Fidelity bond coverage is for “employee dishonesty” that results in the loss of the association’s day-to-day and reserve funds. Fidelity bonds are also referred to as “employee dishonesty insurance” or “crime coverage”. This coverage protects the association against theft and dishonesty by its officers, directors and employees. If someone takes the money and runs, the loss will be covered by the bond; however, this coverage is not automatically included in an association’s master insurance policy.
In some cases, fidelity bond coverage is optional. However, for common interest developments of more than 20 units, Fannie Mae and Freddie Mac require fidelity bond coverage in specified amounts as part of the homeowner association insurance package.
Management companies are responsible to carry their own fidelity bonds; however associations should not rely on this to cover their losses. The management company’s coverage would protect them from embezzlement of its own funds by its own employees. You may have no remedy if a management company employee steals your association’s funds if your association has no fidelity bond coverage of its own. You may also be unable to determine whether or not the management company’s bond is sufficient to meet the Fannie Mae and Freddie Mac requirements.
Fidelity bond coverage is generally inexpensive and can provide your association with peace of mind. At Loris Moradian Insurance Agency, we are experts in homeowner association insurance and would be happy to review your current coverage and build a package that will meet all of your association’s insurance needs.