Crime, Fidelity, and Surety Coverages
Three distinct products
Crime coverage addresses theft, burglary, robbery, and employee dishonesty. Fidelity bonds cover employee dishonesty specifically. Surety bonds guarantee performance of an obligation - they are three-party (obligee, principal, surety) and are not insurance in the traditional sense because the surety expects reimbursement from the principal.
Key concepts
- Employee dishonesty covers theft of money, securities, or property by employees acting with intent to gain.
- Forgery or alteration, computer fraud, funds transfer fraud, and robbery are separate insuring agreements.
- Discovery versus loss sustained forms: discovery covers losses discovered during the policy period; loss sustained covers losses occurring during the period.
- Surety bonds: bid, performance, payment, and fidelity bonds. The surety has recourse against the principal.
- Blanket versus scheduled bonds: blanket covers all employees, scheduled names individuals.
Traps to watch
- Crime forms usually exclude indirect loss and loss from voluntary surrender of property.
- Employee dishonesty requires intent to gain; negligence is not covered.
- A surety bond is not cancellation-based like insurance; it runs until the obligation is discharged.
Rule of thumb
Crime = first-party loss from dishonest acts. Surety = third-party guarantee of performance with recourse against the principal.
Worked example
An accountant diverts $100,000 from company accounts. Employee dishonesty responds, subject to the limit and deductible. If the accountant also forged a cheque, the forgery insuring agreement may respond, but the insurer will not pay twice for the same loss - the two agreements do not stack.