(September 2022)
|
Collapsible Menu Insuring Agreements |
Financial Institution
Bond–Standard Form No. 15 provides coverage for the following classes of
financial institutions: Finance Companies
Coverage is similar to
the Financial Institution Bond-Standard Form No. 24.
Related Article: Financial Institution Bond–Standard Form No. 24
This analysis is based on
the 05 11 edition. Changes from the previous edition are in bold print.
A. Fidelity (05 11 changes)
Insuring Agreement A.
covers loss caused by a dishonest or fraudulent act of any employee. These
losses are covered regardless of where they are committed and whether they
occur due to one employee acting alone or one employee acting in collusion with
others. The employee must intend for both of the following two very specific
results:
|
Example: Kristen is an employee of Meadowlark Finance. She is the
happy and proud owner of seven houses. Scenario 1: Kristen put
her name on the titles of the seven houses when they were foreclosed instead
of Meadowlark Finance’s name. The value of the houses at the time of
discovery was negative because of taxes owed on them. There is no coverage
because Meadowlark does not sustain a financial loss. Scenario 2: Kristen embezzled $150,000 from Meadowlark
Finance over five years in order to purchase the houses. There is coverage
because Meadowlark sustained a loss and Kristen obtained a benefit. |
This insuring agreement
has two limitations:
When
the term “improper financial benefit” is used in this insuring agreement is
does not include any employee benefit earned by the employee such as salary,
commission, promotion, awards, or other benefits. Similarly, the term “loss”
used in this insuring agreement does not include any type of employee benefit
paid to an employee by the employer. Examples of employee benefits are
commissions, fees, bonuses, promotions, awards, profit sharing, pensions, and
salaries, but the term is not limited to only these.
Note: This
insuring agreement is identical to the corresponding insuring agreement in
Standard Form No. 24.
Related Article: Financial Institution Bond–Standard
Form No. 24
|
Example: When Meadowlark discussed Kristen’s embezzlement, it
owed her $25,000 in commission. The $25,000 is subtracted from the $150,000
so the loss is only $125,000. |
B. On Premises (05 11 change)
Insuring Agreement B
covers losses to certain types of property. Those types of property are listed
in a table in the definitions section of this bond. Other types of personal
property are not covered. The loss must be caused by robbery, burglary,
misplacement, mysterious disappearance, damage, or destruction.
Loss due to larceny,
theft, or false pretense is also covered but only when the person committing
such crimes is actually at an office or on the insured’s premises at the time
the property is handed over.
The losses described
above are covered only if the property is actually at or deposited in the
office or premises. The office or premises where the loss occurs can be
anywhere. This broad territory can be
reduced by making an entry under item 7. on the declarations that lists the
specific offices where coverage does not apply.
This insuring agreement
also covers loss of or damage to the office and its furnishing as a result of
larceny, burglary, robbery, theft or attempts thereat. The insured party must
either own the premises where the loss occurred or be legally liable for it.
Losses that fire causes are not covered.
Note: This
insuring agreement is identical to the corresponding insuring agreement in
Standard Form No. 24.
Related Article: Financial Institution Bond–Standard Form No. 24
C. In Transit (05 11 change)
Insuring Agreement C is
the off-premises version of Insuring Agreement B. It insures against robbery,
larceny, theft, misplacement, mysterious disappearance, damage, or destruction
of the defined property while being transported.
Related Court Case: Playing the Float: Theft or Disappearance?
Coverage applies only if
the property is in the custody of one or more of the following:
Coverage begins when the
messenger or transportation company receives the property. It ends immediately
when it is delivered to the designated recipient.
Note: This
insuring agreement is identical to the corresponding insuring agreement in
Standard Form No. 24.
Related Article:
Financial Institution Bond–Standard Form No. 24
This Insuring Agreement
covers direct loss caused by forgery or alteration of negotiable instruments which
meet any of the following criteria:
Coverage is limited to
only the amount of loss that is caused by the forgery or alteration. There is
no coverage if the forgery or alteration is to any evidences
of debt.
A reproduction is treated
the same as a handwritten signature. However, electronic
or digital signatures are not.
|
Example: Jamey scrubs a canceled check that had been issued by
Friendly Finance and rewrites the payee as one of his many aliases. Scenario 1: Jamey opens
an account in a local bank and then begins withdrawing the funds from the
ATM. Friendly Finance refuses to honor the check and notifies the local bank
that the check is a forgery. Friendly Finance has no loss because the forgery
was caught before funds were released. Scenario 2: Jamey
presents the check directly to Friendly Finance and receives cash. When
Friendly Finances discovers the forgery, Jamey is gone
and it has a covered loss. |
Listed Securities:
·
Certificated securities
·
Deeds, mortgages, or other instruments that
grant title to, create, or discharge liens on real property
·
Security agreements
·
Evidences of debt
·
Certificates
of deposit
·
Corporate, partnership, or personal guarantees
·
Documents of title
·
Certificates of origin or title
This optional insuring
agreement applies to any of the following three types of losses that occur but
only if the insured was acting in good faith at the time of the loss. The loss
can be for its account or for the account of others.
1. A loss occurs when the insured has
faith in the written original of any of the listed securities so that they were
acquired, sold, delivered, credit was extended, or liability was assumed and
one or more of the following happens:
·
The securities are lost or stolen
·
The handwritten signature of a person who would
make the security valid or enforceable is a forgery
·
The security(ies) is altered or forged and a
financial loss results
2. A loss occurs when one or more of
the listed securities above are counterfeit. The insured must sustain the loss
because it acquires sells, delivers, gives value to, extends credit, or assumes
liability believing that the security is real. The loss is limited to the
extent of the financial loss resulting from the item being counterfeit. This
coverage does not apply to the corporate, partnership, or personal guarantee, evidences of debt, or to the security agreement securities.
In
order for coverage to apply, the insured must have actually possessed the
listed securities that result in the loss. This proves that the insured was
involved in a good faith transaction.
A
reproduction is treated the same as a handwritten signature. However, electronic or digital signatures are not.
F. Counterfeit Money (05 11
title change)
Insuring Agreement F
covers loss caused by an insured that accepts in good faith counterfeit money
of the United States or Canada. However, there is no coverage for loss because
it accepted counterfeit money from any other country. The one exception to this
limitation is when the insured the insured maintains a branch office in another
country. In that situation, the counterfeit money from that country is covered.
Note: This
insuring agreement is identical to the corresponding insuring agreement in
Standard Form No. 24.
Related Article:
Financial Institution Bond–Standard Form No. 24
A. Additional Offices or
Employees–Consolidation, Merger, or Purchase of Assets–Notice
An insured can grow by
adding new offices or by merging with other entities. The method of growth
determines the amount of insurance available.
New offices that are added
by the insured are covered from the date they are added
and coverage applies for the remaining premium period. There is no additional
premium charged and the insured is not required to notify the underwriter.
The insured may grow
through merger or acquisition. There is no automatic coverage for this type of
growth unless and until the underwriter is notified. After the notification is
received, the underwriter can agree or not agree to cover the merged or
acquired entity. If accepted, the insured must pay any additional premium.
Note: This
difference in approaches is justified. In the first situation, growth involves
the party the underwriter originally evaluated and accepted. Unless the new
office added is unusual or extraordinarily large, the nature of the insured's
operations does not usually change. In cases of merger or acquisition, the
insured's operations now include the operations of another distinct and
separate entity that the underwriter has not yet examined. It is reasonable to
require notification, written authorization, and additional premium charges in
cases of merger or acquisition.
B. Change of
Ownership–Notice (05 11 title and other change)
Underwriting is based
largely on the insured's management. Therefore, any time there is a significant
change in management, the underwriter must be notified. The policy requires
that when10% or more of stock ownership or partner/member
ownership interest changes hands, written notification must be provided
within 30 days of the change or coverage ceases for that new interest holder.
|
Example: Mary Fellow is the sole stockholder of Prairie Finance.
She marries Charlie Angel, her CFO. As a wedding present she gives him 25% of
her stock. Ninety days later Charlie leaves her. Mary is broken hearted but
also smart so she requests an immediate audit of
Prairie Finance. She discovers that prior to their marriage Charlie had been
embezzling and continued doing so until the day he disappeared. All money
stolen prior to the marriage and for up to 30 days after the marriage is
covered but the final 60 days loss is not covered because Mary had not
reported the change in ownership. |
C. Representation of Insured
(05 11 change)
The application the
insured completes is attached to the bond and coverage is written based on that
information. The insured represents that all information on the application is
true, complete, and correct. The bond may be rescinded if there is any
concealment, incorrect statement, or omission of information that is considered
material.
Note: The prior edition stated that a misrepresentation, concealment,
incorrect statement, or omission had to be intentional in order to rescind the
bond. The 05 11 edition eliminates the words intentional and representation.
|
Example: Paradise Finance’s CFO was responsible for completing the
Financial Institution Bond application. She was in a hurry to get out of town
so passed the responsibility to her administrative assistant. The assistant
completed the application based on his knowledge of the company. Unfortunately,
he was unaware of two operations located in a different state. The bond was
issued based on the application. A loss was discovered at one of the out-of-state
locations and submitted to the Underwriter. The loss was declined
and the policy rescinded because of the omission of the two out-of-state
locations. Paradise argued that the omission was unintentional
but the rescission remained because, even though unintentional, the
information omitted was material. |
D. Joint Insured
If the bond covers two or
more insureds, the first named insured acts for all others. Payments the
underwriter makes to the first named insured fully release the underwriter. If
the first named insured is no longer covered for any reason, the next named
insured assumes the position of first named insured. This provision makes
working with more than one insured more practical. Having multiple insureds on
the bond does not increase the underwriter's liability.
E. Notice of Legal
Proceeding Against Insured–Election to Defend
The insured must notify
the underwriter of any legal proceedings against it related to an incident that
may result in a covered loss as soon as practicable. The notification can be no
later than 30 days after the insured knows about a legal action. The insured
must give the underwriter copies of all information that relate to legal
proceedings.
The underwriter can
assert its right to handle the legal defense that involves a legal proceeding
that may affect coverage (including choosing attorneys) but is not obligated to
do so. If the underwriter decides to provide a legal defense, the coverage
provided includes all related costs. The insured must cooperate with the
underwriter in any defense. Failing to do so could result in the underwriter
terminating any defense.
When the insured does not
provide the underwriter with notice of a claim or an event within the 30-day
time period, the underwriter is not obligated to do anything with respect to
the claim or event that binds it in any way. A settlement agreement the insured
enters into is not binding on the underwriter. If the insured defends the claim
or event, the underwriter is not liable for any of the defense costs and is
also not bound for any judgment made against the insured.
In addition, the
underwriter may decide to not defend against any claim or event, even though
the insured provided the appropriate notices. If the insured elects to defend
and assume all attorney fees and other costs associated with the defense the
costs of the defense are the insured’s responsibility and the underwriter does
not pay. Any settlement the insured makes and any judgment against it is not
binding on the underwriter.
If the insured settles
with the underwriter's aid, the date of the settlement is used to determine the
time period for suits to be brought in place of the discovery date in
Conditions and Limitations Section 5.
F. Insured's ERISA Plans (05
11 addition)
If the insured is required to provide ERISA bond coverage for any plan,
the plan subject to ERISA can be added to this bond as an insured. However,
this is only if the majority of the ERISA beneficiaries are the insured’s
employees or former employees. The plan is an insured under only Insuring
Agreement A. Because ERISA has its own rules with respect to bonds, there are certain
specific conditions for these ERISA plans.
1. ERISA does not permit deductibles on its
required limits. The required limit is the lesser of $500,000, or 10% of the
plan assets when the plan does not hold employer securities and the lesser of
$1,000,000 or 10% of the plan assets when the plan does hold employer
securities. If an ERISA loss that involves Insuring Agreement A occurs, the
deductible applies once the insurance company pays the minimum amount ERISA
requires.
2. A loss discovered during the policy term or
within one year after it ends is covered. However, if a loss is discovered in
the year following the end of the policy term, any loss payable is reduced by
the amount payable under the bond for the current policy term.
3. If the financial institution has two or
more plans subject to ERISA, the limit of coverage purchased must be sufficient
to cover the sum of the minimum required limits of all plans.
The terms defined in
Financial Institutions Bond–Standard Form No. 15 are in alphabetical order.
Most were modeled on definitions in the Uniform Commercial Code.
Certificate of Deposit
Any written
acknowledgement from a financial institution that it received money from a depositor
that it is formally obligated to repay.
Certificate of Origin or Title
A document a product manufacturer or government agent issues that
can be used to prove evidence of personal property ownership. It is used to
transfer ownership.
Certificated Security
A written document that provides evidence of ownership or
participation in an enterprise or of an obligation of the enterprise. It must
be issued in a registered or bearer form. The instrument must be a type
commonly traded in securities exchanges or markets and be part of a class or
series.
Counterfeit
A written imitation of an original intended to deceive and to be
accepted as an original
Document of Title
Any written original bill
of lading, dock warrant, warehouse receipt, or delivery order. It is also any
other written document with all of the following attributes:
Employee (05 11 change)
Each of the following is considered an employee:
Note: Under the prior edition, guest students and interns were
considered employees while performing services for the insured. The 05 11
edition removes this provision. However, such persons are still covered if the
insured pays them a salary and they work under the insured’s direction. In
addition, the prior edition covered data processors. The 05 11 edition does
not.
Evidence of Debt
A written instrument a
customer executes to document its debt obligation to the insured. It includes
Negotiable Instruments.
Forgery
When one party signs the
name of another party without that other party’s authorization but only if
there is intent to deceive. The party can be a person or an organization. This
definition does not treat electronic or digital signatures as signatures. When
a person places his or her own signature on a document that he or she whether
or not authorized to do so, it is not a forgery even if the intent was to
deceive.
Guarantee
Any written undertaking where one party agrees to pay the debt
another party owes if that other party does not pay based on the terms of its
obligation. The debt can be to the insured financial institution, an assignee
of the insured, or to an institution from which the insured purchased a
participation in the debt.
Letter of Credit
A written arrangement between a bank and its customer whereby the
bank honors drafts and other demands for cash based on that arrangement. The
customer must request the letter of credit. The letter must include conditions
required for the bank to comply.
Loan
Any and all extensions of credit the insured makes. It also
includes transactions where the insured establishes a creditor relationship,
even those where the insured purchases another’s creditor relationship.
Messenger
Any employee of the insured who has the insured’s property off
premises. If that employee becomes incapacitated, any natural person who
assumes custody of that property is also considered a messenger.
Money
A medium of exchange a
foreign or domestic government authorizes or adopts as part of its currency. It
must be in in current use.
Negotiable Instrument
Any type of writing that
meets all of the following criteria:
Original
The first rendering of a document. A photocopy or a printed
version of an electronic document is not considered an original.
Property (05 11
change)
All of the following are
considered property:
|
money |
certificated securities
|
negotiable instruments |
|
documents of title |
evidences
of debt |
security agreements |
|
certificates of origin
or title |
letters of credit |
insurance policies |
|
deeds and mortgages on
real estate |
stamps – revenue and
other types |
certificates of deposit
|
|
books of account |
hard copy or electronic
financial records |
abstracts of title |
Other tangible Personal Property not listed in the table is also
property. However, it is not covered in the same way as the property listed in
the table.
Note: In the first part of the On Premises coverage only
“enumerated items of property” are covered. Those are the items listed in the
table above. When term “property” is used, it means all items in the table plus
the other tangible personal property.
Security Agreement
A written agreement that has two purposes:
·
It
creates an interest in personal property or fixtures.
·
It secures payment or performance of an
obligation.
Transportation Company
Any organization that
uses its owned or leased vehicles to transport its customers' property. It may
also arrange for freight forwarding or air express services for its customers'
property.
Written (05 11 addition)
Three criteria must be met for something to be considered written:
Despite Standard Form No.
15's very broad coverage, there are exclusions. Coverage for some of the excluded
items can be purchased by using a rider or the coverage may have to be
purchased under another form of insurance such as a property coverage form.
Standard Form No. 15 contains 25 exclusions.
Related Article: Financial Institution Bonds Available
Riders and Their Uses
Note: The exclusion titles in this section are not part of the
bond. They are provided as an aid to understanding.
a. Forgery or alteration
Loss
due to forgery or alteration is excluded. The exceptions are when Insuring Agreements, A, D, or E provide coverage.
b.
Forgery or alteration of a negotiable instrument
There
is no coverage under Insuring Agreement D when a loss occurs because the
insured relied on a forged evidence of debt to issue a negotiable instrument.
|
Example: Mabel obtains a loan for $1,000 from Middleman Finance.
Mabel provided the title to her car as collateral. When she fails to make a
payment, Middleman attempts to repossess the vehicle and discovers that the
title is a forgery. |
c. War, riot, or civil commotion
Loss caused by riot or civil commotion is
excluded but only when it occurs outside the United States and Canada.
Loss due to warlike action anywhere is
excluded. There is an exception when Insuring
Agreement C applies. However, the exception is in effect only if nobody knew
about such events taking place at the time the property started in transit.
d. Nuclear
fission, fusion, or radioactivity (05 11 change)
There is no coverage for any loss due to
nuclear fission, nuclear fusion, radioactivity, or any chemical or biological
contamination. This applies to both direct and indirect loss. There are no exceptions.
e. Acts of members of management board (05
11 change)
Losses caused by acts of a member of the
board of directors or any similar type board are
excluded. The only exception is the coverage that Insuring Agreement A provides
for such persons.
f. Loan transaction (05 11 change)
There
is no coverage for any direct or indirect loss caused by complete or partial
non-payment or default of a loan or transaction that involves the insured as a
lender, borrower, or extender of credit. The only exception is the coverage
that Insuring Agreements A or E provide.
Note: The prior edition had an exception
for Insuring Agreement D. The 05 11 edition does not.
g. Loss of property
Loss of
property that is in the mail, in the custody of any transportation company, or
while on premises of a messenger or transportation company is excluded.
This
exclusion does not apply to Insuring Agreement A.
When the
property is in the custody of a transportation company, this exclusion does not
apply to Insuring Agreement C.
h. Employee actions
There
is no coverage for direct loss caused by an employee except under the following Insuring Agreements:
i. Trading Losses
Losses that result directly or indirectly
from trading with or without the insured's knowledge are excluded. This
exclusion does not apply to Agreements D or E.
j.
Credit, debit, charge, access, convenience, or other cards
There
is no coverage for any loss that involves any transactions through any device
that involves any of these types of cards. This includes their use or implied
use. This exclusion does not apply to Insuring Agreement A.
k. Potential income
There is no coverage for potential income the
insured may have earned if there had been no loss. Dividends and
interests are examples of potential income.
Related
Court Case: Interest on Appropriated Money Held Not Recoverable Under
Fidelity Insurance
l. Legal liability
There is no coverage for damages to property
for which the insured is legally liable. The only exception is when the insured
can show that the loss to such property would have damaged the insured’s
property for the same amount if it had not damaged the property for which the
insured was legally liable.
m. Surrender
of property
There is no coverage when property is
surrendered due to a kidnapping or a ransom payment. There is also not coverage
when property is provided in response to a threat of bodily harm except when it
is an immediate threat to the person in control of the property. Property that
is intended to be given as ransom or in response to extortion is also not
covered if it is destroyed, disappears or stolen.
This exclusion does not apply to Insuring Agreement
A.
n. Indirect or consequential losses (05 11
change)
Indirect or consequential losses of any kind are
excluded. Examples of such losses are
fines, penalties, multiple, or punitive damages.
o. Securities/Investment Laws Violations
Any
loss that is caused when an insured or its employees violate a securities or
investment regulation law or any of that law’s rules and regulations. An
exception applies to fraudulent or dishonest actions that the insured can prove
would have caused the same amount of loss if the laws, rules, or regulations
were not in place.
p. Failure of a financial or depository institution
to pay or deliver funds
Any loss that occurs because of a financial
or depository institution failure resulting in the insured not being able to
obtain insured deposited funds or property is excluded. This exclusion does not
apply to Insuring Agreements A. or B. 1. a.
q. Racketeering activity
Loss
due to any racketeering activity is excluded. Racketeering activity is defined
in the United States code.
This
exclusion does not apply to Insuring Agreement A if the racketeering damages
were caused by an employee.
r. Dishonest or fraudulent acts
Coverage does not apply to any loss that
results directly or indirectly from any dishonest or fraudulent act by any
non-employee broker or agent engaged in any of the practices listed in the
exclusion.
s.
Inventory or profit and loss calculations
When
the only evidence of loss is a profit or loss calculation or the results of an
inventory, there is no coverage under this bond.
Note: Profit and loss calculations and
inventories can be used to aid in the valuation of a loss
but they cannot be the sole proof that a loss actually occurred.
Related
Court Case: Proof of Employee Theft Held to Require More Than
Inventory Loss
t. Counterfeiting (05 11 change)
Loss caused directly or indirectly by counterfeiting
is excluded.
This
exclusion does not apply to Insuring Agreements A, D, E, or F.
u. Fees, costs, and expenses
The
fees, costs, or expenses the insured incurs to establish a claim or the claim’s
amount are excluded. Coverage also does not apply to fees, costs, or expenses
associated with any legal proceedings.
v. Employee
(05 11 addition)
Loss
caused by any employee with a history of fraudulent or dishonest activities at either
this insured or any other business is excluded. This exclusion
applies only when the insured, an officer, or director knew about the history
of activities. The knowledge of the history must be gained prior to the date of
loss. If property is in transit with that employee at the time the history
knowledge is obtained, loss of that property would be covered.
This
exclusion does not apply if the officer or director who knew about the
background colluded with the employee to commit a dishonest act.
w. Erroneous deposits (05 11 addition)
Any
loss that is the result of accepting a check that is payable to an organization
and placing it for deposit in a natural person’s account is excluded.
x. Loss of tangible personal property (05 11 addition)
Loss
to “Other Tangible Personal Property
not listed in the table” in the
definition of Property is excluded when the insured has other insurance to
cover the property. Even if such other insurance is not available, loss to such
property is excluded 60 days after the insured becomes is aware that it owns or
is responsible to insure it. This exclusion does not apply to Insuring Agreements
A. and B. 2.
y. Confidential
information (05 11 addition)
Any
type of loss that results from any theft, destruction, or disappearance of
confidential information is excluded. Examples of confidential information are
intellectual property, customer lists, and trade secrets.
Similar to other bonds,
Standard Form No. 15 covers only losses discovered during the bond period. This
is like the Commercial General Liability (CGL) Claims-Made Coverage Form.
Discovery occurs when the insured first
becomes aware of facts that should lead it to assume that a loss has
occurred. The bond in effect when the loss is discovered is the one that
provides coverage, not the one written by another surety or even the same
surety that was in effect when the loss occurred.
Discovery also occurs
when the insured first receives notice or becomes aware of an actual or
potential claim where it is alleged that the insured is liable to a third party
under circumstances that would constitute a bond loss.
Note: This bond does not define an insured. As a result, and in
order to avoid disputes involving discovery of a loss, the discovery clause
should be modified to state that a senior officer or the insured's risk manager
must be aware of the facts surrounding a possible loss. Otherwise, it could be
asserted that any employee’s
awareness of a loss triggers discovery and the 30-day notice period begins.
Aggregate Limit of Liability
The underwriter's total
liability for all losses discovered during the bond period in Item 2. on the
declarations is the Aggregate Limit of Liability in Item 3. on the
declarations. It is reduced by the amount of any payments made. The Aggregate Limit
of Liability may be written for a larger amount than the single loss limit.
The insurance company
does not make any additional payments once the Aggregate Limit of Liability is
used up paying losses. Its obligation to defend also ends. The insured must
then defend at its own expense.
Any recovery received
reinstates the Aggregate Limit of Liability but only if it is received before
the limit is used up.
Reinsurance recovery by
the underwriter is not considered a recovery that reinstates the aggregate.
The underwriter may
choose to use a Lost Instrument Bond to settle a property loss. In that case,
there is no loss to the aggregate until that Lost Instrument Bond makes a
payment.
Single Loss Limit of Liability
The underwriter's liability
for a single loss is the applicable Single Loss Limit of Liability in Item 4.
on the declarations. If more than one insuring agreement or coverage insures a
single loss, the most paid does not exceed the largest Single Loss Limit of
Liability that applies.
The Single Loss Limit of
Liability for the optional insuring agreements may not be higher than the basic
bond limits.
Single Loss Defined
Single loss means all
covered losses associated with a single act or series of related acts,
including costs and attorneys’ fees.
The insured must contact
the insurance company within 30 days after discovering a loss
but this is the maximum time limit. The insured is obligated to notify the
insurance company as soon as practicable. This is later than "as soon as
possible" but earlier than "at its earliest convenience."
The insured has six
months after discovering the loss (not six months from notice) to provide the
company with a sworn proof of loss including all known details. If lost
certificated securities are involved, the proof of loss must include their
numbers.
The insured has only a
limited time period to sue the company to recover the loss. The suit cannot be
filed sooner than 60 days after the proof of loss is filed or more than 24
months after discovering the loss.
Note: It is very
important to be aware of the time limits and how they are established.
Time limits are amended
if they are different than or conflict with any state or federal statutes that apply.
In those cases, the minimum time limits that such statutes provide apply in
place of those stated above.
A bond is for only the
insured. Only the first named insured is authorized to bring any legal
proceedings against the underwriter.
Losses are valued as the insured's net loss after credits for any
receipts, payments, or recoveries. In transactions where the insured receives
an item of value, this means its value is deducted from the loss amount. If a
loan is involved, interest from the loan is also deducted.
Money
Any loss of money,
currency, or funds of any country is paid in that country's money, currency, or
funds. The insured has the option to have foreign country losses paid in
dollars based on the rate of exchange of United States dollar equivalents on
the date the loss is paid.
Securities
The underwriter settles
its obligation to pay an eligible loss of any securities in kind. As an option
(but only if the insured prefers), the underwriter pays the insured the cost to
replace the securities. The replacement value is determined by the market value
of the securities at the time of settlement and not on the date of discovery.
If the lost securities cannot be replaced or do not have a quoted market value,
their value is determined by agreement or arbitration.
When a deductible applies
to the loss or if the loss exceeds the limit of insurance available, the
underwriter is responsible to duplicate only the amount
of securities within the available limits.
Books of Account and Other Records
In case of loss or damage
to books of account or other records, the bond obligates the underwriter to pay
only if the books or records are reproduced. Payment is not for more than the
cost of blank books, blank pages, or other materials plus the cost of labor to
transcribe or copy data.
Property Other Than Money, Securities, or Records
When a loss involves
insured property other than money, securities, or records, the underwriter must
settle according to the property's actual cash value, the cost to repair it, or
the cost to replace it with similar property. This settlement option also
applies to damage to the insured's offices and furnishings, fixtures,
equipment, safes, and vaults contained in those offices.
If the insured and the
company cannot agree on a settlement, arbitration determines the final
settlement amount.
Set-Off (05 11 addition)
The amount of loss the underwriter pays for a loss under Insuring
Agreement A is reduced by a set-off. This set-off is the amount of money owed
to the named insured by the employee who caused the loss.
Section 7.
Assignment–Subrogation–Recovery (05 11 change)
The insured assigns all
its rights of recovery for losses the underwriter paid to the underwriter. The
insured agrees to cooperate and assist the underwriter in any attempt to
recover payment from any other party responsible for the loss. If a recovery is
made the money is distributed in the following order:
1. The insured is paid the amount of
loss in excess of the amount it received from the underwriter.
2. The underwriter is reimbursed for
the amount of the loss it paid to the insured.
3. The insured is paid for the amount
of deductible.
4. The
insured is paid for any loss that this bond did not cover. (05 11 addition)
The insured agrees not to
do anything to prejudice or inhibit any right of action by the underwriter
against other parties responsible for the loss.
Note: The 05 11 edition removes Section 8. Limit of Liability under
This Bond and Prior Insurance that was in the prior edition.
Section 8. Cooperation (05
11 addition)
The insured agrees to submit to examination by the underwriter, to
produce all pertinent records, and to cooperate fully in all matters that
relate to the loss.
Note: This was part of Section 7. in the prior edition.
Section 9. Anti-Bundling (05
11 addition)
If an insuring agreement states that a specific type of instrument must
be forged, altered, or fraudulent in order for coverage to apply, that
statement applies to only that instrument. There is no coverage if other papers
within the document are forged, altered, or fraudulent when the specific
instrument itself is valid.
Section 10. Other Insurance
or Indemnity
If other insurance in
force applies to the same loss, this bond contributes to the loss on an excess
basis.
Section 11. Covered Property
(05 11 section title change)
This bond applies to the
insured's owned property, property it holds in any capacity, and also property
that is owned and held by others but, prior to the loss, the insured became
responsible for it. However, the bond is for the benefit of the insured named
on the declarations and not for other parties, even in cases where that other
party also owns the covered property.
Section 12. Deductible Amount
The underwriter does not
pay any loss until the amount of loss exceeds the deductible on the
declarations that applies to a single loss.
The insured is still obligated to notify the underwriter of a loss even
if the underwriter is not responsible to pay it. Similarly, if the underwriter
wants more loss details, the insured must provide them. The primary reason for
this requirement is for the underwriter to become aware of situations that
could result in a covered loss at a later date, investigate the problem early,
and prevent a more serious loss later.
Section 13. Termination or
Cancellation
This section deals with
two different types of termination. The first is termination of the insured’s
bond. The second is termination of coverage for acts of specific individuals.
A bond terminates on the
earlier date on which any of the following occurs:
When there is a change in
control to any insured other than the first named insured, this bond is
terminated with respect to only that insured.
The bond does not cover any
employee, partner, or officer of the insured when any of the following occurs:
The type of act and the
time frame of the act are irrelevant. All that is required is that the act was dishonest
or fraudulent. The only exception is when the particular employee is
transporting property at the time the information becomes known, losses that
occur in the course of transit continue to be covered.