“Formerly known as a bankers blanket bond, and sometimes referred to as a fidelity bond, the financial institution bond as it is commonly known, is simply an insurance policy. Though the term “insurance policy” does not typically appear in its title, financial institutions should view a financial institution bond as just that. When faced with certain types of loss, financial institutions should be reviewing their financial institution bonds carefully to determine if coverage exists.
As with any other insurance available to a financial institution, the financial institution bond expressly provides coverage for certain loss or causes of loss, while expressly excluding coverage for other loss or causes. While the financial institution bond might also be appropriately referred to as a crime bond or crime insurance, there can be coverage for issues not tantamount to crime. In any event, when a financial institution falls victim to employee dishonesty, theft, forgery, or fraud of any kind, for example, the financial institution bond should be considered immediately as a potential source of recovery. There may even be coverage for certain forms of cybercrime. When a financial institution falls victim to employee dishonesty, theft, forgery, or fraud of any kind, for example, the financial institution bond should be considered immediately as a potential source of recovery.
While financial institution bonds largely cover the first-party loss of the institution, the bond can also provide coverage for costs defending against claims by a third party (e.g., customers) alleging responsibility on the part of the institution for certain loss suffered by the third party.
Even if at first glance a loss does not seem to be a loss covered under a financial institution bond, it is good practice to review the bond’s provisions to ascertain if there is even the possibility for coverage. Not unlike other insurance policies, it may be less than clear whether coverage exists for a particular loss. Also not unlike other insurance policies, if the bond is unclear, or ambiguous, it may necessarily be construed in favor of coverage for the institution.
Financial institutions also need to be careful when faced with a potentially covered loss. Failure to provide timely notice of the loss can preclude coverage in certain circumstances. When in doubt as to the existence of coverage, financial institutions should consider giving immediate notice to the insurer. Many times, the bond itself will set forth when notice should be given. Financial institutions should also pay close attention to the other conditions or requirements set forth in the bond, and follow them as closely as possible.
To the extent an institution decides to make a claim under a bond, the institution should be mindful of any provision contained in the bond which seeks to limit the time within which the institution may bring a suit against the insurer. Insurance policies covering first-party loss oftentimes have contractual limitation provisions that can be construed to supplant the applicable, and likely longer, statute of limitations.
Even if the insurer initially indicates that coverage exists, this does not mean that the claim will ultimately be paid, or that the full value of the claim will be paid. Disputes with the insurer can include disputes regarding whether coverage exists in the first instance, the applicability of exclusions, the amount of the loss, or the applicability of limits and deductibles, to name a few. Financial institutions should not shy away from pursuing recovery under their financial institution bond. They may be surprised regarding the breadth of the coverage provided. When in doubt, institutions should consider making a claim, and pushing the insurer to give a clear explanation, based on the language of the bond and the law, as to why a loss is not covered.”
The forgoing piece was authored by Ryan Suerth of Murtha Cullina, LLP, a national firm offering legal services to the business community, and first appeared in Community Banking Insights. Thank you, Ryan!
National surety leader, Surety One, Inc. specializes in underwriting fidelity risks for ALL business classes. In addition to financial institution bonds we write fidelity bonds for TPAs, MGAs, title agencies, labor unions and other hazardous classes. For more information visit us at SuretyOne.com, call (800) 373-2804, or email us at Underwriting@SuretyOne.com.
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