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Common Issues in Fidelity Bond Coverage

Mon Nov 16th, 2020 on     Insurance Law,    

Seek Guidance From a Skilled Miami Insurance Coverage Lawyer  

Fidelity bonds are a form of insurance coverage that pays out for losses caused by crimes perpetrated by employees (and other related individuals/entities) against your business.  For example, fidelity bond insurance coverage would pay out for losses caused by an accountant who commits fraud while working at your company.

Fidelity bonds are an important tool, not only to protect your business from employees and others who could undermine the business but also to avoid the serious interruption to business operations that might occur if you’re forced to pursue recovery directly from the problematic employee.

Unfortunately, despite the fact that fidelity bond coverage is intended to “kick in” at a time when the business owner may be financially vulnerable and feeling betrayed by their employees, insurers may deny or undervalue claims.  You need not resign yourself to this underwhelming or adverse result, however — with assistance, you can challenge the decision and obtain the benefits to which you’re entitled.

If you would like to get in touch with a qualified Miami insurance coverage lawyer, we encourage you to contact the team here at Ver Ploeg & Marino to schedule a consultation at your earliest convenience.  Coverage disputes are common, and can put immense financial and psychological pressure on the policyholder — after all, you no doubt purchased insurance coverage under the impression that you could “rest easy” and rely on it to cover the losses you sustained.

Here at VPM Law, our team has decades of experience working with policyholders throughout the state of Florida, helping them challenge the adverse decisions of their insurers, and when necessary, to litigate the insurance claim and secure the payout they deserve.  We pride ourselves on our commitment to our clients, and in working with a broad network of experts to ensure that we are addressing the case in a comprehensive manner.

Before you contact us about your fidelity bond dispute, you may be wondering what sort of issues are common to policyholders who have purchased fidelity bond coverage.  Consider the following.

Dishonest Conduct vs. Mere Mistake or Negligence

Fidelity bond coverage pays out only for dishonest conduct — not for mere negligence due to a lack of due diligence.

For example, suppose that your employee makes a mistake by failing to record a set of transactions.  This negligent conduct may lead to business losses, but it would not necessarily be considered “dishonest,” as it lacks the negative intention and would not give rises to a financial benefit for the employee.

Fundamentally, dishonest conduct — as defined by a fidelity bond policy — requires the employee to have obtained a financial benefit from their misconduct.  It is not enough that the employee engaged in misconduct.  The misconduct at-issue must have directly given rise to a financial benefit for them.

Oftentimes, fidelity bond coverage comes into play when law enforcement officials would be involved, and when there might be some form of criminal liability at-play as well.

As a result, insurers often deny fidelity bond claims on the basis that the employee was not actually engaged in “dishonest conduct,” and that their conduct either lacked the negative intention necessary or did not give rise to a financial benefit from which they took advantage.

The key to overcoming this issue is to maintain a comprehensive evidentiary record and introduce facts that point to the employee having a dishonest motive.

Loss as a Direct Consequence of Dishonest Conduct

Fidelity bond policies vary in terms of how they define “causation” with respect to insurance coverage.  Most policies require that the employee’s misconduct have directly caused the losses suffered by the policyholder (i.e., the business owner).  If the loss is indirect, then it may not be covered.

How does this work in practical terms?

Suppose that your employee engages in forgery to have cheques signed out to them without your knowledge.  The loss to your business would be a “direct” consequence of the employee’s dishonest conduct, and as such would very likely be covered by the fidelity bond policy.

Employees, Contractors, and Other Parties

By default, fidelity bond insurance covers dishonest conduct engaged by employees of the policyholder’s business.  Fidelity bonds — as a general rule — do not pay out for losses caused by the dishonest conduct of a third-party.  For example, if a customer defrauds your business, that would not generally come under the purview of fidelity bond coverage.

Still, some fidelity bond coverage extends beyond employees, however, and pays out for losses due to the dishonest conduct of contractors, business partners, and various other parties.  For example, a more comprehensive fidelity bond policy might cover you for losses caused by the dishonest conduct of an independent contractor who works closely with your business.

If you believe that you have suffered losses due to dishonest conduct, you’ll want to work with an experienced Miami insurance coverage lawyer to comb through your underlying policy and determine whether the parties at-issue fall under the fidelity bond coverage.

Prolonged Business Issues Can Lead to Creative Misconduct – Get Help From a Miami Insurance Coverage Lawyer

Financial issues — such as a prolonged downturn in business revenues — can not only make it much more likely for an employee to take “shortcuts” to engage in dishonest conduct but can also make it easier to “detect” the losses caused by dishonest conduct, as businesses may be more thorough in their accounting and internal processes during a downturn.

For example, a sales manager may be pressured to fudge the numbers during a particularly difficult time in the company’s operations.  This sort of behavior can be prevented, or at the very least identified, so long as the policyholder implements internal review, controls, and policies to evaluate whether there has been potentially dishonest conduct. Have questions or concerns? Get the help you need from a Miami insurance coverage lawyer.

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