Upcoming Publication! New Appleman on Insurance Law Library Edition, Volume 10 – Fidelity Insurance

LexisNexis is pleased to announce the upcoming publication of the next new volume of New Appleman on Insurance Library Edition. New Volume 10 is solely devoted to comprehensive analyses of Fidelity Insurance and is composed of 26 chapters, each written by leading practitioner-experts in Fidelity Insurance.

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Here are the highlights of each chapter:

Chapter 111,  An Introduction to and History of Fidelity Insurance – studies the basic concepts essential to understanding the scope of coverage generally provided by fidelity insurance and examines the key distinctions between fidelity bonds and other types of insurance.  Fidelity insurance policies now in use are based on forms first developed in the early 1900s.  Those forms have evolved based on the input of industry groups in reaction to new technologies, societal developments, and changing commercial standards.  Thus, understanding the history of fidelity insurance is uniquely important to the proper interpretation of fidelity insurance policies currently in use.  Accordingly, the chapter sets out a concise yet comprehensive history of fidelity insurance from ancient times to today.  The chapter first provides an overview of fidelity insurance from its earliest forms to the development of the first standard-form fidelity policies, and then traces the evolution of those standard forms into their current state.  Throughout this historical narrative, the chapter examines key changes to the standard form fidelity policies and the reasons for those changes.  This information is important to practitioners because the history of key provisions of current fidelity policies informs how those provisions should be properly interpreted.  The chapter also examines the role of various industry groups, representing both fidelity insurers and insureds, in crafting changes to the standard form fidelity policies.  The chapter concludes with discussions of the various forms of fidelity insurance policies in use today and how they may be distinguished from one another.

Chapter 112,  Insuring Agreement (A) – Employee Dishonesty, analyzes the coverage provided by standard form fidelity insurance policies that cover losses resulting from acts of employee dishonesty.  It briefly discusses the history of insurance against employee dishonesty, and explains the limitations on the coverage that Insuring Agreement (A) provides today.  It discusses, at length, the key language in Insuring Agreement (A) that limits coverage to scenarios where the employee acts with the “manifest intent” to cause the insured a loss and to obtain an improper financial benefit.  Courts have taken different approaches to interpreting the phrase “manifest intent,” and Chapter 112 both explains and analyzes the varied interpretations of the term.  Insuring Agreement (A) includes other important requirements, including that the actor be an “Employee,” and that the insured prove additional elements where its loss results from a “Loan.”  Chapter 112 addresses the meaning of those terms.  It also explains the purpose behind requiring proof of additional elements where a loss results from a “Loan” and examines cases interpreting that term.  Standard form fidelity policies require that the Employee have received an improper financial benefit “in connection with” the transaction at issue.  The chapter also analyzes the meaning of the phrase “in connection with” and the term “financial benefit,” specifically addressing which types of emoluments of employment, such as salaries and bonuses, are carved out from its definition.

Chapter 113, Insuring Agreement (B) – On Premises, examines the types of property and risks insured by the 2004 and 1986 versions of Insuring Agreement (B) of the Standard Form No. 24 Financial Institution Bond. The chapter discusses the circumstances under which both versions insure specified types of property for loss resulting directly from robbery, burglary, misplacement, mysterious, unexplainable disappearance, damage, destruction, theft, false pretenses, and statutory or common law larceny. It examines the requirement for coverage that certain types of loss result from acts committed by a person who is present in the insured’s offices or on the insured’s premises. This chapter also identifies the differences in the definitions and explains the more limited coverage provided by 2004 insuring Agreement (B).  The question of when a loss is the “direct result” of a covered cause of loss is explored in detail. Finally, the chapter shows how the exclusions that are most likely to arise in connection with a claim under this Insuring Agreement are interpreted to preclude coverage for losses due to foreseeable risks inherent in the business of banking.

Chapter 114, Financial Institution Bond, Insuring Agreement (C) – In Transit,  provides an overview and survey of the elements an insured should be prepared to satisfy to demonstrate coverage for losses to property under the “In Transit” insuring agreement. It first describes the fundamental characteristics and purpose of the coverage, before outlining and discussing the most frequently litigated issues regarding the coverage determination. The chapter specifically addresses what it means for covered property to be “in transit” or “transported” at the time of the loss. This includes the finite period of time for which coverage is available, starting with “receipt” by a messenger or transportation company and ending upon “delivery” back to the insured. The chapter analyzes and explores the impact of an interruption or break in the “in transit” process, and how the nature or purpose of those interruptions might impact the coverage analysis. The chapter also discusses the requirement that the property be in the custody or possession of a messenger or transportation company at the time of the loss. The chapter utilizes cases from multiple jurisdictions applying either the specific language of the bond, or terms and principles from similar fidelity or commercial crime policies, to develop and guide the discussion of when coverage might be available—and when it might not.

Chapter 115, Financial Institution Bond, Insuring Agreement (D) – Forgery or Alteration, discusses the Financial Institution Bond’s coverage for loss to an insured financial institution resulting directly from making payments and transfers in reliance upon specific categories of documents that are forged or altered—primarily checks and similar negotiable instruments, as well as other enumerated documents.  The chapter provides context and background information regarding the types of forgery and alteration risks encountered in the banking industry arising under the Uniform Commercial Code and federal regulations governing and allocating loss between the multiplicity of parties involved in the handling of negotiable instruments, and discusses the extent to which Financial Institution Bonds may cover such loss.  The chapter explores the key terms and particularities of the bond’s traditional forgery coverage, as well how that coverage is evolving and may continue to evolve due to changes in the banking industry (such as through on-line banking) and new language appearing in bond riders and recently updated versions of Financial Institution Bonds.  These include the Bond’s traditional and updated definitions of “forgery,” the undefined term “alteration.” The chapter further explores how the courts understand and apply these terms.  The chapter also discusses the purpose and application of the Bond’s uncollected funds exclusion, under which depositary banks assume the risk of permitting withdrawals against check deposits that have not finally cleared.

Chapter 116, Financial Institution Bond, Insuring Agreement (E) –Securities, examines the scope of indemnity provided by Insuring Agreement (E).  The chapter analyzes the defined types of losses arising directly from certain classes of paper-based risks faced by financial institutions.  It examines the major elements required to establish a loss potentially covered by the insuring agreement.  In particular, it reviews the scope of indemnity for losses sustained directly from the financial institution (1) having bought, sold, or loaned money; (2) in good faith; (3) on a specified set of documents; (4) which are defective in ways defined in the Bond, and (5) where “originals” of such documents are within the insured’s actual physical possession at defined times.  It then analyzes the major limitations on the agreement and the issues most frequently subject to litigation in recent times.

Chapter 117, Financial Institution Bond, Insuring Agreement (F) – Counterfeit Currency, examines the infrequently litigated—but extremely important—coverage available related to the receipt by an insured of counterfeit money.  The history of the coverage is addressed first, followed by a discussion of the two primary and critical preconditions for coverage: (1) that the currency be accepted by the insured in good faith and (2) that the currency be from the United States of America, Canada, or a country in which the insured maintains a branch.  With the dearth of case law related to this specific coverage, the chapter addresses cases defining the scope of coverage for other “counterfeit” documents, namely the importance that the purported “counterfeit” document be an imitation of a written original, as contrasted with a mere fraudulent document.  The chapter closes with a discussion of the requirement that the “currency” at issue involve paper money, cash, notes, coins or legal tender currently and actually in circulation at the time of receipt.

Chapter 118, Financial Institutional Bond, Insuring Agreement (G) – Fraudulent Mortgages Rider, analyzes Insuring Agreement (G) of the Financial Institution Bond, formerly known as the Fraudulent Mortgages Rider. This Insuring Agreement provides coverage for loss directly resulting from the insured's good faith reliance, acting in the normal course of business, on written, original  mortgage-like documents, or assignments thereof, which prove to  be defective  by reason of the signature on such documents  having been procured through trick, fraud or false pretenses. The chapter describes the six reported cases concerning this coverage, which limit coverage to facts showing that the person signing the document did not understand, as a direct result of fraud, the nature or legal effect of the document he or she was signing. These cases also have firmly rejected arguments that coverage also extends to loss directly resulting from the mortgagor being tricked into entering a fraudulent transaction that involved the signing of a mortgage.  The chapter closes addressing issues such as good faith reliance and valuation of the loss, which have not been the subject of reported decisions.

Chapter 119, Computer Systems Fraud Rider Coverage for Financial Institution Bonds, examines the coverage offered under standard “Computer Systems Fraud” riders available as endorsements to financial institution bonds.  This chapter first describes the background and drafting history of the Rider. It then examines the main coverage language of the Rider and identifies important provisions that can not only determine whether a claim is covered under the Rider, but that can also drastically affect the quantification of a covered claim. This chapter addresses specific undefined terms that,  as computer use continues to spread and evolve, may well become the subject  of contentious argument. The chapter then reviews and analyzes case decisions addressing major, recurring issues that arise in the event of claims, such as determining whether the required direct loss has occurred, defining what constitutes a fraudulent entry of data, and determining how the Rider deals with the fraudulent activity of otherwise authorized computer users.

Chapter 121, Commercial Crime Policy, Insuring Agreement 2 – Forgery or Alteration,  addresses the Commercial Crime Policy’s coverage for loss to an insured resulting directly from “forgery” or “alteration” of certain categories of written instruments (primarily checks and similar instruments) drawn by or on the account of the insured (or so appearing on the face of a forged instrument).  The chapter provides context and background information as to forgery-related and alteration-related risks that an insured may face under the Uniform Commercial Code, and explains the extent to which Commercial Crime Policies protect against such risks.  The chapter identifies the nature and types of instruments covered, and not covered, under ISO's Insuring Agreement 2.  The definition and application of the policy term “forgery,” which requires a signature in the name of “another” and which does not include the signer’s own name, is discussed.   The chapter then explores the policy’s undefined term “alteration” and how the term is generally understood and applied in the context of the kinds of negotiable instruments and commercial paper that fall within the scope of coverage. The chapter also explores specific provisions of the Commercial Crime Policy that condition or limit coverage under Insuring Agreement 2.

Chapter 122, Commercial Crime Policy Insuring Agreement 3 – Inside the Premises –Theft of Money/Securities, examines Insuring Agreement 3 which provides coverage against certain loss and damage resulting directly from “theft,” disappearance or destruction of “money” or “securities” from inside the "premises” of the insured or a banking institution. It discusses the background and history of the development of this insuring agreement and the evolution of its language and definitions through to the new 2013 agreement that results in a more definition-driven insuring agreement.  The chapter proceeds to analyze the meaning of key terms that shape the coverage provided, including (1) “inside the premises”—which is grounded on the policy’s definition of “premises”— (2) the perils that are insured against by the “Inside The Premises – Theft of Money And Securities” coverage, both defined and undefined, including “theft” (which is defined) and “disappearance” (which is not),  and (3) the impact of the “Ownership Of Property” condition on this coverage, which requires that the insured have a sufficient interest in the “money” or “securities” that are lost or stolen in order for the insured to recover under the policy. The chapter then examines the exclusions under Insuring Agreement 3 with particular applicability to claims arising under “Inside The Premises – Theft of Money And Securities” coverage. It includes court decisions bearing on the scope of the exclusions.

Chapter 123, Commercial Crime Policy Insuring Agreement 4 – Outside the Premises – Robbery and Safe Burglary, analyzes Insuring Agreement 4 of ISO's Commercial Crime Policy, which provides coverage against certain: (1) loss of “other property” resulting directly from an actual or attempted “robbery” or “safe burglary” inside the “premises; (2) loss from damage to the “premises” or its exterior resulting directly from an actual or attempted “robbery” or “safe burglary” of “other property” to the extent that insured owns the premises or is liable for damage to it; and (3) loss of or damage to a locked safe or vault inside the “premises” resulting directly from an actual or attempted “robbery” or “safe burglary.” The chapter surveys the evolution of its language and definitions through to the new 2013 agreement that results in a more definition-driven insuring agreement. It  examines the meaning of key terms that shape the coverage of Insuring Agreement 4, including “inside the ‘premises,’” “robbery,” “safe,” and “vault” (including how the definition of “safe burglary” suggests those terms should be construed), and the requirement in the definition of “safe burglary” for “marks of forcible entry” on the exterior of the safe or vault which is the subject of the actual or attempted safe burglary. The chapter addresses the special condition applicable to Insuring Agreement 4 that places certain lower limits of insurance on loss of or damage to certain “other property” which carry a particularly high risk, such as jewels, furs, and certain itemized collectibles and like property.  The chapter explores the exclusions to the standard commercial crime policy that have particular relevance to Insuring Agreement  4, including the exclusion from the definition of “other property” of computer programs and electronics.

Chapter 124, Commercial Crime Policy Insuring Agreement 5 – Outside the Premises, analyzes Insuring Agreement 5 of ISO's Commercial Crime Policy (Discovery Form), that provides coverage against certain loss of “money” and “securities” resulting directly from “theft,” disappearance, or destruction from outside the “premises” while in the care and custody of a “messenger” or an armored motor vehicle company. It also provides coverage for loss of or damage to “other property” resulting directly from an actual or attempted “robbery” from outside the “premises” while in the care and custody of a “messenger” or an armored motor vehicle company. The chapter surveys the evolution of its language and definitions through to the new 2013 agreement that results in a more definition-driven insuring agreement. It examines the meaning of key terms that shape the coverage Insuring Agreement 5 provides, including “messenger,” “care and custody,” and “outside the ‘premises,’” “theft,” “robbery,” “disappearance and destruction,” and some other undefined terms in the Agreement. The chapter also explores the ramifications of the special condition applicable to Insuring Agreement 5 where an armored motor vehicle company loss is involved. The chapter then analyzes the exclusions to the standard Commercial Crime Policy that have particular relevance to Insuring Agreement 5, including the “employee theft” exclusion, which bars recovery if an employee or other person within the exclusion’s purview is an accomplice of the malefactor whose “theft,” or actual or attempted “robbery,” forms the basis of a claim under Insuring Agreement 5.  Case law bearing on the exclusions is surveyed.

Chapter 125, Computer Fraud Coverage in the Commercial Crime Policy, analyzes the “Computer Fraud” coverage offered in the ISO’s Commercial Crime Policy. This chapter identifies the key provisions of the insuring agreement which will come into play in the event of a claim, as well as the interplay of defined policy terms and undefined technical terms, which will likely impact claim determination and quantification. It then analyzes the cases which so far have arisen on this insuring agreement (and similar proprietary ones). The chapter addresses claim-determinative issues such as how courts have defined “use of a computer”; whether a required “direct” loss has occurred; and where coverage lies when authorized computer privileges have been misused for fraudulent purposes.

Chapter 126, Funds Transfer Fraud Coverage in the Commercial Crime Policy, addresses the “Funds Transfer” Insuring Agreement utilized in the ISO’s Commercial Crime Policy. This chapter first explains key provisions of this insuring agreement, and analyzes the interplay of terms that are defined in the insuring agreement, and undefined terms, technical and otherwise, which will likely impact claim determination and quantification. This chapter then concludes with an analysis of the main cases which have arisen in relation to funds transfer fraud claims, including  seminal cases that address the issue of what kind of fraudulent activity is covered under the insuring agreement, or demonstrate how courts will determine whether “funds transfer” coverage as contrasted with “forgery” coverage applies to fraudulent transfer claims.

Chapter 127, Commercial Crime Policy Insuring Agreement 8 – Money Orders And Counterfeit Money, analyzes Insuring Agreement 8 of the ISO's Commercial Crime Policy (Discovery Form), which provides coverage against loss resulting directly from the insured’s acceptance in good faith as part of its business of certain types of money order that are not paid, or of counterfeit money. The chapter traces the major revisions to the structure and language of the Insuring Agreement, and analyzes key definitions and exclusions that affect the Insuring Agreement, as new standard policy forms were issued between 1957 and 2006, resulting in a more definition-driven Insuring Agreement. The chapter delves into the meaning of key terms that shape the coverage provided, including “money order,” which is not a defined term but is central to the coverage and the defined term “counterfeit money.” The chapter concludes with discussions of the applicability of the policy’s conditions and exclusions to the “Money Orders and Counterfeit Money” coverage.

Chapter 128, Discovery of Loss: The Contractual Gateway to the Fidelity Claim, analyzes the issue of discovery of loss within the context of the Financial Institution Bond and Commercial Crime Policy.  As an introductory matter, the chapter discusses the various ways that discovery of loss is a critical component of a claim, including the role it plays in determining the applicable policy, deadlines, and potential coverage provided.  It discusses the history of the discovery concept from the earliest versions of the bond, including two divergent discussions of discovery provided by the United States Supreme Court in two separate cases.  It tracks the development of the discovery concept over the course of the twentieth century, up to and including the addition of a standard form definition of discovery, which was added to the 1980 Standard Form Financial Institution Bond.  The chapter then analyzes in detail the meaning and elements of the standard form definition and the way that the standard definition has been interpreted by courts around the country, including the circuit courts of appeal.  The discussion includes an analysis of which courts have continued to apply some subjective considerations to the overtly objective definition, and those that have been more loyal to the plain meaning of the definition.  The chapter also analyzes the case law developments that have occurred over the last decade, including the most recent approaches to applying the standard form definition, as well as a discussion of the approach in cases that did not include the standard form definition of discovery of loss.

Chapter 129, Notice, Proof of Loss, and Limitations, provides a comprehensive review and analysis of three common fidelity bond provisions: (1) the provision requiring the insured to provide notice of its claim to the insurer, which most commonly is triggered by the insured’s discovery of a loss under the bond; (2) the provision requiring that the insured file a proof of loss with the insurer (usually within a certain amount of time after discovering its loss or providing notice to the insurer), and (3) the provision placing limitations upon lawsuits and legal proceedings which may be commenced under the bond.  The chapter discusses the purposes and policies behind these provisions.  It also discusses when the insured’s notice is considered timely under the bond, and what information must be included in that notice.  The chapter further analyzes the effect of the insured’s failure to provide the required notice to the insurer—including an analysis of the controversial “notice-prejudice” rule.  The chapter provides a similar analysis of the insured’s proof of loss obligations under the bond—including what information must be included in the insured’s proof of loss, as well as the effect of the insured’s failure to provide a timely proof of loss to the insurer.  The chapter addresses the effect, construction, and validity of two common types of limitations provisions: (1) those which establish a time period within which the insured must commence a lawsuit or legal proceeding under the bond, and (2) those which prohibit third parties and non-insureds from seeking coverage or commencing lawsuits or legal proceedings under the bond.  The chapter concludes with a discussion of whether and to what extent an insurer may be deemed to have either (1) waived the protections of the notice, proof of loss, or limitations provisions discussed above, or (2) acted in a manner estopping the insurer from relying upon such provisions as defenses to the insured’s claim under the bond.

Chapter 130, Loss and Causation, addresses the causation standard incorporated into Commercial Crime Policies and Financial Institution Bonds and calculation of loss.  It tracks the historical development of the "resulting directly" standard and the debate over application of the "proximate causation" standard.  It then analyzes the impact of these issues in two common claim scenarios:  (1) the compensability of third-party loss and (2) claims arising from the extension of credit against fictitious collateral.  The chapter concludes by discussing calculation of a loss, claims to recover loss of fictitious, theoretical, or bookkeeping profits and the proper method to calculate a loss under a fidelity bond.

Chapter 131, General Agreements, examines the “other agreements” found in the Financial Institution Bond – General Agreements (A) though (F) and, when applicable, similar provisions found in Commercial Crime Policies. These provisions are agreements between the insured and insurer regarding coverage and administrative requirements in the event of specified occurrences, such as designation of nominees, creation of additional offices, mergers and consolidation, and changes in ownership of the insured’s business.  The General Agreements further define the insured’s duties in making representations in bond applications and the insurer’s right to rescission, how claims will be administered when there are multiple insureds under the bond, the insurer’s ability to elect to defend its insured when the insured is named in a third-party action, the consequences of such an election, and the coverage that is afforded to the insured’s ERISA plan. The chapter includes in-depth analysis of each of the bond’s general agreements, discussion of relevant changes made to the language in those agreements, and a discussion of leading interpretative cases.

Chapter 132, Definitions, analyzes the case law interpreting key definitions found in the Financial Institution Bond and the Commercial Crime Policy.  How a term is defined can determine whose acts are covered ("Employee," "Custodian") what acts are covered ("Counterfeit," "Forgery," "Robbery," "Theft"), what loss is covered ("Evidence of Debt," "Loan", "Money," "Negotiable Instrument," "Withdrawal Order"), and which Bond or Policy applies ("Discovery," "Occurrence").  Thus, the importance of the definition to a coverage analysis cannot be overstated. The chapter delves into both what is, and what is not covered by the definitions.  Where appropriate, it discusses the majority and minority holdings for a given definition.  It also compares and contrasts different versions of the definitions as those versions appear in various iterations of the Bonds or Policies over time.  Where a definition may contain component parts, those components are also analyzed.  For example, the definition of a "counterfeit" is discussed by analyzing its requirements that a document be an imitation of an original document, and is intended to deceive. The chapter provides factual context for the application of the definitions.

Chapter 133, Key Exclusions, provides an overview of the important coverage exclusions that are common to fidelity bonds and insurance policies, most notably the Financial Institution Bond and Commercial Crime Policy.  Specifically, this chapter analyzes in detail the policy exclusions for (1) Loan Loss, (2) Trading, (3) Potential/Unrealized Income, (4) Inventory Loss, and (5) Indirect Loss.  It also sets forth and discusses other key exclusions, including those for Forgery or Alteration, Loss Caused by Employee, Erroneous Credits, Uncollected Funds, Acts Committed by the Insured or Insured’s Authorized Representative, and Depository Failure.  The chapter discusses the public policy rationale behind each exclusion and explains the risk that each exclusion intends to remove from coverage.  The chapter excerpts for readers the exclusionary language that fidelity insurance policies commonly use.  It also examines how courts have interpreted that exclusionary language and, where appropriate, discusses majority and minority lines of case authority that have developed.  The chapter also places the exclusions into a historical context and considers how they have evolved over time.

Chapter 134, Limit of Liability, examines the various contractual limitations of liability contained in fidelity policies. These are fundamental features of any contract of fidelity insurance and thus they are set forth prominently on the declarations page, in a separate section of the policy and in policy definitions. The chapter begins with an explanation of the aggregate limit, if any. This caps the insurer’s liability for multiple losses. The chapter moves on to analyze the limit of liability for a single loss or occurrence. Typically the policy makes it clear that the insurer’s liability is limited to a stated amount for all loss or occurrence involving the same employee or group of employees, no matter how many different acts of embezzlement occurred or schemes were employed, and no matter when those acts or schemes occurred. The chapter also examines the issue of stacking, where an insured may seek multiple limits by attempting to recover under consecutive policies or policy periods. The several policy provisions that prevent this are reviewed in depth. In addition, the chapter examines the impact of prior insurance and other insurance clauses. The chapter concludes with a discussion of excess insurance.

Chapter 135, Termination and Cancellation, discusses the termination and cancellation provisions in Section 12 of the Standard Form 24 Financial Institution Bond (revised January 1986) and the analogous provisions in the 2012 Insurance Services Office, Inc. ("ISO") Commercial Crime Policy (Discovery Form).  The termination provision of the Financial Institution Bond is composed of two distinct parts.  The chapter delves into the first part, setting forth six ways in which the bond terminates in its entirety.  Differences between the termination provisions of the Financial Institution Bond and Commercial Crime Policy are analyzed. The chapter then discusses the second part of the termination provision of both the Financial Institution Bond and the Commercial Crime Policy; it concerns the termination of the bond as to specific employees. The chapter explores the fluid and evolving case law concerning termination as to individual employees. Initially, there is the question of who must learn of the dishonest conduct. Next is the question of the meaning of dishonest or fraudulent acts in the context of the termination clause, and whether the conduct is to be judged by a subjective or objective standard.  Another issue is what constitutes collusion. An additional issue is what acts constitute dishonesty.   There are also the questions of when the dishonest acts occurred, and when the insured learns of the dishonest acts.  This chapter examines all of these issues and more.

Chapter 136, The Cooperation Provision, analyzes the cooperation provision in Financial Institution Bonds and Commercial Crime Policies. It examines the purpose of the cooperation provision. The chapter then provides a background of the provision in Financial Institution Bonds and Commercial Crime Policies.  It discusses the necessity of cooperation in the investigation of fidelity and crime claims and the fact that the insured’s failure to cooperate can bar recovery under fidelity bonds and crime policies. The chapter then provides examples of what constitutes a failure to cooperate.  It also discusses the insured’s right to assert Fifth Amendment or attorney client privilege with respect to information that an insurer requests as part of the investigation of a claim as contrasted with  the insured’s contractual duty to cooperate.  The chapter concludes with a final explanation of the importance of cooperation under fidelity and crime policies.

Chapter 137, Assignment, Subrogation and Recovery, analyzes the assignment and subrogation rights of the insurer under fidelity bonds, including Commercial Crime Policies. It first discusses the general purpose of the recovery provisions in such fidelity bonds and the fact that fidelity bond claims are unique in the recovery opportunities that are presented.  There is also a review of the language in the current Surety and Fidelity Association of America Standard Form 24 Financial Institution Bond and the ISO Commercial Crime Policy. The chapter then addresses issues that arise when an insurer takes an assignment of an insured’s claim. The chapter surveys the insurer's subrogation rights and discusses how recoveries are allocated between insured and insurer, and how an insured’s impairment of the insurer’s subrogation rights can affect the insured’s right to recover under a fidelity bond. It addresses the insurer’s right of recovery against a dishonest employee. Lastly, it analyzes the main principles governing the insurer’s assignment, subrogation, and recovery rights.

ABOUT THE EDITORS:

Editors of Volume 10:

Michael Keeley is a partner in the Dallas, Texas office of Strasburger & Price, LLP, and is Chair of Strasburger’s Fidelity & Surety practice and its Insurance Litigation and Counsel practice. Mr. Keeley is a graduate of the University of Arizona, B.S., summa cum laude, with honors, 1977, and the University of Arizona School of Law, J.D. cum laude, Order of Barristers, 1981. Mr. Keeley is a past Chair of the ABA Tort, Trial and Insurance Practice Section’s Fidelity and Surety Law Committee, the Editor-in-Chief of the of the Fidelity Law Journal, and a past Editor-in-Chief of the Tort & Insurance Law Journal, and a past Editor of the Fidelity and Surety Law Committee Newsletter.

Mr. Keeley is a trial lawyer who has developed extensive experience representing insurers in complex coverage matters in a wide range of significant coverage disputes, particularly in the areas of fidelity and surety bonds, directors & officers insurance, and professional liability policies, but he has handled coverage matters involving just about every type of insurance policy. Mr. Keeley is frequently retained to represent insurers in complex coverage disputes across the country, and occasionally in Mexico, South America, and overseas. He also assists clients in developing and expanding products and in drafting policies.

Mr. Keeley has published numerous articles, and is a frequent speaker, in the area of fidelity insurance. He is the Editor of the recently published book Annotated Financial Institution Bond, 3d ed., the Co-Editor with Sean Duffy of the book Handling Fidelity Bond Claims, and has written chapters in several other reference books on fidelity insurance.

Mr. Keeley serves as an Advisor to the Surety & Fidelity Association of America and is an Advisor Emeritus to the Fidelity Law Association. He also serves as an Editor for the soon to be published surety volume of the New Appleman on Insurance Law Library Edition. Mr. Keeley has been named among the Best Lawyers in America in Insurance Law by Best Lawyers annually since 2007, and he has been named a Texas Super Lawyer by Thomson Reuters annually since 2008.

Armen Shahinian is a Member of the West Orange, New Jersey and New York, New York law firm of Wolff & Samson PC. Mr. Shahinian is a graduate of Brown University, A.B. 1971, and New York University, J.D. 1974, where he served on the Annual Survey of American Law. He is a past Chair of the ABA Tort & Insurance Practice Section’s Fidelity and Surety Law Committee, is Co-Chair of its Past-Chairs Advisory Council, and is a Member of the Board of Directors of the Surety Claims Institute and Editor-in-Chief of the Surety Claims Institute Newsletter. Mr. Shahinian is also Advisor Emeritus to the Fidelity Law Association and an Advisor to the Fidelity Claims Advisory Committee and an Advisor to the Surety Claims Advisory Committee of the Surety & Fidelity Association of America.

Mr. Shahinian is a litigator and frequent author and lecturer in the areas of fidelity and surety law. He has lectured, published many articles and contributed many chapters to publications of the American Bar Association, Tort & Insurance Practice Section’s Fidelity & Surety Law Committee; the Surety Claims Institute; the National Bond Claims Association; the National Association of Independent Sureties; the American Surety Association; the Fidelity Law Association; and various other groups involved in the fidelity and surety industries.

Mr. Shahinian also serves as an Editor for the soon to be published surety volume of the New Appleman on Insurance Law Library Edition. He has been named among the Best Lawyers in America by Best Lawyers in the areas of Commercial Litigation, Banking & Finance Litigation, Bankruptcy Litigation, Construction Litigation and Real Estate Litigation and has been named a New Jersey Super Lawyer by Thomson Reuters annually since 2005.

Editor-in-Chief of the Publication:

Jeffrey E. Thomas is Associate Dean for International Programs and Professor of Law at the University of Missouri—Kansas City. Dean Thomas graduated from Loyola Marymount University in 1983, and earned his Juris Doctor degree from University of California, Berkeley (Boalt Hall), in 1986. He is a past President of the Asia Pacific Risk and Insurance Association, past Chair of the Insurance Law Section of the Association of American Law Schools, and a member of the California Bar. Dean Thomas has held various leadership positions in the Tort Trial and Insurance Practice Section of the ABA, the Lawyers Association of Kansas City, and the J. Reuben Clark Law Society.

Dean Thomas has a national and international reputation in the field of Insurance Law. His work has been presented at academic and professional meetings throughout the U.S. and internationally, and has been published in academic journals in the U.S., Europe, China, Thailand and India. He is the co-author with Alan I. Widiss of the three-volume treatise Uninsured and Underinsured Motorist Insurance published by LexisNexis, which he updates annually. Dean Thomas served on the Editorial Board of the CGL Reporter, is a reviewer and an advisor to the Connecticut Insurance Law Journal, and was the Editor-in-Chief for the New Appleman Insurance Law Practice Guide.

Dean Thomas previously taught at the University of Chicago as Bigelow Teaching Fellow, at Loyola Law School (Los Angeles) as an adjunct, at University of Connecticut as a summer visitor, and at Nankai University in Tianjin, China as a Fulbright Fellow. He was also designated the first Tiera M. Farrow Faculty Scholar at UMKC.

About the Authors:

Chapter Authors of Volume 10 (in addition to Messrs. Keeley and Shahinian):

Samuel J. Arena, Jr. is a partner with the Philadelphia, Pennsylvania office of Stradley Ronon Stevens & Young, LLP, practicing in the areas of fidelity and surety law and insurance coverage law.  He received his Bachelor of Arts degree, magna cum laude, from Ursinus College, and his Juris Doctor degree, cum laude, from Villanova University School of Law.  He is Past Chair of the Fidelity and Surety Law Committee, Tort Trial and Insurance Practice Section, of the American Bar Association and a Vice Chair of the Fidelity and Surety Committee of the International Association of Defense Counsel.  He is the Chair of Stradley’s Fidelity and Surety Law Practice Group.

Carleton R. Burch is a senior partner in Anderson, McPharlin & Conners LLP.  For more than 25 years, Mr. Burch’s practice has focused on fidelity and specialty insurance coverage matters involving both financial institution and commercial policies.  He has published and spoken extensively in the areas of financial institution bond and commercial crime insurance claims.

Andy J. Chambers is a member of the Phoenix, Arizona firm of Jennings, Strouss & Salmon, PLC. He received his Bachelor of Arts from University of California at Santa Barbara and his Juris Doctor with honors, from Washington College of Law at American University. He has a litigation practice with an emphasis on fidelity coverage, surety law, and construction law. He is a member of the Fidelity & Surety Law Committee of the Tort Trial and Insurance Practice Section of the American Bar Association (ABA), and past presenter at the ABA’s annual Fidelity & Surety Law Committee program. He has served as a co-editor of the Fidelity & Surety Digest and authored papers for the Fidelity & Surety Law Committee on the topic of cyber-crime and computer fraud coverage. Mr. Chambers also served as co-counsel in successfully defending Travelers Casualty & Surety Co. Am. in the noteworthy case Superstition Crushing, LLC v. Travelers Casualty & Surety Co. Am., 2009 U.S. App. LEXIS 28575 (9th Cir. 2009), cited herein.

Duncan L. Clore is a partner in the Dallas office of Strasburger & Price, LLP.   He specializes in fidelity bond coverage and litigation matters.  He is a past Chair of the Fidelity & Surety Law Committee of the Tort and Insurance Practice Section of the American Bar Association, the editor of several books published on fidelity bonds, the author of numerous published articles in the fidelity bond area, and a frequent speaker on fidelity bond subjects.

Carla C. Crapster is an Associate in the Dallas, Texas office of Strasburger & Price, LLP.  Ms. Crapster is a graduate of Texas AM University, B.A., summa cum laude, and the University of Texas School of Law, J.D. with high honors.  She focuses her practice on litigating and analyzing insurance coverage disputes, primarily in the context of fidelity bonds. Prior to working at Strasburger, Carla clerked with the Honorable A. Joe Fish, United States District Judge for the Northern District of Texas.

Michael Davisson, a partner in Sedgwick’s Los Angeles office, has an active corporate coverage litigation practice involving, among other types of insurance, fidelity bonds, errors and omissions insurance, and director’s and officer’s insurance.  In addition to preparing and trying numerous jury trials, Mr. Davisson has extensive experience investigating and litigating complex business and coverage matters involving substantial financial exposures.

CharCretia V. Di Bartolo is a partner in the Boston office of Hinshaw & Culbertson LLP, and is a member of the firm's Fidelity & Surety Practice Group.  Her litigation practice focuses on fidelity and surety issues. She has authored numerous law review and industry articles on coverage issues relating to fidelity coverage including financial institution bonds and commercial crime coverage.

Brian M. Falcon is a Member with Frost Brown Todd, LLC in its Indianapolis office and has been selected for inclusion in Indiana Super Lawyers®, 2009 - 2014. He has a construction, surety, fidelity and business litigation practice. He represents all participants in the construction process, including owners, general and prime contractors, subcontractors, and construction sureties in contract negotiations and in all forms of construction disputes, including claims for delay, differing site conditions, construction defects, and mechanic’s liens and bond claims.

Daniel T. Fitch is a partner with the Philadelphia, Pennsylvania office of Stradley Ronon Stevens & Young, LLP, practicing in the areas of fidelity and surety law and insurance coverage law. He has represented clients in fidelity and surety law disputes for over 20 years. He received his Bachelor of Arts, cum laude, from Dickinson College, and his Juris Doctor, with honors, from George Washington University Law School.  He is a member of the Fidelity and Surety Law Committee, Tort Trial and Insurance Practice Section, of the American Bar Association.

Adam P. Friedman is a Member of Wolff & Samson PC, with offices in New York City and West Orange, New Jersey. He has written extensively on various aspects of fidelity and surety law. He advises and represents fidelity insurers on all aspects of matters relating to financial institution bonds, commercial crime policies and other types of fidelity insurance involving both standard and proprietary forms.

Mark S. Gamell is a senior partner at Torre, Lentz, Gamell, Gary & Rittmaster, LLP in Jericho, New York. His practice is concentrated in fidelity and surety law and related litigation and transactions.  He is a former Vice-Chair of the Fidelity & Surety Law Committee of the Tort Trial and Insurance Practice Section of the American Bar Association, was a contributor to the A.B.A. publication Financial Institution Bonds 3d (2008), and has addressed and delivered papers to numerous fidelity law industry and legal associations concerning commercial crime policy and fidelity bond issues, including the Fidelity Law Association, the Surety And Fidelity Claims Association and the Fidelity & Surety Law Committee of the Tort Trial and Insurance Practice Section of the American Bar Association.

Peter C. Haley is a partner with Partner, Nielsen, Haley & Abbott, LLP, in San Rafael, CA.  Mr. Haley has handled and litigated Financial Institution Bond claims for 45 years, and is the author of seven articles in this field. He has an AB and JD from the University of California at Berkeley. His associate, Christine B. Cusick, has provided valuable assistance to him in the preparation of this endeavor.

Victor B. Kao, a senior associate in Frenkel Lambert Weiss Weisman & Gordon LLP’s insurance practice group, focuses on claims analysis and coverage litigation and frequently deals with computer fraud and electronic discovery issues. He graduated from Yale University and brings to the firm experience in general commercial, intellectual property, tort litigation, and contract arbitration.

Andrew S. Kent is Counsel, at Wolff & Samson PC, with offices in New York City and West Orange, New Jersey.  He practices primarily in the areas of commercial and contract law, surety and fidelity law, commercial litigation and public contract bid disputes. He has written extensively on various aspects of fidelity and surety law.

James A. Knox is senior counsel in the Chicago, Illinois office of Christensen & Ehret L.L.P.. He received his Bachelor of Arts degree from Southern Methodist University and his Juris Doctor degree from The University of Texas School of Law. He is Past Chair of the Fidelity and Surety Committee of the Defense Research Institute. As part of the Leadership of the Fidelity & Surety Law Committee of the Tort Trial and Insurance Practice Section of the American Bar Association, he has published many works and served for many years as Editor-in-Chief of the Fidelity & Surety Digest.

Robert M. Konop is a partner in the Chicago office of Hinshaw & Culbertson LLP, and is a member of the firm's Fidelity & Surety Practice Group.  Mr. Konop focuses his practice on representing fidelity insurers, providing coverage advice in connection with issues arising under Financial Institution Bonds and Commercial Crime Policies.  Mr. Konop has authored numerous articles on fidelity coverage and has been a speaker on fidelity issues at industry conferences.

David Krebs is a partner with the law firm of Krebs, Farley and Pelleteri, LLC in New Orleans, Louisiana.  He has over 25 years of experience practicing in the area of fidelity law.

Mark J. Krone is a senior associate with of Anderson, McPharlin & Conners LLP.  Mr. Krone has extensive coverage and litigation experience representing insurers in the areas of Financial Institution Bond and Commercial Crime Policy claims, as well as other specialty coverage areas.

Arthur N. Lambert heads the insurance practice group of Frenkel Lambert Weiss Weisman & Gordon LLP, and manages a practice focusing on fidelity, surety, commercial, professional liability, and property insurance, from claim investigation through appellate practice and recovery.  He has litigated cases in state and federal courts in New York and over a dozen states, and won a number of significant decisions.

Scott W. Lichtenstein is an Associate at the West Orange, New Jersey and New York, New York law firm of Wolff & Samson, P.C.   Mr. Lichtenstein received his B.A. in 2006 from Rutgers College, where he graduated magna cum laude and was inducted into Phi Beta Kappa.  He received his J.D. from Rutgers School of Law, Newark, in 2009, where he was managing editor of the Rutgers Race and the Law Review.

Justin Melkus is a Partner in the Dallas, Texas office of Strasburger & Price, LLP.  Mr. Melkus is a graduate of the University of Nebraska at Omaha, B.A., 1999, and the Dedman School of Law at Southern Methodist University, J.D., cum laude, 2003.  Mr. Melkus’s practice focuses on fidelity and surety litigation.

Dolores Parr has more than 30 years’ experience in handling claims under Financial Institution Bonds, Commercial Crime Policies, Directors and Officer Liability Policies, other Business Risk policies and performance and payment bonds.  She currently is Managing Counsel in the Financial Claim Unit of Zurich Surety and Financial Claims.  A member of the Maryland Bar since 1977, Ms. Parr is a graduate of Towson University, (BA magna cum laude 1974), the University of Baltimore Law School (JD 1977) and Johns Hopkins University (MLA 2005).  She also holds an Associate in Fidelity and Surety Bonding designation.

Maura Pelleteri is a partner with the law firm of Krebs, Farley and Pelleteri, LLC in New Orleans.  She has over 25 years of experience practicing in the area of fidelity law.

Jeffrey S. Price is a principal with the Nashville, Tennessee law firm of Manier & Herod, P.C., practicing in the areas of fidelity law, surety law, D&O insurance and commercial litigation.  Mr. Price is the secretary of the Surety and Fidelity Law Committee ("FSLC") of the ABA and is a past Co-Chair of the Fidelity Law Subdivision of the FSLC.  Mr. Price has authored or co-authored multiple articles, books and other publications on fidelity law and related topics.  Mr. Price has been a speaker on fidelity law topics at numerous American Bar Association conference and other seminars. He received a Bachelor of Science, magna cum laude, from Gardner Webb University and Juris Doctor, summa cum laude, from the University of Tennessee College Of Law.

Toni Scott Reed is a partner in the Dallas office of Strasburger & Price, LLP.   She specializes in complex commercial litigation, with an emphasis on fidelity bond coverage and litigation matters.  She is the author of numerous published articles on various fidelity bond subjects and a frequent speaker for the American Bar Association’s Fidelity & Surety Law Committee.

Scott L. Schmookler is a partner in the law firm of Gordon & Rees.  Mr. Schmookler has extensive experience litigating coverage disputes under Fidelity Bonds, Financial Institution Bonds and Commercial Crime Policies.  He is a frequent lecturer and scholar in the area of Financial Institution Bonds and Commercial Crime Policies and has held leadership positions in the American Bar Association, the Fidelity Law Association and the Surety Claims Institute.

Ira M. Steinberg, an associate in Sedgwick’s Los Angeles office, focuses his practice in the handling of directors and officers and fidelity bond claims and litigation for insurers, as well as professional errors and omissions claims.

Patricia H. Thompson concentrates her practice in the areas of fidelity, surety, employment, construction and related commercial litigation.  She is a past Chair of the Fidelity and Surety Law Committee of the Tort, Trial, and Insurance Practice Section, American Bar Association, and a former Member of the Board of Advisors of the Fidelity Law Association and the Fidelity Committee of the Surety Claims Institute. Since 1979, she has authored and presented more than 50 articles, chapters, and papers on fidelity, surety, and other legal topics, and has served as an editor of the Tort and Insurance Practice Section’s periodical, The Brief, and the Fidelity Law Association Journal. Ms. Thompson is a shareholder in the Miami office of Carlton Fields, P.A. and a 1976 graduate of Vanderbilt University School of Law.

Gary J. Valeriano is a managing partner in the California and Nevada law firm of Anderson, McPharlin & Conners LLP.  For more than 30 years he has concentrated his practice and the representation of fidelity insurers in financial institution claims and commercial claims and litigation arising out of such claims as well as other specialty insurance matters.  He is currently a vice chair of the ABA Fidelity and Surety Law Committee  and is the chair designate for the ABA Fidelity and Surety Law Committee for the year 2015.  Mr. Valeriano has published and spoken extensively in the areas of fidelity and surety and other specialty insurance matters.

Justin D. Wear is also a principal with Manier & Herod, P.C., practicing in the firm's surety and fidelity law groups.  Mr. Wear is the Co-Chair of the Fidelity Law Subdivision of the Surety and Fidelity Law Committee of the ABA.  Mr. Wear has authored or co-authored multiple articles, books and other publications on fidelity law and related topics.  Mr. Wear has been a speaker at numerous conferences and seminars on fidelity law. He received his Bachelor of Arts, magna cum laude, from the University of the South in Sewanee, Tennessee, and his Juris Doctor, summa cum laude, from the University of Tennessee College of Law.

Daniel W. White, a partner in Frenkel Lambert Weiss Weisman & Gordon LLP’s insurance practice group, focuses on fidelity policies and bonds, including their contractual and extra-contractual aspects. He handles fidelity cases from investigation and analysis of a claim through the appellate process.  Mr. White also handles ERISA/FRIP claims and coverage cases, commercial litigation, and has extensive experience in association directors and officers defense.

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