What Is a Commercial Blanket Bond?

The term commercial blanket bond refers to a form of business insurance for employers who want to protect themselves against theft, fraud, embezzlement, forgery, or related mischief caused by dishonest employees. This particular type of liability coverage typically applies evenly to a company's employees and generally does not apply to a company's customers.

Key Takeaways

  • A commercial blanket bond is a form of business insurance used by employers to protect against employee theft, fraud, or embezzlement.
  • This type of liability coverage typically applies evenly to a company's employees — and generally not to its customers.
  • Commercial blanket bonds often cover up to a set amount of monetary damages and kick in when the theft or mischievous act involves one or multiple employees.
  • The onus isn't on the insured to prove who perpetrated a crime: Companies may file a claim regardless, provided they can show a crime took place.

How a Commercial Blanket Bond Works

Companies face all kinds of risks, including the possibility that one of their employees engages in fraudulent acts. Should this happen, both parties, not just the individual or group of staff responsible, could be subject to legal repercussions and a financial penalty. Corporations need a way to protect themselves from these kinds of risks.

There are two types of blanket bonds designed to offer financial protection against such risks. The first type is a position bond, which covers the activities of employees with certain job titles. Employees covered are named on the bond itself. The second kind is a commercial blanket bond, which covers all employees. In most cases, new company recruits are covered under the bond from the date they are hired. 

Commercial blanket bonds often cover a set amount of monetary damages and kick in when the theft or mischievous act involves one or multiple employees. This means that the bond covers losses regardless of how many employees are involved. These bonds are also called aggregate penalty bonds or fidelity bonds. With most of these policies, the onus is not on the insured party to prove any employee in particular perpetrated a crime. Companies may file an insurance claim regardless, provided they can show a crime took place.

The cost of commercial blanket bonds varies by provider and generally depends on how many employees a company has, as well as the maximum dollar value of the coverage sought. This type of insurance is available for a wide variety of companies in most major sectors and industries, including some government organizations, and is particularly sought out by financial services entities, especially banks and trading operations.

A commercial blanket bond is issued for a fixed amount representing the maximum sum payable for a covered loss, irrespective of how many employees are involved.

Special Considerations

As noted above, commercial blanket or fidelity bonds cover damages that arise from malicious acts by employees. They do not cover any damages as a result of their customers. Although they are called bonds, they are, in fact, a form of insurance that eases the financial burden that companies face when their employees engage in theft or other criminal acts. Companies can purchase these bonds through insurance companies.

Companies must apply to insurance companies in order to obtain a bond. The amount of coverage depends on how many employees are covered—depending on the type of bond required. The insurer underwrites the policy and sets the premium that the company is required to pay for the coverage.

Example of a Commercial Blanket Bond

Say a small construction company has access to a video showing several individuals going to a job site after hours in a company truck and stealing valuable equipment worth $40,000. The company launches an internal investigation but can't determine who committed the crime. There is good cause to suspect that several foremen are to blame, even though there is no direct way to prove this. Either way, with its $100,000 commercial blanket bond, any loss the company incurs should be covered.

Elsewhere, a small trading operation discovers a hidden program deep within its software system that skims slightly from each customer's account. This company determines that $200,000 already has been stolen over the past three years but has no way to determine the identity of the perpetrator. Thanks to a $100,000 commercial blanket bond, the company should be compensated for half the total loss.

In each of these cases, both the construction company and trading operation should normally also be covered up to $100,000 if a second fraudulent incident is discovered, even if it's in the same year. Such payouts will depend, though, on stipulations within their respective policies.