Safe Depository Coverage – Standard of Loss

Your bank customers expect that you will protect their property in your safe deposit boxes. You expect your insurance to help.

Let’s look at the fraud-bond (AKA financial institution bond or banker’s bond) for coverage. There is usually a section called “Safe Depository.”

Safe depository coverage can be written in two broad ways:

Liability of Depository – covers loss that the insured is legally obligated to pay by reason of liability for loss of a customers’ property. This form of protection gives the bank coverage for its liability. There would be no coverage for destruction caused by a lightning strike, for example, unless an attorney found a judge that ruled the bank responsible for lighting.

Loss of Customers’ Property – covers loss of customers’ property by burglary or robbery, or any attempt thereat, or for damage to or destruction of customers’ property, regardless of the liability of the bank. This coverage is quite broad and only slightly more expensive.

Coverage on a liability basis provides coverage only when the bank failed in some duty to protect the property. Floods, lightning, conflagrations, and earthquakes would all be causes of loss probably not covered when the standard of coverage is the negligence or liability of the bank. (How can your bank be found responsible for an earthquake?)

I almost always recommend my clients have coverage on a loss of customer property basis. Safe depository claims are messy enough. They are also a PR nightmare. Your bank will probably end up paying for almost any loss to property in a safe deposit box if there is a loss. Why not let your insurer pay it?