This policy is usually in demand by the entrepreneur involved in commercial activities, this proposal should be considered from the firms of repute and whose business methods are entirely satisfactory. The system of supervision and check and the maintenance of an efficient system of accounting are of fundamental importance in consideration of this class of business.

That the policy should be restricted to cover only full-time employees who are remunerated by salaries or wages and over whom the employer has control and is active in their employments.  There must exist an employer employee relationship.

A commercial Fidelity Guarantee involves three parties:-

• The Insurer;
• The Insured, who is usually an employer; and
• The Employee or other people whose honesty is guaranteed.

It is important to note that a contract of guarantee differs from the contract of indemnity in the sense that insurer acts as surety (with secondary liability) to make, good, the financial loss of the employed caused by the employee- the debtor.

A contract is between the insurer also known as the surety and the insured who is also known as the guaranteed.  The employee whose honesty is guaranteed is also known as the debtor who, although obviously involved, is not a party to the contract.

The employer, however, is subject to declare all facts pertaining to his employee for which insurer is going to accept the liability as the same would enable insured to decide acceptance of risk.

SCOPE OF INSURANCE:

• The insurance covers any loss caused by forgery, embezzlement, larceny or fraudulent conversion of monies or stock-in-trade whether belonging to the insured or held in trust by him committed by the employed person in connection with his employment as specified the policy, during the period of the policy and the uninterrupted continuance of the employment in the service of the insured.
• The Indemnity provided will be for the amount of money lost or for the value of the stock-in-trade comprising such loss to the limit of the respective sum insured applicable against the name of the employee (in case of an individual or collective policy) or to the limit of the aggregate amount of guarantee (in case of floating policy)
• Discovery Period: The loss shall be discovered:
• Within 6 months after the death, dismissal or retirement of the Employed; or
• Within 6 months after the policy expired- whichever first occurred.

Once the discovery period has expired, no claim can arise even if a fraud is later discovered. This is equitable, as the insured’s system of check should be such that even the most serious defalcations should come to light within a reasonable time.

It is to be noted that the policy covers certain specified acts of dishonesty committed by the employee and does not cover fraud or dishonesty in general sense, which would include breach of confidence or want of financial integrity resulting in a loss to the Employer. Unexplained losses or shortages discovered at stocktaking are not covered not any further loss in respect of the employee concerned once the default is discovered.

Floating Policies are normally issued for a group of employees of the same status and class, duties and responsibilities.  Therefore check whether same floated amount applies to different classes of employees whose status and remuneration are a vastly different e.g.an office boy or clerk cannot be given the same amount of guarantee along with, say, a senior executive.

TYPES OF POLICIES:

There are 3 types of policies, viz.(i) Individual Policy, (ii) Collective Policy and (iii) Floating Policy

• An Individual Policy is issued where one individual only is to be guaranteed. Name of the employee, occupation/duties and the sum insured must be clearly stated.
• A Collective Policy will cover several employees of the same employer for varying amounts of indemnity. The policy should incorporate a schedule containing the names and duties of guaranteed employees with the amount of guaranteed set against each name.
• A Floating Policy covering persons holding a particular position (e.g. persons holding the position of cashier within an organization) or the entire staff of a firm. The schedule will show the names of the guaranteed person as the case of collective policy but there will be a single sum insured covering all the persons guaranteed. The wording of the Operative Clause reading…..” but not exceeding in the case of each of the employed, the amount, set against his or her name in the said schedule “must be replaced by”……but not exceeding in the aggregate the amount of guarantee.”  Under the Floating Policy, a claim in respect of one employee will reduce the guarantee by the amount there of until renewal unless such amount is reinstated by a collection of premium at short period scale on the amount instated proposals for Floating Policy should be discouraged.  When acceptance has to be considered for business reasons, the proposal should first be referred to the competent authority for acceptance. 

Further, there is no fixed schedule of limits of guarantee in relation to salaries.  The underwriter should take into consideration the responsibilities and the funds entrusted to the Employee

Vis-a-vis the remuneration paid to him, as the level of his remuneration may eliminate the factor of dissatisfaction and the consequent temptation to make up for the lack in other ways.

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