(September 2022)
Credit unions operate
under either state or federal charters. Credit unions are made up of groups in
private industry, commercial businesses, and government entities. Other groups
that establish credit unions include members of churches, fraternal orders, and
similar organizations. The purpose of all of these groups is to provide savings
plans and credit arrangements for their members at more reasonable terms and
interest rates than are otherwise available.
Federal credit union
treasurers must be bonded for faithful performance of duty. Other officers and
employees may also require bonding on the same form. Laws often require credit
unions that operate under state charters bond certain officers for faithful
performance of duty. Standard Form No. 23 was developed to meet these bonding
requirements. Its rules and rates are under the Surety and Fidelity Association
of America's (SFAA) jurisdiction. The bond is continuous and is subject to an
overall aggregate limit of liability over its entire life. It is cancelled when
this limit is exhausted.
This analysis is based on
the May 1950 edition, still the edition in use.
This bond is from 1950
and does not follow current policy construction techniques. The first obvious
difference is that it does not have a separate declarations. Instead, the following
information that would typically be on the Declaration is in the opening
paragraph:
The opening paragraph
states that the carrier will indemnify the insured and hold it harmless. Only
losses discovered after the inception date and no more than 12 months after policy
termination are covered. Losses that occurred in prior years and are uncovered
while investigating a loss discovered in the current term are subject to the
Indemnity Against Loss under Prior Bond paragraph below.
When this bond replaces a
previous bond or insurance policy, it pays losses that occurred during the
previous period subject to all of the following:
This extension of
coverage to losses from prior years applies only when the current bond replaced
a prior bond or policy. This means that there cannot be a gap in coverage
between the current bond and the one(s) it replaces. This paragraph does not apply
for any losses in policy periods prior to gap in coverage.
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Example: Faith and Fur Credit Union current bond is effective
10/1/2022. The prior bond was effective from 10/1/2020 until 10/1/2022. A
prior bond had been in effect from 9/15/2008 until 9/15/2020 when they accepted
an advisor’s recommendation to bring all coverages into concurrency on 10/1/2020.
Because there is a 15-day gap, all backward looking coverage ends on 10/1/2020.
Scenario 1: A teller
reports a discrepancy that leads to the discovery that Millie stole $5,000 on
10/15/2022. Further investigation reveals additional thefts in 2021. Both are
covered under the current bond. Scenario 2: The
investigation started with Millie’s theft has found additional losses
involving additional employees. The earliest discovered loss is on 8/1/2010. Unfortunately,
because of the 15-day gap, only losses that occurred after 10/1/2020 are
covered. |
Property
All of the following are
considered property:
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money, currency, and coin
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bank notes |
federal reserve notes |
revenue stamps |
|
uncancelled postage
stamps |
U.S. savings stamps |
bullion and all kinds
of precious metals in any form and articles made from them |
jewelry, watches,
necklaces, and bracelets |
|
gems and precious and semi-precious
stones |
bonds, securities, and
debentures |
any kind of scrip |
|
|
certificates of deposit
or stock |
interim receipts,
warrants, and coupons |
drafts, bills of
exchange, acceptances, and promissory notes |
pass books but only
when held as collateral |
|
checks and money orders
|
warehouse receipts and
bills of lading |
deeds and mortgages on
real estate and chattels and on interests in them |
assignments of
mortgages and other instruments |
Instruments similar to
those described above are also property but only if the insured has an interest
in them or holds them for any purpose or in any capacity
All of the following are employees:
These are only employees while
they perform acts that fall within the usual scope of their duties as the insured's
officers, clerks, or messengers
This bond covers only the
direct loss of property as described in the following insuring clauses:
This Insuring Clause
covers loss when an employee commits a dishonest act. The employee can commit
the act alone or in collusion with others. The act can be committed anywhere.
This Insuring Clause
covers robbery, burglary, larceny (whether at common law or statutory), theft,
hold-up, damage, or destruction that causes loss to property. Coverage applies
if the property is located within any of the following:
The property must be at
any of the above for the purpose of being issued, validated, exchanged,
converted, redeemed, endorsed, registered, or transferred.
Coverage also applies for
loss of furnishings, fixtures, or equipment at any of the insured's offices
this bond covers. It also covers damage to any such office or to its
furnishings, fixtures, or equipment. The loss or damage must be due to larceny,
theft, burglary, robbery, hold-up, attempted hold-up, vandalism, or malicious
mischief. The insured must either own the property or be legally liable for
loss or damage to it.
Note: There is no
coverage for loss or damage that fire causes.
This Insuring Clause
covers loss or damage to covered property in transit caused by only robbery,
burglary, larceny, theft, or hold-up. The property can be anywhere but must be
in the custody of one of the following:
Coverage begins when one
of these entities receives the property. It ends immediately when delivered to
the designated recipient.
Note: In other
words, this Insuring Clause covers only property while it is on the move.
The insuring clause
applies to only the following bonds:
This coverage applies if a
loss occurs because the insured pays or redeems forged, counterfeit, raised,
lost, or stolen bonds. It also applies if the loss is because the insured
guaranteed or witnessed a signature on such bonds.
Finally, if the signature
to the Request for Payment for a described bond was forged, and the insured
sustains a loss, there is coverage.
The insured's court costs
and reasonable attorneys' fees it incurred and paid to defend a suit or legal proceeding
related to a collectible loss under this bond are covered. This protection is
in addition to the amount of the bond. The insured must notify the underwriter
of the legal proceeding. At that time, the underwriter has the right to take
over the defense and bear the cost of the proceedings.
There is no limitation as
to specific addresses under this bond. Instead, any office or space that is
normally used by the insured in order to conduct business during the bond
period is covered.
Despite this bond's very
broad coverage, it does not cover all losses. Coverage for some exclusions is
available under other forms of insurance, such as commercial property coverage
forms. This form contains 6 exclusions.
Related Court Case: Bond’s Exclusion Provision Was
Conspicuous, Plain, And Clear
Editorial Note: The exclusion titles in this section are not part
of the bond but are provided as an aid to understanding.
a.
Forgery
Loss
due to forgery is excluded. This exclusion does not apply to Insuring Clause A
and the Redemption of United States Savings Bonds Insuring Clause.
b.
Riot, civil commotion, usurped power, war, insurrection, or nature
Coverage
does not apply to any loss due to riot, civil commotion, military, naval or
usurped power, war, or insurrection. This exclusion does not apply to Insuring
Clause C when the person who initiated transportation did not know that that
any of these actions were taking place.
A loss that
is due to hurricane, cyclone, tornado, earthquake, volcanic eruption, or
similar natural disturbance is also not covered without exception.
c. Acts of insured's (board of) directors
There is no coverage for any loss
caused by acts of the insured's non-officer directors. The exception to this
exclusion is any director while performing acts that are considered within the
normal scope of an employee's usual duties.
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Example: Jeremy is on Parental Rights’ Credit Union board of
directors. He also runs the donor liaison department. Jeremy is quite
surprised when the CFO conducts an internal audit that reveals Jeremy’s
embezzlement. This loss is covered because Jeremy’s embezzlement was part of
his employee duties, not his director duties. |
d.
Loan transactions
There
is no coverage for a loss that results on any loan. This exclusion applies even
if the loan was made as the result of trick or false statements. This exclusion
does not apply to Insuring Clause A.
e.
Property in custody of an armored vehicle company
Property
that is in the custody of an armored vehicle company is covered but not on a
primary basis. This bond responds only in excess of whatever the insured obtains
under all of the following:
·
The insured's contract with the armored vehicle
company
·
Insurance the armored vehicle company carries
for its customers
·
All other available coverage in effect and in
any form that the armored vehicle company carries
f. Non-owned
property
This bond provides coverage for non-owned
property but only if, prior to the loss, an employee examines and describes the
property in a written record that includes the value of the property.
This exclusion does not apply in either of
the following circumstances:
·
The
non-owned property was in possession of the insured for fewer than three days.
·
An
employee intentionally did not record the information for dishonest purposes.
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Example: Mildred provided some antique jewelry as
collateral for a long-term loan. The night before John had seen identical
jewelry valued at $200,000 on Antique Roadshow. He intentionally did not
record the jewelry and took the jewelry home in order to sell at a future
date. When the jewelry is discovered missing, John has left and there is no
written record of the property. At first the loss is denied until an investigator
discovers the truth. |
Statements made in the
application or otherwise warrant that the information provided is true. This
absolute warrant is limited somewhat because it is required to be true only to
the best knowledge and belief of the party making the statement.
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Example: Karen is running out the door and does not have time to
complete the financial bond. She tells Shana, her administrative assistant,
to “do the best she can” but to get it mailed out before the end of the day.
Shana completes everything that she can. She provides several incorrect
statements based on her very limited knowledge. A loss occurs and the
Underwriter discovers the many discrepancies. The Underwriter notifies the
insured that the coverage is being voided because of this condition. The insured
protests and requires that Shana be questioned under oath where it is
revealed that all of her answers were true, as far as she was aware. The
Underwriter therefore could not void the policy. |
Note: Other financial
bonds would rescind the policy under the above situation. If the incorrect
information was considered material, the policy is voided even if there was no
intention to provide false information.
Related Article: Financial Institution Bond–Standard
Form No. 24
The insured must contact
the insurance company as soon as possible when it learns of a loss and provide
a sworn proof of loss with all known details of the loss within 90 days after the
loss is discovered. The underwriter then is given has up to 30 days to
investigate the claim.
The insured has only a
limited period of time to sue the underwriter to recover the loss. The suit can
be filed any time after the proof of loss is submitted but not later than 24
months after the loss is discovered. However, if the reason for the suit is
because of a legal proceeding under this bond, the insured’s lawsuit against
the underwriter must be filed within 12 months after the disputed legal
proceeding is settled.
Note: These time limits use starting dates that may be changed
based on state or federal statutes that prescribe different minimum time
periods. In such cases, these state mandated time periods are usually in the
insured's favor.
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.
Property Other Than Securities
Liability for all other
property is its actual cash value or the cost to repair or replace it with
similar property or materials. The underwriter has the option to pay the actual
cash value, make repairs, or arrange for replacements. Arbitration proceedings
determine the value if the insured and the underwriter do not agree on the
value of damaged property.
If a recovery is made,
payment is made in the following order:
1. Expenses
of the recovery
2. The
insured is paid for the amount of loss that exceeded the partial loss payment
it received because the bond limits were exhausted.
3. The
underwriter is reimbursed the amount it paid the insured for the loss.
4. The
insured is paid for any deductible that was its responsibility.
This bond is not subject
to an aggregate limit. As a result, loss payments do not reduce the limit
available for other losses, regardless of how they occur. The limit is based on
each loss and is not increased based on the number of individuals involved in a
single loss.
Limits do not accumulate
from year to year or from policy period to policy period for the same loss or
act, regardless of the number of years the bond is in force and the premiums
are paid.
This bond and a prior
bond may both apply to the same loss. In that case, the most paid is the larger
of the two limits.
Note: The insured
cannot combine the limits of the two bonds. However, it does benefit by
receiving the highest limit of either one.
If other insurance applies
to a loss covered by this bond, this bond is limited to only the part of any
loss that exceeds amounts that can be recovered from the other insurance. Any
loss paid is not in excess of the bond limit.
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 when
any of the following occurs:
This bond does not cover
any employee, partner, officer of the insured, or employee of any electronic
data processor when any of the following occurs:
If the insured is a
Federal Credit Union, termination of this bond does not take effect until ten
days after the Bureau of Federal Credit Union receives written notification,
unless it agrees to an earlier date.
This bond's terms and
liability are subject to any riders attached. A number of riders are available
to attach to this form and should be considered since the bond itself has not
been updated since May 1950.