Summary: The public official bond, a standard form under the jurisdiction of Surety Association of America (SAA), provides fidelity protection on employees and officers of political subdivisions. However, this bond differs from a fidelity bond in two important ways: (1) it guarantees both the honesty and faithful performance of the principal; and (2) the principal has an expressed contractual obligation to both the obligor (the surety) and the obligee (the public). Although this coverage is now available with the commercial crime policy of Insurance Services Office, the need may still arise for a bond only without the other crime coverages. The types of public official bonds are:
1. Individual bonds: written on a single official or employee for a specific amount.
2. Name schedule bonds: written on officials or employees (each for a specified amount) named in a list attached to the bond.
3. Position schedule bonds: written on the officials or employees who occupy any of the positions (each position for a specified amount) indicated in a list attached to the bond.
Absent from the Surety Association's jurisdiction are blanket bonds for public employees and public school employees. These are now part of the ISO crime program.
The general rates in the Surety Association of America manual specify few classes. Most public officials and employees would fall under the “general” heading. In most states the rate for this category is $2.50 per $1,000 of coverage. Some of the specialized categories indicated in the rules are: public housing authorities; peace officers; national guard; public school treasurers; state treasurers; tax collectors; and notaries public.
Scope of Coverage
Employees and other officials of all political subdivisions (other than the Federal government) are eligible for a public officials bond. Some of these bonds are required by law; others are provided voluntarily by the official. The requirements of the bonds may be dictated by statute or worked out on a case-by-case basis. Customarily called common law bonds, the last class is purely voluntary, subject only to the provisions of contract law. Whereas faithful performance was once covered in a separate bond, it can now be endorsed (“conditioned” is the term used in the Surety Association's manual) to the bond.
As is the case with other fidelity bonds, these bonds provide that coverage is not cumulative. The term of the bond, unless statute dictates otherwise, runs concurrently with the official's term of office. It remains in force until a successor is elected or appointed. When a new term of office begins, a new bond should be filed. For employees or officials who hold office for an indefinite period, an indefinite bond is available.
If a bond is required by law, it usually does not (or cannot) contain a cancellation clause. However, some states do allow the surety, under certain circumstances, to terminate coverage for future acts or defaults of the principal.
Some statutes allow for the discovery period of losses to be set in the bond; other statutes have unlimited discovery periods. The agent should check the law in the state where the bond is to be written.
Public Funds
A public official who has custody of public funds must turn over to his or her successor all funds and property for which he or she has been responsible during the term of office. There are, however, many ways (other than the dishonesty of the official) that such money or property may be lost or stolen. Such loss then becomes the responsibility of the public official.
An official may be held responsible for the default of a deputy, clerk, or other employee who fails to perform his or her official duties. The official may also be held liable if public money is deposited in a bank which fails. The official must strictly comply with the law governing the deposits of public money. If state law designates only certain banks for use as depositories and one of those banks fails, then the official is usually exempt from liability. Finally, the official may be legally liable for funds or property in his or her custody which are lost through burglary, forgery, or robbery.
Some public officers have jobs which could, if performed improperly, cause loss or damage to third parties. Examples of such officials include sheriffs, clerks of court, and recorders. For such employees, the bond may be written to cover not only loss to the obligee, but also loss or damage to third parties.
Statutory Public Officials Bond
KNOW ALL MEN BY THESE PRESENTS, That _____ as principal, and _____ as Surety are jointly and severally held and firmly bound unto (state, county, or political subdivision of which public official is an officer) in the penal sum of _____ Dollars, lawful money of the United states to the payment of which, well and truly to be made, we hereby bind ourselves, and each of us, our, and each of our heirs, executors, administrators, successors, and assigns, firmly by these presents.
THE CONDITION OF THE FOREGOING OBLIGATION IS SUCH, That whereas the above bound principal was heretofore duly [elected, appointed] to the office of _____ in and for the _____ of _____ and State of _____.
NOW, THEREFORE, if the said _____ shall faithfully and impartially, in all things, during his continuance in office, perform the duties thereof without fraud, deceit, or oppression, and pay over without delay to the officer entitled by law thereto, all moneys which shall come into his hands by virtue thereof, then this obligation shall be void; otherwise to remain in full force and effect.
Analysis
Because the obligations of the principal under the above bond are dictated by statute, the surety's liability is much greater than under other bonds. It is guaranteeing the faithful performance of a public official.
Jenne's Suretymaster says that the word “faithful” has been interpreted as follows: “everything is unfaithfulness which the law does not excuse.” Thus, the bond provides coverage for losses from negligence, breaking of a law, or even mere lack of skill on the part of the principal. However, if the principal makes an “honest mistake or error of judgment,” such problems are not covered by the bond, because they are “excused” by the statute.
Position Schedule Public Official Bond
KNOW ALL MEN BY THESE PRESENTS, That (name of Surety Co.) herein called the Company, in consideration of an agreed (one, two, three, or four) year premium, insures and agrees to indemnify the (state, county, or political subdivision), herein called the Employer, against any loss caused by any Employee while occupying and performing the duties of any position named in the attached schedule, in the amount of coverage on each position set opposite thereto, through the failure of any such Employee to perform faithfully and impartially in all things, during his continuance in said employment, the duties thereof without fraud, deceit, or oppression, or to pay over without delay to the officer or other person or organization entitled by law thereto, all moneys and property which shall come into his hands by virtue thereof.
1. This insurance shall be effective beginning on and including the _____ day of _____, 20__, and shall continue in force until terminated as hereinafter provided but not beyond the _____ day of _____, 20__.
2. The amount of protection on any position designated in the schedule or any acceptance notice of the Company, may be increased or decreased without impairing the continuity thereof, by the Company executing its written acceptance notice, whereby it agrees to such increase or decrease, but not otherwise. Such increase or decrease shall be effective from and including the date of acceptance notice, unless a different date is specified therein.
3. Any newly created position that is substantially identical with any position designated in the schedule or any such acceptance notice, shall automatically be covered hereunder in the amount set opposite the position which is identical with the newly created position, provided such coverage will be null and void from the 90th day unless the Company is notified of such newly created position within ninety days after its creation and in no event shall the Company be liable after said ninety days unless it issues its acceptance notice, thereby bringing such newly created position under this Bond; provided further, however, that if the Company shall not within ten days of the receipt of such notification give written notice by mail to the Commissioner of Administration and to the head of the _____ Department referred to in Paragraph Nine hereof declining such additional coverage, it shall be deemed to have accepted the same.
4. Any newly created position that is not substantially identical with a position designated in the schedule or any such acceptance notice shall automatically be covered hereunder in an amount equal to the largest amount set opposite any position on the attached schedule or any acceptance notice, but in no event exceeding _____ Dollars, provided such coverage will be null and void from the 90th day unless the Company is notified of such newly created position within ninety days after its creation, and in no event shall the Company be liable after said ninety days unless it issues its acceptance notice, thereby bringing such newly created position under this bond; provided further, however, that if the Company shall not within ten days of the receipt of such notification give written notice by mail to the _____ and to the head of the _____ Department referred to in Paragraph Nine hereof declining such additional coverage it shall be deemed to have accepted the same.
5. The amount of protection on any position shall not be decreased by the payment of any loss, but the Employer, upon demand, shall pay an additional premium computed pro rata on the sum so paid, from the date of notice of loss to the end of the current premium year.
6. The total liability of the Company on account of any Employee, though he may have occupied more than one position, shall not exceed the largest amount of coverage on any one position occupied by him.
7. The liability of the Company with respect to any Employee shall terminate upon the discovery by the Employer of any loss hereunder caused by such Employee; and this insurance may be terminated in its entirety or as to any Employee or position by thirty days written notice mailed by the Company to the _____ and the head of the _____ referred to in Paragraph Nine hereof. The Employer may cancel the insurance at any time by written notice mailed to the Company at its Home Office.
8. Any salvage recovered under any loss hereunder, from any source other than third party indemnity and/or collateral security held by or for the benefit of the Company, shall be first applied after deducting the expense of collection to that portion of the loss if any, borne by the Employer, and the balance, if any, shall be paid to or retained by the Company.
9. This bond shall apply to Employees of the _____ Department of the _____.
IN WITNESS WHEREOF the Surety has caused this Bond to be executed by its duly authorized attorney-in-fact.
Analysis
The position schedule bond is written on all who fill a particular position. It guarantees “faithful and impartial” performance of the duties attached to that position — regardless of who occupies it.
The bond provides ninety days automatic coverage for any newly created position that is “substantial with any position designated” on the bond. The amount of coverage for the new position is the same as the one to which it is most similar. If the principal does not notify the surety of the new position within ninety days, coverage for that new position is “null and void” — in other words, coverage never was in force for the new position. On the other hand, the surety has ten days after notification to decline the new position.
The bond also provides ninety days automatic coverage for any newly created position that is “not substantially identical with a position designated” on the bond. The new position is covered for the largest amount listed on the schedule. As above, the surety has ten days to decline the newly created position and if the principal does not officially notify the surety within ninety days, coverage for the new position is “null and void.”
The total of the surety's liability for any one employee is the highest amount applicable to that employee for one position, even though he or she may have held several different positions. When the surety pays a loss, the amount of coverage does not decrease. However, coverage for the employee who caused the loss is terminated. Also, the surety may demand an additional premium on the amount paid from the date of the loss until expiration.
Name Schedule Public Official Bond
KNOW ALL MEN BY THESE PRESENTS, That (name of Surety Co.) herein called the Surety, in consideration of an agreed (one, two, three, or four) year premium, agrees to indemnify the (state, county, or political subdivision), hereinafter called the Employer, for any loss caused by the Employee named in the attached schedule, while occupying and performing the duties of his employment while at any location in the employ of the Employer, through the failure of any such Employee to perform faithfully and impartially in all things, during his continuance in said employment, the duties thereof without fraud, deceit, or oppression, or to pay over without delay to the officer or other person or organization entitled by law thereto, all moneys and property which shall come into his hands by virtue thereof.
THIS BOND IS ISSUED SUBJECT TO THESE CONDITIONS:
1. This insurance shall be effective beginning on and including the _____ day of _____, 20__, and shall continue in force until terminated as hereinafter provided but not beyond the _____ day of _____, 20__.
2. The amount of coverage on any employee named in the schedule or any acceptance notice of the Surety, may be increased or decreased without impairing the continuity thereof, by the Surety's executing its written acceptance notice, whereby it agrees to such increase or decrease, but not otherwise. Such increase or decrease shall be effective from and including the date of acceptance notice, unless a different date is specified therein.
3. Automatic coverage is provided in this bond for the first ninety days of service: (a) for any Employee succeeding one listed in the Schedule of Employees, in the same amount; (b) for any Employee occupying a newly-created position identical with that of any Employee listed in the Schedule of Employees, in an equal amount; (c) for any Employee occupying any other newly-created position, in the amount of _____. Said ninety day coverage shall be null and void from the 90th day unless the Surety is notified of the new employment within ninety days thereafter, and in no event shall the Surety be liable after said ninety days unless it issues its acceptance notice, thereby bringing the new Employee under this policy.
4. Liability of the Surety with respect to any Employee shall terminate upon the discovery by the Employer of any loss hereunder caused by such Employee; and this bond may be terminated in its entirety or as to any Employee by thirty days written notice mailed by the Surety to the _____ of the Employer and the head of the _____ Department referred to in Paragraph Six hereof. The Employer may cancel this bond at any time by written notice mailed to the Surety at its Home Office.
5. Any salvage recovered under any loss hereunder, from any source other than third party indemnity and/or collateral security held by or for the benefit of the Surety, shall be first applied after deducting the expense of collection, to that portion of the loss, if any, borne by the Employer, and the balance, if any, shall be paid to or retained by the Surety.
6. This bond shall apply only to Employees of the Department of _____ of the _____.
IN WITNESS WHEREOF the Surety has caused this Bond to be executed by its duly authorized attorney-in-fact.
Analysis
The name schedule bond is very similar to the position schedule bond. Instead of providing coverage for anyone who holds a particular office, it provides coverage for a particular person while in the employ of the principal.
The name schedule bond has a ninety-day automatic coverage provision that applies to new employees and to current employees in newly-created positions. The principal must notify the surety of these changes within ninety days. This bond terminates for any employee when the employer discovers a loss attributable to that employee.
Rating
As is the case with blanket forms for commercial risks, the premium is determined by the number of employees and their duties. The classes enumerated on the “all states” page of the Surety Association manual are:
1. public housing and urban renewal projects;
2. national guard, organized militia, or naval reserves;
3. peace officers employed as guards or watchmen;
4. agents selling hunting or fishing licenses;
5. public officials who are “custodians of securities”;
6. special bond issues—for public officials to cover the proceeds of a special bond issue.
Market
It is not necessary to wait for an election year to solicit this type of insurance. In many localities, the bulk of employees covered by these forms are under civil service usually under the direction of an appointed or elected official.
Particularly with a fairly large government office, the elected or appointed official cannot personally supervise the work and make certain that everything is handled, not only honestly, but strictly in accordance with the law. In many cases, a public official of this type can be held personally liable for losses caused by dishonest or careless employees — and sometimes even where there has been a failure to provide insurance against losses such as burglary or holdup. Consequently, bonds of this type may protect, not only the governmental unit and the taxpayers, but also the personal assets of the supervising official.