Labor Organization Bonds
Labor Organizations have exposures that are unique. The Labor Organization Bond Form was developed to address these.
The definition of employee is broadened under the Labor Organization Bond to include all persons who are required to be bonded under the Labor-Management Reporting and Disclosure Act (LMRDA). The definition of “employee” under an employee dishonesty bond is much narrower and is further limited to those individuals who are compensated by salary, wages or commission and who the insured has the right to govern or direct.
Next, the Labor Organization Bond is written without a deductible. Coverage applies to the first dollar of the loss. Most other employee dishonesty coverage is written with a deductible.
Third, the coverage applies per person — not per loss. If a loss occurs as a result of a collusive act – two or more individuals working together – the bond limit applies to each person. Under other bond forms the recovery would be limited to the amount of the bond regardless of the number of individuals involved.
The LMRDA requires that every officer, agent, shop steward or other representative or employee of a union having property and financial receipts of more than $5,000 year, as well as other representatives handling money or property or trusts in which the union is interested, be bonded to prevent loss from fraud or dishonesty. This means that any person connected with a union or trust who handles funds or other property must be bonded. A person who is not bonded can have nothing to do with the handling or custody of union or union-affiliated trust funds or property.
The amount of the bond must equal at least 10 percent of the funds handled, to a maximum of $500,000. It is important that bonds be in the correct amount required for your local union’s financial status. Each year the bonding coverage is checked when your Local Union files its LM report with the U. S. Department of Labor. If deficiencies are found, the concerned unions are informed by the Department of Labor and changes must be made.
Willful violations of the bonding requirements of LMRDA or ERISA are punishable by fines of $10,000, imprisonment for up to one year, or both.
It is possible to secure coverage on either an Honesty Only basis or a Faithful Discharge of Duty basis. The Honesty Only contract covers loss resulting directly from one or more fraudulent or dishonest acts of an insured. The application of this coverage concept is often subject to controversy because the term “fraudulent or dishonest” is not defined in the Labor Organization Bond.
Basically, however, two elements are required:
- The intent to harm
- The intent to profit
Both elements must be present.
The Faithful Discharge of Duty bond is much broader. This form affords coverage for “honest mistakes” that result from an insured’s failure to adhere to standard procedures, such as those contained in the International’s Constitution or a Local’s Financial Standards Code.
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