FINANCIAL INSTITUTION BOND–STANDARD FORM NO. 15

(September 2022)

 

Collapsible Menu

Insuring Agreements

General Agreements

Conditions and Limitations

INTRODUCTION

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.

INSURING AGREEMENTS

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

D. Forgery or Alteration (Optional)

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.

E. Securities (Optional) (05 13 change)

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

GENERAL AGREEMENTS

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.

CONDITIONS AND LIMITATIONS

Section 1. Definitions (05 11 changes)

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:

Section 2. Exclusions

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.

Section 3. Discovery

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.

Section 4. Limit of Liability

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.

Section 5. Notice/Proof–Legal Proceedings Against Underwriter

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.

Section 6. Valuation (05 11 change)

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.