The Authority’s Crime Insurance Program

By Jim Thyden, Insurance Programs Manager at California JPIA

Previously, it was required that public entities purchase bonds for select officers and officials. California law has changed to allow the bonding requirement to be satisfied by either a public official bond or a government crime insurance policy. Both provide similar protection for a public entity and provide a means by which the public entity can recover monetary losses sustained by the agency that result from an elected or appointed official’s dishonesty or failure to faithfully perform duties as prescribed by law.

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These types of losses do not occur frequently, but they do happen. Below are examples of claims that have been paid by crime insurance:

• The comptroller of a town with less than 16,000 residents defrauded taxpayers out of more than $53 million over a period of 22 years in a complex scheme in which she opened a private bank account, abusing her city position by transferring taxpayer money into the account, and then spending the funds on personal and business items. To date, only $7.4 million has been recovered through live online auctions of about 400 quarter horses, vehicles, trailers, tack equipment, and a luxury motor home.
• A city employee was accused of stealing more than $1.3 million worth of city printer ink and toner. The employee was accused of using city funds to purchase ink and toner, then reselling the items during the 2006 to 2012 timeframe.
• A former city public utilities project engineer was charged with 70 counts of theft for allegedly stealing $1.1 million from the city by diverting customer checks for water-main-extension projects into a private bank account. It is alleged that he used some of the money to buy a rental house and a car, and to pay down credit-card debt. Police seized $220,000 from the bank account but approximately $500,000 is unaccounted for.
• A fire department employee stole more than $1 million during a four- to five-year period in a scheme to siphon cash to pay for vacations and home furnishings by approving fraudulent invoices.

The Difference Between Public Official Bonds and Government Crime Insurance Policies
Public official bonds and government crime insurance policies are not the same. A key difference is that a crime insurance policy can be written to provide blanket coverage for all employees and officials of the public entity, while a public official bond is underwritten and issued for specific individuals.

Public Official Bond
A public official bond is a surety bond that is purchased by the public official and guarantees that the individual will fulfill his or her duties according to law. If the official does not, the surety bond will assure recovery of fines, fees, or expenses that are levied, but ultimately the official must make good on any loss resulting from the official’s dishonest acts or misconduct while in office (i.e., the bonded individual must repay the surety company for the amount of the loss paid under the bond). Public official bonds typically cost more than crime policies, and the amount the individual may be bonded for is dependent upon the individual’s personal assets.

Crime Insurance Program
The Authority’s crime insurance program coverage reimburses the member for loss of money, securities, or other property resulting from the dishonest acts of an “employee,” or the failure of a covered “employee” to perform his or her duties as prescribed by law. It is different from a public official bond because it is an insurance policy that contains its own terms, conditions, and exclusions. Crime insurance policies typically cost less than public official bonds, and higher limits can be purchased than may be available from a public official bond. Also, under a crime insurance policy, a deductible will typically apply. As with public official bonds, the insurance company has the right to subrogate against the individual responsible for the loss, but it should be noted that under the Authority’s crime insurance program the insurer has agreed to waive subrogation except in cases involving fraud or dishonesty by the individual(s).

The Authority offers this optional coverage to all members, who can choose a policy limit from $1,000,000 to $5,000,000 and a deductible from $2,500 to $100,000. Currently, 109 members participate in the program.

If you have any questions regarding the Authority’s Crime Program, contact Mariana Salyer at Alliant Insurance, or the Authority’s Insurance Programs Manager Jim Thyden.

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