bonds are just as essential as fire and liability insurance. They guard against a financial catastrophe that can cause insolvency or wreck the credit of a business. In addition, an employee who is bondable and who knows he is bonded, is known to be more trustworthy. Honest is not inherited, it is something acquired by self-discipline and fear of the consequences.
Fidelity bonds are needed by all employers. The taking of small amount of money, or merchandise only, can and do add up to large sums over a period of time. The large organization with lots of working capital, is not safeguarded just because they are capable of absorbing a large loss. Indeed, one of the most common remarks that always follows an "exposed" embezzlement is the shock that it was "so much and over such a long (undetected) period of time". Thus every employer needs a Fidelity bond and with adequately high limits.
THE DESIRABILITY OF FIDELITY BONDS These bonds are underwritten with great care. As with burglary, robbery and theft coverage's, the moral hazard is of utmost importance. This applies to both employer and employee. And, all-around good management including adequate systems and controls is a must. It is customary and necessary to require very detailed information from the employer and each employee. These individual employee applications are carefully screened and sometimes investigated further. Obviously, Fidelity bonds should not be underwritten hastily. Some classifications of employees are so adverse they sometimes require the use of deductibles, or their exclusion entirely from coverage. It is not common to find a risk that is entirely acceptable and desirable for some forms of insurance but not for a Fidelity bond. Or, not until certain corrective steps have been taken in matters of security or system. While an insurance agent can, and often does, bind his company to automobile, fire and casualty risks, this is not done with Fidelity bonds. A complete survey and issuance of a Fidelity bond must take place, to put the coverage in force.
THE VARIOUS TYPES OF FIDELITY BONDS Employers vary in size, type of business and "fidelity" needs. Consequently, various types of Fidelity bonds have been developed to take care of almost any employer.
Additional protection (excess immunity) on selected officers and employees holding key positions may be obtained for an additional premium under the Commercial Blanket Fidelity Bond.
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