Fidelity Bonds - Crime Insurance

Effective January 1, 2019, homeowner associations were required to purchase what the statute refers to as a "fidelity bond." This is in addition to Directors and Officers Liability Insurance (D&O)

While the statute calls it a fidelity bond, associations actually purchase an insurance policy that covers employee dishonesty (fidelity), plus non-employee theft. A bond is a three party agreement. Insurance Is a two party agreement. The preferred terminology is a Fidelity/Crime Policy.

Employee dishonesty coverage protects an HOA against dishonest acts such as embezzlement committed by an employee. In a common interest development, the definition of "employee" is usually broadened to include the board of directors as non-compensated employees of the association, plus the association manager and the management company.

Homeowner associations should consider standalone policies. Since they are usually more comprehensive than what is often be included in a package policy. Polices should include:

  • Employee theft;
  • Loss caused by forgery or alteration of a financial instrument;
  • Robbery, theft and burglary;
  • Robbery or theft of money-or-destruction or disappearance of money while in transit;
  • Losses from computer fraud by someone who has gained unauthorized access to the association's computer system. Also, loss due to a computer virus designed to damage or destroy electronic data;
  • Reasonable costs incurred in restoring a computer system following a computer crime; and
  • Loss of money resulting from a fraudulent instruction directing a financial institution to transfer, pay or deliver money from the association's account.

As required by California law, associations must:

  • Purchase a fidelity policy with coverage limits in an amount equal to or greater than the combined amount of the reserves and total assessments for three months unless the governing documents call for greater limits,
  • Cover all persons handling funds, including officers, directors, employees, managing agents and the management company, and
  • Include in the policy coverage for "computer and funds transfer fraud" in the same amount or greater unless the governing documents call for greater limits.

 

OTC Insurance Services
a California Corporation

5737 Kanan Road, Suite 630
Agoura Hills, CA 91301

Isaac Ortiz 818-429-8022 (Direct)
Office: 818-658-1500

CAInsuranceAgents.com

License # 3013582