What Does a Blanket Dishonesty Bond Cover?
A blanket dishonesty bond is a type of fidelity bond that protects a company against losses due to employee dishonesty. Also known as commercial blanket bonds, the coverage primarily prevents small businesses from going bankrupt because of the unbecoming acts by an employee or a group of employees.
Employee theft bond provides coverage for a range of staff misconducts, including:
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Theft of money or securities – This coverage offers protection when an employee steals money, whether by taking cash, authorizing unapproved transfers, or manipulating financial records.
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Forgery - Sometimes a staff member may forge financial papers, such as checks, drafts, and promissory notes, to benefit financially at the expense of a company. Other times, an employee may alter the amount indicated on a check for selfish gains. In such cases, an employee theft bond will cover you.
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Embezzlement – Employees with access to checks, bank accounts, and companies' assets have a fiduciary duty to protect those assets and use them according to the laid down policies. Any case of misappropriation can lead to huge losses. A good employee dishonesty policy covers the expensive losses caused by fraud and embezzlement.
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Credit card fraud – When personnel use a client's credit card or charges their employer's credit card account to fraudulently debit money to their personal account, it tarnishes a company's reputation. If your company handles customers' credit card information, you need a policy that protects you against credit and debit card fraud.
How Much Can You Get from Employee Dishonesty Insurance?
Employee dishonesty insurance starts with a $100,000 minimum policy limit. The maximum limit is $1 million or $2 million depending on how the insurance company underwrites its employee dishonesty coverage.
What is Not Covered?
Just like other coverages, employee dishonesty insurance doesn’t offer the absolute protection that businesses need. It has exclusions. The following are perils that employee dishonesty coverage doesn’t cover:
Volunteers
Employee dishonesty coverage doesn’t treat volunteers as employees. And so, any dishonest acts volunteers commit resulting in losses for the company or organization isn’t covered. For this reason, non-profit organizations and government entities don’t usually decide to get employee dishonesty insurance.
Some carriers cover volunteers by allowing endorsements in the policyholder’s employee dishonesty insurance. This is usually done by adding volunteers as additional insureds. Once volunteers are added, coverage works the same way as it would for permanent or contractual employees.
Government Seizure
Let’s say you’re running a cyber security business. One of your employees uses the company’s network to gain illegal access to a state-owned website. Authorities found out about this and seized the computer and the other tools used to do the crime. Will employee dishonesty provide coverage in this case? Absolutely not.
Employee dishonesty crime insurance doesn’t reimburse equipment seized by authorities, which were used by an employee for a crime. But note that if your business is pulled into the mess, then the coverage can take care of legal fees.
Business Interruption
Fraud, theft, and misrepresentation that an employee commits can halt business operations. But note that an employee dishonesty insurance policy doesn’t provide coverage if this happens. Understand that employee dishonesty only helps you recover the damages that resulted from an employee’s acts. It won’t help your business cover losses if such an act results in your business having to pause for an indefinite period of time to reverse the damage done.
Employees Previously Charged with Criminal Offenses
Note that your carrier won’t provide coverage to employees convicted of committing a crime in the past. This is only applicable if the employee has a record of a criminal offense. In case, such crime is only hearsay or hasn't been taken to court, then employee dishonesty can still provide coverage to the employee.
Employees of Another Company
In case of a joint project and another company’s employees commit fraud, theft, and other related acts against your company, understand that employee dishonesty insurance won’t provide coverage to the losses you’ll incur.
The reason is simple, such employees are only working with you and not working for you. They’re not part of the payroll nor are such employees part of your business’s organizational structure.
But note that you can endorse a third-party employee dishonesty coverage to your existing policy. With this, the crimes of another company’s employees can be covered. Usually, the endorsement is done by adding such employees as additional insureds.
Crimes Committed During War
Crimes that an employee commits against your business during war aren’t covered by employee dishonesty insurance.
Employee Slander or Libel
Employee dishonesty insurance won’t reimburse losses if an employee gives defamatory statements against your company. Understand this insurance only includes theft, misrepresentation, and other fraudulent acts. Consult your carrier and ask whether you can add slander or libel to your existing employee dishonesty coverage.
Unreported Crimes
Employee dishonesty insurance will only provide coverage to an employee’s theft, fraud, misrepresentation, and other related acts that have been reported to the authorities. Carriers require the policyholder to provide a copy of a formal complaint as proof. With that said, even though an act is covered, the policyholder can’t get coverage for losses if it’s not reported.
What to Do to Prevent Risk of Employee Dishonesty?
Although you may have the coverage of an employee theft bond, the best way to protect yourself is to alleviate these risks and exposures in the first place. That means creating policies and procedures designed to ensure zero dishonesty amongst employees.
The following are some effective preventive measures:
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Performing pre-hiring background checks of prospective employees
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Tasking another party (other than the employee who manages the accounts) to reconcile bank accounts
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Countersignature requirements for bank checks
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Conducting internal audits for all financial records and assets
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Hiring an independent accountant to perform annual company audits
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Buying employee dishonesty insurance (fidelity bond)
Fidelity Bond Employee Dishonesty
Employee dishonesty coverage is often referred to as a fidelity bond. As mentioned before, it protects businesses from financial losses caused by employees' dishonest acts and misconduct.
ERISA Dishonesty Bond
The Employee Retirement Income Security Act (ERISA) sets the policies and regulations governing businesses that manage employee benefit funds and social security insurance policies. An ERISA fidelity bond is insurance coverage designed to protect companies managing these employee benefits accounts from losses caused by dishonest and fraudulent actions of employees who handle and manage these funds.
