Fidelity Insurance for Law Firms

Many law firms need fidelity insurance to protect your firm from potential financial risks.   Many of these insurance policies are actually written in the form of a bond.   This post will explain the different types of bonds available and provide some insight into whether or not your law firm should consider purchasing one.

What Is a Fidelity Bond?

Fidelity insurance is a type of business insurance that protects from monetary or property theft or other employee misconduct resulting in a financial loss. In many cases, these bonds are optional and can provide peace of mind if you are concerned about employees who have access to the firm’s assets. In other situations, such as having a trustee of a pension plan on staff, the fidelity bond may be required.

Types of Fidelity Bond Insurance

  • ERISA bonds: If your law firm has a pension plan, the Employee Retirement Income Security Act requires that you purchase a bond equal to at least 10% of the total plan assets.   This bond protects you from instances like an employee embezzling retirement funds.  The bond has no deductible has is listed under the name of the plan.
  • Dishonesty bonds: This is the type of bond that protects your firm from monetary or property theft. There are two types of dishonesty bonds:
    • Blanket coverage: With this policy, all employees are covered for the same amount unless specifically excluded by request.
    • Scheduled coverage: This type of bond will only cover certain employees who can be bonded for different amounts depending on the risk you face.  This type of bond is not common for a law firm.

How Much Does a Fidelity Bond Cost?

The price of fidelity bond insurance depends on many factors, including total assets, number of employees, and prior claims history.  However, that being said, an annual policy will usually start at $1,000.

Making a Fidelity Bond Insurance Claim

Employee theft does happen, unfortunately. When money or property goes missing, it’s important to report the theft to your agent and insurance company as soon as possible, even if you do not have proof that an employee was responsible.  Many surety companies have stringent deadlines for providing information on a loss.

If you think your law firm may need fidelity insurance, please don’t hesitate to contact our office.  We can provide you with multiple options from a variety of insurance companies.

Attorney signing a contract.

Why is forgery insurance needed as part of your crime insurance?

According to the National Check Fraud Center, check fraud and counterfeiting are among the fastest-growing problems affecting the nation’s financial system, producing estimated annual losses of $10 billion, and losses continue to rise at an alarming rate annually.

Forgery insurance or alteration coverage protects against third-party forgery or alteration of written checks, bank drafts, or similar instruments made or drawn by you or drawn on your account(s). Coverage only applies to outgoing financial instruments.

The following are common examples of claims under forgery and alteration coverage:

  • A third party alters or forges a check or draft made or drawn in your name to be payable to a fictitious entity.
  • A third party steals your blank checks and makes the drafts payable to various other entities or individuals.
  • A third party alters the amount of a check or draft.

Important Note: Coverage does not apply if the forgery or alteration was caused by an insured or an employee, including but not limited to officers, directors, and trustees. Employee dishonesty coverage must be secured to protect from this type of loss. Also, credit, debit, or charge card forgery coverage is generally not covered unless added by endorsement.

Insurance buyers often assume that if a bank cashes a forged check, the check cannot be charged to the customer. This is not necessarily the case. Under the Uniform Commercial Code, which governs the bank’s liability for cashing a check on a forged signature, the bank customer is required to exercise reasonable care and promptness in examining bank statements and canceled checks to discover unauthorized signatures or any alteration and must promptly notify the bank if this is discovered. This duty becomes operative when the bank sends the statement and canceled checks to the customer.

If the customer fails to discover and report forgeries and alterations, the customer is precluded from seeking reimbursement from the bank for any unauthorized deductions from the customer’s account.

Under the Uniform Commercial Code, the statute of limitations for suing the bank is one year on forged signatures or any alteration to a check. That one year runs from the time the statement was made available to the customer. Because of the time pressures, business bank statements are not always reviewed promptly, if at all.

Forgery and alteration is relatively inexpensive coverage to protect against this type of loss, typically costing a few hundred dollars for a $100,000 limit. Ideally, this coverage should be made part of every commercial insurance program.