Category: Crime & fidelity · Reviewed by Tim Roche, Director · PI & Commercial · Last reviewed 2026-06-05
Fidelity guarantee insurance (‘FGI’) is the historical core of commercial crime insurance, covering loss caused by dishonest or fraudulent acts of employees of the insured; modern fidelity wordings are most commonly written as a section of a comprehensive crime insurance policy rather than as a standalone product.
Category: Crime and fidelity Also known as: fidelity bond, employee dishonesty insurance, FGI First codified: 19th-century Lloyd’s wordings; UK fidelity bond market from c.1840s Related legislation: Theft Act 1968 [1]; Fraud Act 2006 [2]; Insurance Act 2015 [3]
Fidelity guarantee insurance covers the financial loss an insured suffers from the dishonest or fraudulent acts of its employees. The cover is structurally a first-party indemnity — it responds for the insured’s own loss, with the employee’s misconduct being the cause rather than the subject of the cover. The ‘fidelity’ label reflects the historical concept of an employee owing duties of fidelity (faithfulness, loyalty) to the employer; breach of those duties through dishonest conduct is the trigger for cover [4][5].
The historical fidelity bond was originally a surety-style instrument — a third party (the surety) guaranteed the employer against the dishonesty of a specific named employee, with the guarantee originally personal between named individuals. The market evolved during the 19th and 20th centuries into modern commercial fidelity insurance, with cover for groups of employees rather than named individuals and with insurance industry features (indemnity rather than guarantee, premium rather than fee) replacing the older surety structure [4][5].
Modern fidelity cover responds to:
Dishonest or fraudulent acts committed by employees with the intent to cause financial loss to the insured.
Theft of money, securities or other property by employees.
Forgery or alteration of documents by employees.
Computer-related dishonesty by employees.
The cover does not extend to losses caused by employees that were genuinely accidental (covered by other classes including liability insurance), to losses caused by external parties (covered by other crime sections including theft and fraud), or to losses from employee negligence not amounting to dishonesty. The boundary between covered dishonesty and uncovered non-dishonesty is sometimes contested in claims [4][5].
The substantive criminal law underlying fidelity claims is set by the Theft Act 1968 (theft), the Fraud Act 2006 (fraud by false representation, fraud by failing to disclose, fraud by abuse of position), the Forgery and Counterfeiting Act 1981 (forgery) and various other statutes. Employee dishonesty often engages ‘fraud by abuse of position’ under section 4 of the Fraud Act 2006, which is particularly applicable to employees in positions of trust [1][2][6].
The civil law of employment provides additional context. The employee’s implied duty of fidelity (also called the duty of good faith or the duty of loyalty) requires the employee not to act against the employer’s interests. The case law on the scope of the duty — including Faccenda Chicken Ltd v Fowler [1986] 1 All ER 617 (CA) and subsequent authorities — informs the boundary between covered fidelity breaches and uncovered ordinary employment disputes [4][5].
The Insurance Act 2015 governs the duty of fair presentation for fidelity insurance placements. Disclosure of internal control arrangements, employment screening procedures and prior incidents of employee dishonesty is critical. Major fidelity losses have occasionally been disputed on disclosure grounds where the insured was aware of prior incidents but did not specifically disclose them at placement [3][7].
For financial services sector employers, additional regulatory considerations apply. The FCA’s Senior Managers and Certification Regime imposes specific obligations on senior managers and certified employees in regulated firms, with the consequences of misconduct extending to disqualification from the industry. Fidelity insurance for financial institutions interacts with the SMCR regime through cover for misconduct by certified employees [8].
The Proceeds of Crime Act 2002 imposes obligations on insurers and insureds in respect of suspected money laundering, with reporting obligations to the National Crime Agency that may be engaged where a fidelity claim involves significant criminal proceeds [9].
Modern fidelity guarantee cover is most commonly written as Section A of a comprehensive commercial crime insurance policy, with limits and deductibles set by reference to the insured’s employee population, financial exposure and claims experience. Standalone fidelity bonds are still used in certain contexts — particularly for specific high-risk positions (cash handlers, finance staff, IT staff with privileged access) — but the comprehensive policy structure is the market standard [4][5].
Underwriters assess fidelity risk based on the insured’s industry (with financial services, retail and other high-cash sectors higher risk), employee population, internal control arrangements (segregation of duties, dual authorisation, audit programme, employment screening), claims experience and the specific exposures of high-risk positions. Premium for the fidelity section of a commercial crime policy is typically calculated as part of the overall crime insurance pricing rather than separately [4][5].
Claims handling for fidelity losses typically involves forensic accountants to quantify the loss, investigation of the employee’s actions (often parallel with internal HR processes and criminal investigation), notification to the police where the loss is criminal in nature, and (in financial services contexts) notification to the relevant regulator under SMCR requirements. The insurance claim is typically calculated as the actual financial loss to the insured, including the value of stolen funds or property, the cost of investigation, and (in some wordings) the cost of regulatory or reputational management [4][5].
Recovery from the dishonest employee is rare in many cases — employees with substantial misappropriated funds typically dissipate them quickly or hold them in untraceable form. Civil recovery is pursued where assets can be identified, often through tracing claims under equitable proprietary doctrines or under the proceeds of crime confiscation regime [4][5].
Standalone fidelity bond: traditional product for specific named positions or specific high-risk activities.
Comprehensive crime policy fidelity section: dominant modern structure as a section of commercial crime insurance.
Blanket fidelity cover: covers all employees of the insured up to an aggregate limit, with no individual employee designation required.
Position-specific fidelity: covers specific positions (treasurer, chief financial officer, custodian of securities) with bespoke conditions reflecting the position’s particular risk profile.
Financial institution bond fidelity: enhanced cover for banks and similar financial institutions, often integrated with the broader banker’s blanket bond.
Public sector fidelity: cover for local authorities, charities and similar public sector employers with bespoke wordings reflecting public sector employment structures.
Retroactive cover: cover for losses arising from prior employee conduct discovered during the policy period, subject to retroactive date limits.
Multinational fidelity programme: global cover for multinational employers with local fidelity certificates in each jurisdiction.
Pension trustee fidelity: dedicated cover for pension scheme trustees and administrators, addressing the specific exposures of pension fund management.
A UK retailer with a workforce of approximately 4,500 employees across 180 stores places commercial crime insurance with a fidelity guarantee section of £8m per occurrence and aggregate. Annual premium for the combined crime policy is approximately £22,000. During the policy year, a store manager is identified as having systematically misappropriated cash from store deposits over an 18-month period, with total losses of approximately £180,000. The fidelity section responds for the loss less the policy deductible. Criminal proceedings are brought against the manager and recovery is pursued through asset tracing; ultimately approximately £45,000 is recovered, with the insurer entitled to the recovery to the extent of the indemnity paid. Figures in this example are illustrative.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-05. Next review: 2026-12-05.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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