Introduction

A Guarantee is an undertaking in writing to answer for the debt, fault or miscarriage of another. Whilst such guarantee may be given by a private individual (call a surety) there are drawbacks because the payment of the guarantee by a private surety could cause him hardship financially the money may even not be forthcoming. For that reason a guarantee by an insurer is usually preferred, because the insurers financial standing is sound and can be ascertained from their balanced sheet. There are number of differing types of Fidelity Guarantee These are:

Commercial Guarantee

Court Bonds

Government Bonds

Local Government Bonds

Commercial Guarantees:

Many employers feel often with good reason, that employees working in a position of trust should deposit an amount of money with the employer to hold. On the understanding that money was forfeited in the event of dishonesty by the employee.

In practice, this did not work well because of many workers could raise sufficient money to deposit with the employer.

Insurers then offered the Fidelity Guarantee policy, which undertook to pay the employer a stated amount of money for certain, acts of dishonesty stated in the Guarantee wording. The policy cannot of course guarantee any persons honesty but does provide a sum of money (the guarantee amount) if that person is dishonest to his employer.

Events Insured Against

If the insured shall sustain direct pecuniary loss by any act of FORGERY, EMBEZZLEMENT, LARCENY AND/OR FRAUDULENT CONVERSION upon the part of any guaranteed employee while acting in the capacity stated against his name........ the company shall .......... indemnify the insured ................. against such direct pecuniary loss up to but not exceeding the sum written opposite his name.

Provided that:

The company shall only be liable for any aforement act.

i. Committed while the policy is force during the uninterrupted continuance of employment of the guilty person and within 18 months proceeding discovery

ii. Discovered not later than 3 months after death, dismissal, resignation of the guilty person or 3 months after termination of the indemnity whichever is the earlier.

Forgery:

The crime of altering or falsifying false documents under the signature of another person for personal again.

Embezzlement:

This crime applies only to the misappropriation of goods or money entrusted to a person for a passing to the owner is that person’s employer.

Larceny

When a person carries away anything capable of being stolen with intent to permanently deprive the owner thereof.

Fraudulent Conversion

When a person who has lawful possession of goods or money if being a bailee or part owner misappropriates the goods or money for his own use.

Underwriting Consideration

a. The primary consideration in any proposal must be the effectiveness of the system of check and the method of supervision exercised over the person to be guaranteed. These should be revealed on the employers form. To improve a risk, the underwriter may suggest alternative methods of check to tighten up the system. Where the system is fundamentally unsound then no suggestion will effect an improvement and an entirely new system of change must be agreed. The company’s accountant must always be able to make comments and suggestions as to whether any system of check is satisfactory.

b. Great care should be exercised in accepting FG risks. General managers or the most Senior Manager of business should not be guaranteed or alternatively guaranteed for the least possible amount. These people are in charge of business and if they should default, are in a position to order their subordinates’ work in such a manner that no other employee is able to discover the defalcation. Managers therefore by virtue of their authority are better able to cover their criminal activities.

Very poorly paid workers in a position of trust, may be tempted to default, this not infrequently occurs when store men are guaranteed. Checks on stores are often less stringent than on money and defalcations can sometimes be successfully carried out for long periods before inevitable discovery.

RATING

Rates vary between 1% and 5% based on the amount guaranteed on an individual risk. Group Fidelity policies covering a number of persons must be seen by the head office for rating.

Where all the employees are covered on blanket basis, a lower rate could be charged with N50 N100 loading per employee.

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