Employee Dishonesty/Fidelity Insurance – The Fraud Bond

The employee dishonesty section of the financial institution fraud-bond is often called “Coverage A,” as it was designated as such in the original “Form 24” bond used in the early part of the 1900s. Coverage is provided for dishonest or fraudulent acts committed by employees acting alone or in collusion with others—such as embezzlement.

The original bond form required that the employee intended to cause the bank a loss or to obtain some financial benefit. Such wording excluded “Robin Hood” events where the employee steals to benefit another person. Current forms broaden coverage to include gains to others. Coverage is triggered by an intentional loss to the bank caused by an employee who is attempting to benefit himself or herself, or someone else.

While this coverage section seems pretty straightforward, there are hazards here. Most policies exclude losses when the employee was known to have committed a past dishonest act. How does the insurer define such acts? Is a shoplifting charge fifteen years ago enough to void coverage? There can be limitations on losses where the source of the fraud is a lending transaction. Are leased employees covered?