What Is a Blanket Bond?

A blanket bond is insurance coverage carried by brokerages, investment bankers, and other financial institutions to protect them against losses due to employee dishonesty. Examples of items that a blanket bond might cover are forged checks, transactions involving counterfeit currency, fraudulent trading, and property damage.

A blanket bond is used to protect firms from lawsuits or other civil damages incurred by bad actors in their employ or who are working under contract on behalf of the firm. This sort of coverage would be carried in addition to errors & omissions (E&O) insurance policies, which firms typically require that their employees or contractors obtain individually. A blanket bond may also be known as a blanket fidelity bond or blanket honesty bond.

In some ways, this type of insurance is similar to umbrella insurance policies held by individuals, which protects against unforeseen liabilities that may be incurred in the case of a lawsuit.

Key Takeaways

  • A blanket bond is insurance coverage carried by brokerages, investment bankers, and other financial institutions to protect them against losses due to employee dishonesty.
  • Blanket bonds typically cover forged checks, transactions involving counterfeit currency, fraudulent trading, and property damage.
  • Despite its name, a blanket bond is not a "bond" in the sense of a debt security and is not traded. Rather, it is an insurance policy sold by insurance companies.
  • In the United States, banker's blanket bond (BBB) coverage is typically required by the firm's state regulatory authority as well as from the Securities and Exchange Commission (SEC) for investment firms and other financial companies.
  • There are many types of blanket bonds depending on the need, such as a business service bond, a janitorial bond, and an Employee Retirement Income Security Act (ERISA) bond.

Understanding a Blanket Bond

A blanket bond is an insurance policy that protects a firm from illegal or unethical behavior carried out by its employees. Despite its name, it is not a "bond" in the sense of a debt security and is not traded. Rather, it is an insurance policy sold by insurance companies. In Australia, a blanket bond is referred to as "employee dishonesty insurance," and in the United Kingdom, it is called "fidelity guarantee insurance."

In the United States, banker's blanket bond (BBB) coverage is typically required by the firm's state regulatory authority as well as from the Securities and Exchange Commission (SEC) for investment firms and other financial companies. Blanket bonds are called "blanket" since they cover all sorts of hazards, including, but not limited to, trading fraud, embezzlement, material, intellectual theft, and forgery carried out by company employees or contractors.

A blanket bond is unique with respect to most other insurance types because it protects against losses incurred as a direct result of activities from within the company. Most insurance policies, such as property & casualty policies, would typically only cover claims on losses that result from external occurrences, such as burglary and wind or hail damage.

Financial companies, including insurance companies, also are mandated by regulators to have their employees obtain errors & omissions insurance policies on their own in order to cover damages resulting from deceit or ineptitude related to dealing with clients.

A blanket position bond is a type of blanket bond which provides insurance coverage based on certain roles or positions within a firm and can differ depending on the specific type of position. If a loss occurs through the actions of multiple employees who hold the same position, the coverage would extend to all of them.

Types of Blanket Bonds

Blanket bonds are often used by financial institutions because of the large number of assets they hold, including cash. However, different types of blanket bonds are available for a variety of situations that will safeguard an entity, individual, or specific assets.

A business service bond protects the property of a client in case it is damaged by your business. This applies to home cleaning services, catering companies, and janitorial and pest control services. Janitorial bonds are a specific type of blanket bond that provides protection to companies that require janitorial services. An Employee Retirement Income Security Act (ERISA) bond protects the employee pension benefits of a pension plan from fraud and mismanagement.