Employee Dishonesty Claims: Discerning the Employee's Manifest Intent 30 Tort & Insurance Law Journal 1994-1995

30 Tort & Ins. L.J. 915 (1994-1995)
Employee Dishonesty Claims: Discerning the Employee's Manifest Intent

handle is hein.journals/ttip30 and id is 925 raw text is: EMPLOYEE DISHONESTY CLAIMS: DISCERNING THE
EMPLOYEE'S MANIFEST INTENT
Michael Keeley
I. INTRODUCTION
Losses from employee dishonesty can be devastating, and occasionally catastrophic,
to even the largest of companies and financial institutions. As a result, fidelity bond
insurance has been available from the earliest of times.' Due to the risks involved
in underwriting such losses, however, insurers always have intended coverage to
be narrow, limited to losses caused by a thief who happens to be an employee
of the insured.2 Broader coverage inevitably would lead to either unaffordable
premiums for insureds or unacceptable loss ratios for insurers.3
Perhaps naturally, insureds faced with large losses have argued for broader cover-
age than that intended by insurers, extending well beyond dishonesty to most forms
of employee misconduct. Historically, the courts have been willing to oblige, often
construing the bond with a very broad brush, sometimes finding coverage for losses
caused by acts that typically would be considered reckless or, in some cases, simply
negligent. In an effort to counteract such decisions the Surety Association of
America added an intent requirement to the bond, first by rider in 19764 and then
1. The modem day fidelity bond dates back to the time of the ancient Babylonians over 4,000
years ago. In the United States the first standard form bond was introduced in 1916 by the Surety
Association of America, working in cooperation with the leading insurers of the day and in consultation
with the American Bankers Association. See James A. Knoll & Randy L. Arthur, A Brief Histoay of the
Financial Institution Bond, in I A.B.A. FINANCIAL INSTrIJUTION BONDS 3, 8 (Duncan L. Clore ed.
1992).
2. Robin V. Weldy, A Survey of Recent Cbanges in Financial Institution Bonds, 12 FORUM 895,
897 (1977).
3. This is precisely what happened in the 1970s and 1980s, with loss ratios forcing some fidelity
bond insurers out of business. See infta text accompanying note 14.
4. Surety Ass'n of America, Rider 6019, reprinted in I A.B.A. FINANCIAL INSTITUTION BONDS,
supra note 1, at 103.
Micbael Keeley is witb tbe firm of Strasburger &- Price, L.LP. in Dallas and a Vice-Cbair of
the Fidelity and Surety Committee of the Tort and Insurance Practice Section.

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