Insurance after Employee Betrayal: Preparing and Presenting Fidelity Bond Claims

Fidelity bonds generally provide coverage for loss resulting from dishonest or fraudulent acts by employees, but too frequently companies forfeit coverage by making needless errors after learning about an employee’s misconduct.

One crucial issue for bond coverage is determining when a loss is “discovered.” The bondholder’s notice obligations generally begin after the loss has been discovered, and discovery frequently starts the clock running for the bondholder to submit a proof of loss to the insurer.

Under most bonds, the next step is to provide notice of the loss to the insurer. Most bonds don’t require an extensive statement of loss as part of the initial notice, but at that point the hard part begins – investigating the cause and extent of the loss, and submitting written proof to the insurer.

Unlike preparing the initial notice, preparing and submitting the proof of loss is complicated. The bondholder generally must submit enough information to prove that a loss covered by the bond has taken place, including proof of the amount, how and when the loss was discovered, who was involved, which personnel have knowledge of the events, and supporting documentation.

Bondholders need to be especially cautious in preparing proof of loss. Courts generally expect bondholders to provide all known information called for by the bond and reasonably requested by the insurer.

Bondholders need to be careful they don’t forfeit coverage that is otherwise available by failing to check the proverbial box.