What is the Difference Between Liability and Fidelity Coverage?
Liability coverage protects a business in the event a third party gets injured and files a claim against the business. Fidelity coverage, also known as employee dishonesty coverage, reimburses the business owner and not a third party. Both coverages protect the business entity, but they each pertain to a different aspect of the business.
Public Protection vs. Employer Protection
A business purchases a liability policy to protect or reimburse individuals other than the business or its employees. For example, a general liability policy pays for injury sustained by a customer that trips and falls in a store. Fidelity coverage, however, is purchased by the business to protect itself from its own employees. Fidelity coverage responds if an employee steals from the employer. Theft could includes, but is not limited to stealing cash from the cash drawer, embezzling funds, forgery or taking property that belongs to the business.
One type of fidelity coverage is a fidelity bond. With a fidelity bond, the business owner purchases a bond for specific employees or specific job titles. The bonded employees are usually those who have access to money, property, securities or other valuable assets/information. The insurance company issuing the bond agrees to reimburse the business owner in the event the individuals named on the bond steal from the employer. The insurance company not only reimburses the employer, but it also institutes legal action to recoup the stolen funds from the bonded employees.
A more common type of coverage is the fidelity policy. With a fidelity policy there is no need to specifically name the employees. If a loss occurs, it is reported to the insurance company. The insurance company investigates the loss and reimburses the business subject to the policy’s limits and deductibles. Businesses can purchase a fidelity policy as a stand-alone policy or it can be added to an existing business owner’s policy.
Properly Covering Business Exposures
While some states have mandates on the types of liability insurance a company must buy in order to legally do business in that jurisdiction, fidelity coverage is not one of the mandated coverages. Whether or not to purchase fidelity coverage is left to the business owner’s discretion. Any business with a large cash exposure or concerns about theft, embezzlement or other dishonest employee crimes against the business should consider purchasing fidelity coverage.
posted by Xplico Insurance Company Limited XIC LTD
01 Apr 2014