June, 1996

Crime Coverage for Banks and Savings and Loans

Summary: The most widely written financial institution bond is the financial institution bond, standard form no. 24. This is the standard package of coverages necessary to cover the crime exposures of commercial banks. While a separate form (no. 22) was previously used to provide coverage for savings and loan institutions, the present version of form 24 is applicable to both types of financial institutions. The bond (policy) is used to provide fidelity, on premises, in transit, forgery or alteration, securities, and counterfeit currency coverages for financial institutions. This discussion reviews these coverages.

Topics covered:

Termination or Cancellation

General Description

The financial institution bond provides the broadest coverage available to commercial banks, trust companies, and savings and loan institutions. Four classes of insureds are eligible for the use of form 24: (a) national banks, state banks, and trust companies; (b) American agencies of foreign banks, cooperative credit associations of Nebraska, industrial banks, and Morris plan banks; (c) title insurance companies that act as trust companies or that accept deposits for savings or checking accounts; (d) federal institutions, such as the Federal Reserve Banks, Federal Deposit Insurance Corporation, Joint Stock Land Banks, Federal Home Loan Banks, and Federal Land Banks; (e) savings banks, by rider; and (f) by rider, savings and loan associations, cooperative banks in Massachusetts, and homestead associations in Louisiana.

Previously, form 24 was titled the “bankers blanket bond.” The form's name was changed in 1986 to the “financial institution bond” in order to delete the frequently misunderstood term “blanket” and in order for the bond to be used as a multi-use form with other types of financial institutions. With the appropriate riders, form 24 is now used for financial institutions previously covered by forms 22 (savings and loans) and 5 (savings banks).

The financial institution bond is comprised of four major divisions: declarations; insuring agreements; general agreements; and conditions and limitations. A comprehensive application form is required of the insured, which becomes a part of the policy. A new application must be completed for each new bond and at each premium anniversary.

The bond contains six insuring agreements, each treated in detail elsewhere in this discussion. However, as described in the Surety Association's Rate Manual, the basic coverages under the financial institution bond are:

     · fidelity. Covers loss resulting directly from dishonest or fraudulent acts committed by employees acting alone or in collusion with others, with the manifest intent to cause the insured to sustain such loss and to obtain financial benefit for the employee or another person or entity. However, if some or all of the insured's loss results directly from loan transactions, that portion of the loss is not covered unless the employee has received a financial benefit of at least $2500.

     · on premises. Covers loss of property resulting directly from robbery, burglary, misplacement, mysterious unexplainable disappearance, damage or destruction; or theft, false pretenses, common-law or statutory larceny, committed by a person present in an office or on the premises of the insured, while the property is lodged or deposited within offices or premises located anywhere. Also covers loss or damage to the insured's offices, furnishings, fixtures, supplies, or equipment through specified perils, except by fire.

     · in transit. Covers loss of property from robbery, common-law or statutory larceny, theft, misplacement, mysterious unexplainable disappearance, being lost or made away with, or damage or destruction while the property is in transit anywhere in the custody of a natural person acting as messenger, or in the custody of a transportation company.

     · counterfeit currency. covers loss resulting directly from the receipt by the insured, in good faith, of any counterfeit money of the United States, Canada or any other country in which the insured maintains a branch office.

     · forgery or alteration (optional). Covers loss resulting directly from forgery or alteration of any instrument specified in the insuring agreement.

     · securities (optional). Covers loss resulting directly from dealing in specified securities that prove to have been forged, altered, lost, or stolen.

Other optional coverages are available as riders for use with the financial institution bond. These are reviewed elsewhere in this section, see General Riders for Financial Institution Bond 24.