Commonly Used Fidelity Bond Terms A_ B_ C_ D_ E_ F_ G_H_ I_ J_ K_ L_ M_ N_ O_ P_Q_R_ S_ T_ U_V_W_X_Y_Z Audit is the examination and verification of financial books, records and internal controls. An audit may be performed by an independent CPA firm or internally by a department or personnel of the business entity. BOP/Business Owners Policy Crime insurance for smaller businesses is often provided as part of a business owners policy (BOP). Although most BOP's are independently filed by companies (and therefore aren't all the same), they typically include nominal limits of employee dishonesty insurance and other basic crime coverages. Blanket Fidelity Bond is a bond which covers loss of money, securities or other property owned by the insured, held by the insured, or for which the insured is legally liable, when such loss is due to the dishonesty of the insured's employees. Unless specifically excluded, all employees are covered under the bond for one blanket amount. Class of Business distinguishes applicants based on their primary activity or business purpose and the relative crime risk within that type of activity or business. Class of business is a primary rating factor in crime policies with the more hazardous risks having higher premium modifiers. Combination Crime Policy (also known as the Commercial Crime Policy) is a policy providing various crime coverages for mercantile or government entities. The policy is written in easy-to-read language and is under the joint jurisdiction of the SAA and the ISO. Several optional crime coverage forms are available under the policy, each of which insures against specific exposures. The policy can be tailored to fit the insurance needs of the insured by attaching only the coverage forms desired - a sort of "mix and match" arrangement. >>Back to Top Commercial Package Policy is a policy containing coverages from various lines of insurance (e.g. Boiler & Machinery, General Liability, etc.). Each line of insurance is written as a coverage part of the Commercial Package Policy. Employee dishonesty, for instance, is included in the "part" dealing with crime coverage and generally written at nominal limits. Consolidation - Merger is the first General Condition clause. It deals with the acquisition, consolidation or merger of the insured with another entity. It provides for short-term coverage, but requires underwriting information for reassessment of risk and premium to be charged. Continuous Term means the Policy Terms states a "from" date, but no specified expiration date. The policy always remains in effect unless the insured provides a signed policy release or the insurer sends written notice of cancellation. CrimeSHIELD is written on a continuous term basis. Deductible is an amount which is to be subtracted from any loss and which the insured agrees to bear. Definite Term is a when a policy is written with both a stated "from" or starting date and "to", a expiration date. See also "Continuous Term" above. Discovery Basis refers to a policy wherein a loss may be sustained (occur) at any time, but is discovered during the period of time that the policy is in force. See also Loss Sustained Basis. >>Back to Top Discovery Period refers to a period of time after the cancellation of certain fidelity bonds and policies to discover losses that would have been recoverable had the bond or policy remained in force. See the Extended Discovery Period provision in the CrimeSHIELD policy. Dishonest or Fraudulent Acts are those dishonest or fraudulent acts that are committed by an employee with the manifest (evident) intent (1) to cause the insured to sustain a loss, and (2) to obtain financial benefit for the employee or another person or entity. CrimeSHIELD does not use this language, but rather refers to these acts as employee theft. Embezzlement is the wrongful taking of money or property entrusted to one's care. Employee is a person in the service of the insured who receives compensation for his services and is under the direction and control of the insured. Employees can be either the regular employees of an insured or employees of an employment contractor temporarily working for the insured. The policy definition of an employee may be changed by endorsement, many of which are built into the CrimeSHIELD policy form. ERISA (Employee Retirement Income Security Act of 1974) is a Congressional Act that replaced the Welfare & Pension Plans Disclosure Act of 1962. ERISA requires that qualifying employee benefit plans be bonded by acceptable surety companies (as listed by the U.S. Treasury Department) for the protection of plan funds against loss by acts of fraud or dishonesty on the part of those persons handling the funds. ERISA also requires the disclosure and reporting of financial and other information concerning the operations of employee benefit plans. Hartford is a very active writer of ERISA bonds. >>Back to Top Endorsements (called Riders on bonds) are documents that are attached to the original policy that modify or change the original policy in some way. An endorsement my broaden coverage or may restrict coverage, or may extend coverage to an insured not on the original policy. It may also serve as a clarification of the policy's terms. Faithful Performance Coverage protects the named insured against loss by reason of the failure of the persons covered thereunder to faithfully perform their duties as prescribed by law or regulation. Available for governmental entities only. Fidelity Bond is a bond or policy that indemnifies the insured for loss caused by the dishonest or fraudulent acts of its employees. It may be written on a blanket, individual, or schedule basis. Also referred to as dishonesty insurance. Financial Institution Bonds are bonds specifically written for financial institutions such as commercial banks, savings banks, savings and loan associations, stockbrokers, mortgage bankers, insurance companies, and others. Forgery Coverage indemnifies the insured for loss caused by forgery of a signature on, or alteration of stated instruments, documents or securities. Insuring Agreement 2 in a Hartford CrimeSHIELD policy. >>Back to Top ISO (Insurance Services Office) is an organization working with the insurance industry to maintain statistical data, file loss costs and manage standardized forms on behalf of its member companies. The ISO is to the insurance industry as the SAA is to the surety industry. See SAA. Joint Insured Endorsement adds subsidiaries or other entities such as welfare and pension plans over which the insured exercises control. An employee of one insured is considered an "employee" of all the insureds. Limit of Insurance is the maximum amount an insurer will pay in case of loss. Sometimes called limit of liability, bond penalty or penal sum. Loss Sustained Basis refers to the form of bond wherein a loss must be sustained (or occur) as well as be discovered during the period of time the coverage is in force. Most policies written on this basis include an additional provision for a discovery period. This allows for a loss that is sustained (occurs) during the bond/policy period, but discovered during the discovery period that follows the expiration or termination of the policy - typically twelve months. See also Discovery Basis. Manifest Intent Employee dishonesty forms require that an employee act with manifest intent to (1) cause a loss to the insured and (2) obtain financial benefit for the employee or for another person or entity that the employee wants to receive the benefit. This “dual trigger” indicates that both elements for manifest intent must be present in order for coverage to apply. Monoline policies provide only one type of insurance coverage (i.e. commercial crime). Occurrence is a loss caused by, or involving one or more "employees", whether the result of a single act or a series of acts. See the CrimeSHIELD policy for its specific definitions. >>Back to Top Omnibus Named Insured provides for extension of coverage (within certain parameters) to entities acquired in the future where there is more than 50% ownership and controlled or operated by the insured and for pension and benefit plans. Typically added by endorsement. SAA (Surety Association of America) is the surety industry counterpart to ISO. See ISO. Examples of Surety Association data are included in this training section. Employee Dishonesty and Forgery coverages are often considered to be "surety," rather than "insurance," with respect to state insurance law. Schedule Fidelity Bond is a bond or policy that covers only the dishonest acts of specifically named persons (Name Schedule) or specifically listed positions within the company (Position Schedule.) See also "Blanket Fidelity Bond." CrimeSHIELD is written on a blanket basis. Separation or Segregation of Duties is a means of providing internal control by clearly defining the roles and responsibilities of employees and requiring that more than one person is involved in the handling, recording and reconciliation of all transactions. For example, the person who prepares or signs checks should be different than the person reconciling the bank statement. >>Back to Top Superseded Suretyship is a provision that allows an insured to change surety companies/insurers without fear of severe penalties. It provides coverage for losses that were sustained (occurred) before the policy period of the current policy (but only to the limit of the previous policy and only if there was no interruption in coverage between the two policy periods). In other words, if the current policy became effective on the date the former policy expired, the discovery period for the previous policy had expired, and if the loss would be recovered under both the terms of the old and the new policies, then the new policy reaches back and picks up the loss coverage - even if the companies changed. Superseded suretyship is only applicable to loss sustained policy forms. As CrimeSHIELD is a discovery form policy, it does not apply. Third Party Coverage extends protection to theft of client property by an employee of the insured.