Fidelity Surety Contracts
A fidelity bond is a type of surety that is applicable to a person. A fidelity bond guarantees the honesty, integrity and competence of that person. Although this sounds really simple, it's a bit more complex than that.
What is a surety bond?
This is a three party agreement. The first party is the obligor, or principal. This is the party that needs the guaranty. The obligor then has to go to another party to provide a guarantee on their behalf. The second party is the obligee. This is the party that is requiring the obligor to actually get the bond. The party that actually provides the guarantee is the surety.
This insurance contract provides that the surety will review the obligor's underlying character, financials, etc. and then provide the guarantee to the obligee.
What is a fidelity bond?
This is a specialized type of surety. This type is not based on the performance of any specific job. Instead, this contract guarantees that a particular person has the necessary competence to perform the job duties given to them. Further, the fidelity bond guarantees that the person will not steal or otherwise harm the obligee.
The person that is being bonded is the obligor. "Person" can either be limited to a particular person, like John Doe, or it can be an entire class of persons, like bank tellers.
The guaranty will usually be written on a time frame basis, like a calendar year. That's because the job is a continuous series of duties that run into one another and cannot be easily bifurcated in a discrete series of tasks.
Let's look at an example.
A good example of a fidelity bond is for a bank. A bank, which is the obligee, wants to make sure that their employees don't take money out of the vault or cash drawers. Given the difficulties of policing each employee, it is hard to ensure that they will act in a forthright manner.
In the old days, the bank would get this surety from a friend or relative of the bank employee. That person would "stand in the other person's stead" and guarantee that they would reimburse the bank for any theft or gross misconduct. In our modern society, the surety is almost always a corporate entity, like a large insurance company.
So, the bank (obligee) calls up a surety, like Zurich or AIG, to get a fidelity bond to guarantee the honesty and performance of their local bank tellers. The tellers would be the obligors under the written agreement. It would be written with a total loss amount (like $10,000) per employee. It would also be limited to a time period, like the calendar year. Typically, it is limited to a class of employees (like the bank tellers or managers) instead of naming employees (so that they don't have to update the list on a regular basis).
Conclusion
A fidelity bond is a type of surety. It guarantees the competence and integrity of a person, or class of persons.
What is a surety bond?
This is a three party agreement. The first party is the obligor, or principal. This is the party that needs the guaranty. The obligor then has to go to another party to provide a guarantee on their behalf. The second party is the obligee. This is the party that is requiring the obligor to actually get the bond. The party that actually provides the guarantee is the surety.
This insurance contract provides that the surety will review the obligor's underlying character, financials, etc. and then provide the guarantee to the obligee.
What is a fidelity bond?
This is a specialized type of surety. This type is not based on the performance of any specific job. Instead, this contract guarantees that a particular person has the necessary competence to perform the job duties given to them. Further, the fidelity bond guarantees that the person will not steal or otherwise harm the obligee.
The person that is being bonded is the obligor. "Person" can either be limited to a particular person, like John Doe, or it can be an entire class of persons, like bank tellers.
The guaranty will usually be written on a time frame basis, like a calendar year. That's because the job is a continuous series of duties that run into one another and cannot be easily bifurcated in a discrete series of tasks.
Let's look at an example.
A good example of a fidelity bond is for a bank. A bank, which is the obligee, wants to make sure that their employees don't take money out of the vault or cash drawers. Given the difficulties of policing each employee, it is hard to ensure that they will act in a forthright manner.
In the old days, the bank would get this surety from a friend or relative of the bank employee. That person would "stand in the other person's stead" and guarantee that they would reimburse the bank for any theft or gross misconduct. In our modern society, the surety is almost always a corporate entity, like a large insurance company.
So, the bank (obligee) calls up a surety, like Zurich or AIG, to get a fidelity bond to guarantee the honesty and performance of their local bank tellers. The tellers would be the obligors under the written agreement. It would be written with a total loss amount (like $10,000) per employee. It would also be limited to a time period, like the calendar year. Typically, it is limited to a class of employees (like the bank tellers or managers) instead of naming employees (so that they don't have to update the list on a regular basis).
Conclusion
A fidelity bond is a type of surety. It guarantees the competence and integrity of a person, or class of persons.