Top 5 Fidelity Bond FAQs from a Claims Expert
A fidelity bond is a form of insurance that protects business owners against an actual loss due to the dishonest act of an employee. Like an insurance policy, this product protects the business that purchased it; however, like a bond, the surety company may recover any losses from the employee who committed the dishonest act.
Merchants Bonding Company’s claims department is here to assist with any questions an insured might have with respect to Merchants’ Theft Guard fidelity bonds. We aim for a positive and common sense approach to handling claims, where frequent communication keeps all parties informed.
How is a dishonest act of an employee determined?
Employee dishonesty is defined within the terms of the bond or applicable endorsement. In some situations an employee must be convicted before a claim can be validated.
Example: An employee of a cleaning company stole money from a customer. Charges against the employee were filed, an arrest was made and the employee was tried within the jurisdiction where the crime took place and was convicted. Once the conviction is entered by the court that condition to coverage under the bond(if applicable) would be fulfilled.
Would the bond cover loss of potential business or income?
The bond covers an actual loss incurred due to a dishonest act of an employee, but does not cover a potential loss or intangible damage to a business.
Example: A towing company hires a tow truck driver to provide services on its behalf. Calls routed to the tow truck driver are diverted to another towing company who is compensating the tow truck driver for every referral sent to them. Coverage would not exist under the bond because the loss of business or income is potential rather than actual.
Is a part-time employee covered?
A part-time employee is covered if they are accompanied by a full-time manager or supervisor who is employed by the insured. Generally, a part-time employee is considered someone who works less than 30 hours per week; however, each business is responsible for classifying an employee as part-time or full-time.
Example: A home health care company has a part-time employee assist an elderly person with daily tasks. During this time the employee writes checks to themselves as cash. If the part-time employee is not accompanied by a full-time manager or supervisor who is employed by the home health care company there would not be coverage for the dishonest acts of the part-time employee under the bond.
In the event of a dishonest act, when should Merchants be contacted?
Once a business is made aware of a dishonest act committed by an employee they should notify the surety company as soon as possible because the bond has a timing requirement as to when notice of a loss must be received and a proof of loss form filed. Each state has different loss notice requirements so an insured should look to the terms of its own bond or endorsement to determine its obligations.
How often does Merchants communicate during the claims process?
Merchants opens a claim file as soon as notice is received. An acknowledgment letter and proof of loss form are sent to the insured to begin the investigation process. Merchants understands a dishonest act committed by an employee can be a difficult time for an insured. For this reason, Merchants stays in contact with the insured to keep the apprised of the information needed to make a determination with respect to a claim.
Merchants takes pride in offering this first class service as a way to let the insured know Merchants is attentive to its claim, remind the insured what is still needed to complete the surety’s investigation, and help the insured navigate through the claims process.
How do I get a Surety Bond?
Surety bonds are issued by Merchants Bonding Company (Mutual) through insurance agents. Contact your local insurance agent or use our Find an Agent tool. They will guide you through the process, informing you of what documents and information are needed by the surety (Merchants Bonding Company (Mutual)) to underwrite your bond.
What is a Surety Bond?
A surety bond is a three-party agreement that ensures the fulfillment of a commitment or contract. For instance, the surety (Merchants Bonding Company (Mutual)) may provide a surety bond to a construction company (the principal) which is required by the state (the obligee), ensuring the construction company will perform the duties as outlined in the contract. In bonding the construction company, Merchants assumes the risk should the company default or not fulfill their contract. A surety bond is different from traditional insurance in that the principal is obligated to pay back the surety company on any claims paid out.
All information provided is subject to change.