It is widely assumed that fidelity bonds are in fact a surety bond.  This is assumption is exacerbated by the fact that agencies that offer surety bonds also offer fidelity bonds.  The vast number of surety bonds helps to contribute to this misunderstanding.

 

 

In short, the surety is guaranteeing that the contractor will perform all duties of the contract on time and to full standards.  Should this not occur, the surety will see the project to the end and compensate for any losses.  One thing to be very clear of is that traditional underwriting of surety bonds is done with the intention of a 0% loss ratio.  The purposes of surety bonds are to allow companies to bid/work without having any of their assets frozen in the bank (irrevocable letter of credit).    

 

The definition of a fidelity bonds is as follows: A fidelity bond is a form of protection that covers “the bonded” (policyholders) for any losses that they may incur as a result of fraudulent acts by specified individuals. It usually insures a business for losses caused by the dishonest or criminal acts of its employees. While bond may be in the name, this obligation is actually an insurance policy to protect an employer.  Also with Fidelity Bonds there are only two parties, the principle and the carrier.

 

Hopefully this name change, along with the articles it has spurred, brings clarity to those who are in the market for either surety or fidelity bonds.  

 

The Surety & Fidelity Association of America  is a trade association consisting of companies that collectively write the majority of surety and fidelity bonds in the United States.