Fidelity, Employee Dishonesty and Financial Institution Bonds
Fidelity coverage protects an organization against its own loss from dishonest acts, most often by employees. It comes in two broad families. Financial institution bonds, sometimes called bankers' bonds, protect banks and other financial institutions on substantially standardized forms that are heavily modified by riders and endorsements. Commercial crime policies protect other businesses and organizations on wordings that vary more from insurer to insurer.
Fidelity claims tend to turn on a few questions. Did the employee act with the "manifest intent" the policy requires? Did the loss "result directly" from the covered conduct? And how far does the indemnity extend beyond the dollars that reached the wrongdoer's pocket?
Marc Mayerson was lead counsel for the policyholder in Building One Service Solutions, Inc. v. National Union Fire Insurance Co. (E.D. Va. 2002). There the court denied the insurer's motion for partial summary judgment and rejected its effort to confine coverage to the amount embezzled. The court held that the policy's "resulting directly" language did not limit the risk "solely to the money that is eventually found in the embezzler's pocket," and that losses proximately related to the entire scheme could be covered. The case also addressed how dishonesty may be proved when the employee invokes the Fifth Amendment.
Marc has provided independent expert testimony to the ERISA Advisory Council of the U.S. Department of Labor on fidelity bonds for plan fiduciaries. He has also written on fidelity coverage for commercial fraud and on insurance against cybercrime. Increasingly, fraud reaches organizations through computer intrusion, funds-transfer fraud, and social engineering, and whether a loss falls under the fidelity bond, a crime policy, or a cyber policy can depend on fine distinctions in the wording.
The Mayerson Firm PLLC assists policyholders in preparing and presenting proofs of loss, responding to insurer investigations, and pursuing recovery through negotiation, arbitration, or litigation. For financial institutions and other organizations, we also review bond and crime-policy wordings, riders, and endorsements before purchase or renewal. The aim is to match coverage to how the institution's transactions are actually authorized, verified, and paid.
Related reading: It's a Crime: Efforts to Constrict the Broad Scope of Fidelity Insurance Coverage; Cyber-risk, Privacy, Cyber Fraud, Social Engineering, and Internet Insurance