A blanket bond is one particular type of the category of bonds known as fidelity bonds. These protect companies and organizations against some of the mishaps and problems which can occur as a normal result of conducting business. One of the most common types of protection afforded by a fidelities is against employee dishonesty, and that can include a whole range of behaviors considered detrimental to the company.
Financial organizations are more likely to purchase these bonds because of their close association with a large volume of assets, and because criminal-minded individuals may want to take advantage of having access to those assets. Some of the specific types of crime that fidelity bonds protect against are forgery, theft, and fraud.
Some fidelities apply only to key individuals, usually persons in a position of authority, with greater access to company assets and business-critical data. When a bond applies to all employees in an organization at the same time, it’s referred to as a blanket coverage bond, because it provides blanket coverage against any criminal act committed by any employee.
How do they work?
After asking ‘what are blanket bonds?’, the next logical question might be to ask how it works in business. They work in much the same way that most other bonds work, in that three parties are involved, and some level of protection is afforded to one of the parties. In a blanket or a fidelity bond in general, it might seem like there are only two parties involved, because the employer is being protected against some type of fraudulent or criminal activity on the part of a given employee. However, in reality there is a third party in the background, and that’s the surety company which sells the bond.
The thing that is somewhat unique about a fidelity bond or blanket bond is that it’s the only kind of bond which protects a business owner rather than private clients or some kind of government agency. Virtually all other types of bonds act as protection for a third party in the event that you as a contractor or business person fail to live up to the terms of a contractual agreement. When the third party happens to be a government organization, you may violate the terms of the bond by being out of compliance with government stipulations specified in the terms of the bond itself.
What are the different types?
Probably the most common type of fidelity bond is a business services bond, and this is one which safeguards the property of clients you work with. If any property of theirs becomes damaged as a result of your actions, they could make a claim against the business services bond to receive compensation. A few examples of this type of bond are those sold to owners of businesses like carpet cleaners, food caterers, janitorial services, pest control specialists, and HVAC installers.
An employee dishonesty bond is sometimes known as a commercial crime bond, or a financial institution bond, and these are just behind business services bonds in terms of popularity. This is the kind of bond people normally think of as a fidelity type, because it protects institutions against fraud and embezzlement, theft, and forgery. While they’re largely focused on financial type businesses, they can be applied to a broader range of businesses as well.
Janitorial bonds are made available to businesses which provide professional services to corporations in the area of cleaning and facility maintenance. This is a property protection type of bond, which provides financial compensation to the company, should any property become damaged as a result of janitorial employee actions. It’s also meant to convey a sense of confidence to potential clients for the janitorial service, so as to enhance the opportunity for being hired.
One last special type of fidelity bond is the Employee Retirement Income Security Act (ERISA) bond, and these are intended to safeguard employee pension benefits against the possibility of mismanagement, or fraudulent supervisory actions. There is a standard requirement that any ERISA bond must be valued at 10% of the amount in the total plan fund, not to exceed $500,000.
Who needs a blanket or fidelity bonds?
There are some financial organizations which are required by law to obtain bonds for key individuals in the company, and possibly even blanket bonds to protect against the possibility of financial crime from anyone in the organization. Some typical financial organizations in this category are security firms, brokerages, cash carriers, banks, credit unions, and some other lending institutions.
The reason this is a legal requirement is because people who do business with those types of organizations need to be protected against financial losses, and bonding will provide recourse for people to recover their investments, in the event of some kind of crime. However, even organizations which are not required by law to have a blanket coverage in place, may choose to do so simply for their own protection.
In cases like criminal embezzlement for instance, huge amounts of money can be stolen from a company, and that would ordinarily be a total loss if the perpetrator were not brought to justice. If the company had a bond in place to cover such actions however, the company could then make a claim against it to recover most or all of the amount embezzled by the wayward employee.
So – the simplest answer to the question, ‘what is a blanket bond?’ is that it is a special kind of fidelity, which covers all employees in an organization, rather than just one or a few.