What’s the Difference Between Fiduciary & Litigation Bond Insurance?
In the complex business world, fiduciaries are entrusted with some of the most sensitive responsibilities—managing assets, overseeing retirement plans, and making critical financial decisions on behalf of others. Whether it’s your CFO, benefits manager, or retirement plan administrator, these individuals are expected to act in the best interests of your company, its employees, and stakeholders. But what happens when that trust is broken?
As corporate fraud becomes more prevalent, it’s crucial to review insurance coverage to ensure it provides adequate protection. This is where fiduciary and litigation bond insurance comes in—coverage that elevates your financial future should your company experience issues with internal fraud by someone working on your behalf.
Two Types of Court (Surety) Bond Insurance Explained
Court bonds are a broad term for surety bonds. They involve ensuring compliance with court orders, safeguarding financial interests, or protecting parties involved in legal proceedings. There are several types of court bonds, but we’ll focus on judicial and probate bonds because they are essential to meeting your legal and financial responsibilities as they relate to our topic.
What is a Fiduciary Bond?
A fiduciary bond is a probate bond. It’s a legal agreement between the appointed party, a bond issuer (such as a surety bond company), and a probate court or party overseeing any fiduciary duties. In this case, the court-appointed bond protects the beneficiary if the fiduciary breaches the agreement, commits fraud, or any other misconduct that isn’t in a party’s interest.
The Primary Benefits of a Fiduciary Bond:
- The bond ensures the fiduciary carries out their duties honestly and competently with the party’s interest in mind, including following all regulations and rules by the letter of the law.
- The bond acts as a safety net that may protect the beneficiary, company, or estate by covering losses if the fiduciary fails in their responsibilities or commits unlawful acts.
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What is a Litigation Bond?
These bonds offer financial protection to beneficiaries or invested parties if the fiduciary becomes involved in a legal dispute, ensuring compliance with court rulings and compensation for potential losses during proceedings.
The Primary Benefits of a Litigation Bond:
- Litigation bonds protect parties involved in legal actions by guaranteeing compensation for financial losses if a court determines a claim or order was unjustified.
- These bonds help ensure that court actions are carried out responsibly, reducing the risk of financial harm or excessive delays for the parties wronged by a fiduciary, such as a business and its employees.
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Why Fiduciary Litigation Bond Insurance Matters for Businesses
In a 2024 study, the Association of Certified Fraud Examiners found that workplaces with under 100 employees experienced over $140,000 in misappropriated corporate funds, while businesses with over 10,000 workers saw the amount increase to $200,000.
The industries most impacted by fiduciary fraud included financial institutions, manufacturers, healthcare organizations, and public administrators committing crimes such as:
- Mismanagement of employee benefit funds
- Improper investment decisions
- Failure to act in the best interest of plan participants
- Errors in plan administration
Depending on the circumstance, fiduciary or litigation bond insurance may shield a business from some or all of the financial consequences caused by the individual working on your company’s behalf.
Which Businesses Benefit the Most from Court Bond Insurance?
Companies and organizations with employee benefits like health insurance and retirement plans should consider court surety bond insurance even if they don’t think the business is at risk of mismanagement or corporate fraud.
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Which Court Bond Insurance Should I Get?
Consider both. Start by contacting an insurance team specializing in probate and court bonds. In our case, we offer an individualized risk assessment and have established relationships with the best surety bond companies to ensure businesses get the coverage they need.
Remember, fiduciary bonds ensure trust and compliance for businesses or individuals seeking asset management services, while litigation bonds provide financial safeguards during legal actions. Given the individual solutions delivered, both are essential to mitigating financial losses associated with qualified risks.
The Best Surety Bonds & Insurance Company For Businesses
Given the nuances of these solutions, we’re in a unique position to offer services that few surety bond providers can. Our continued commitment to court and litigation surety, including our in-house underwriting process, places us ahead of other surety providers.
Contact us directly to receive a quote for customized court bond insurance tailored to your organization.
