Many businesses, from the one-person sole proprietorship to giant corporations, carry insurance policies against fraud in the form of a fidelity bond, generally referred to simply as “bonding.” A fidelity bond can cover every kind of loss from routine theft and embezzlement to commercial bribery and stock fraud.

If a customer sues your company for failure to deliver stolen goods or for other reasons related to the bonded employee’s dishonesty, the insurance will cover defense costs. The bond may also cover loss of earnings sustained as the result of theft of the company’s customer, applicant or employee lists.

Optional coverage may include losses from:

• counterfeit paper currency or money orders;
• forged deposits;
• forged credit cards; and/or
• computer forgery.

The burden of proof is on your company to show that the fraud caused the losses claimed. These policies do not reimburse unexplained inventory losses or pilfered cash accounts without a suspect. Generally a police report is required.

Fidelity bonds almost always include a subrogation provision. Subrogation requires that, if the insurer pays your company’s claim, your company gives the insurer the right to sue the wrongdoer. You cannot interfere in any way with the insurer’s right to sue and cannot agree to any settlement with or release of the dishonest employee unless the insurer consents.

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