Surety Bonds – Fidelity Bonds

Position Fidelity Bonds

One of the oldest types of a surety bond is the one that applies to a specific position.  The positional bond is simply insurance similar to that of ordinary fidelity bonds, except that an ordinary fidelity bond only covers a single individual that is named within the policy.  However, a position bond covers every position that holds the position within an entity, regardless of the actual person that holds that position.  One of the most typical types of position bonds are for those in your local branch of a bank.  There, the bank tends to have a fidelity surety bond that covers each of the tellers within the bank, despite the actual turnover in those positions.

Let’s take an example.  Let’s assume that BigBank has a branch in Metropolis, USA.  There, they get a position fidelity bond for each person that handles money within the bank or, more specifically, the tellers within the bank.  Let us further assume that the bond is provided effective January 1.  Then, even if all of the tellers that were originally listed on the bond schedule were fired, quit or otherwise left the bank, each of the replacements for those persons would still be covered under the bond.  That way, even if replacement number five steals several thousand dollars from BigBank, the insurance coverage provided under the bond would still be effective.

Insuring Clause

The typical position fidelity bond is written similar to a regular fidelity insurance policy.  It provides, like that of a regular bond, that the surety will indemnify the obligee for all of the claims made due to the impropriety of the insurees (that is, those that are covered in the position being underwritten; in our example, the tellers).  The attached Exhibit to the bond outlines the coverage under the bond by detailing:

1. The positions that are being covered, including their titles (such as Teller, Vice President, Cashier, Secretary, Treasurer);
2. The location of the positions being covered.  Most position fidelity bonds are limited to certain locations, which helps the surety company limit their risk.  Thus, in our example, BigBank would only be covered in each location listed (otherwise, they’d just get one bond, which would inadvertently covers thousands of locations);
3. The quantity of positions being covered.  The positions are not unlimited, but instead are covered only to a certain number.  Again, this helps limit the total liability of the surety so that their risk isn’t being increased without compensation;
4. The limit on the insurance payout for each position being covered; and
5. The total limit on all of the positions being covered.

Numbers 4 and 5 limit the liability of the surety company so that they aren’t liable for a lax environment.  That is, they don’t want BigBank to buy a fidelity bond and then totally forget all of their standard risk procedures (like locking the doors and vault and counting the money at the end of the day).

Conclusion

A position fidelity bond is a bond that covers a position and not just a single person.  These are very beneficial for businesses as they don’t have to re-do the bond throughout the year.  However, the coverage is limited to certain aspects that are outlined on the policy.