Blanket Bond

A blanket bond refers to a particular type of fidelity bond that protects companies and organizations against mishaps and problems that can occur during the normal course of business. One of the most common types of protection afforded by a fidelity bond is against employee dishonesty, and that can include a wide 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 crimes 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.

Blanket bonds work in much the same way that most other bonds work. There are three parties involved, and some level of protection is afforded to one of the parties. In a blanket or 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, there is a third party in the background, and that's the surety company that sells the bond.

What's unique about a fidelity or blanket bond is that they are the only bond that 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 a contractor or business person fails 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.

Probably the most common type of blanket or fidelity bond is a business services bond, one that safeguards the property of clients you work with. If client property 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. These are just behind business services bonds in terms of popularity. People normally think of these as a fidelity type, because it protects institutions against fraud and embezzlement, theft, and forgery. While they're largely focused on financial services businesses, they can be applied to a broader range of businesses as well.

A special type of fidelity bond is the Employee Retirement Income Security Act (ERISA) bond, which is intended to safeguard employee pension benefits against the possibility of mismanagement or fraudulent supervisory actions. 

There are some financial organizations that 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. Organizations in this category include securities firms, brokerages, cash carriers, banks, credit unions, and other lending institutions.

The reason this is a legal requirement is that people who do business with those types of organizations need to be protected against financial losses. Bonding provides recourse for people to recover their investments in the event of some kind of crime. However, even organizations that are not required by law to have blanket coverage in place may choose to do so simply for their own protection.

In cases like criminal embezzlement, 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, the company could then make a claim against it to recover most or all of the funds embezzled by the employee.