A fidelity bond is a form of insurance protection which covers losses that the policyholder incurs as a result of fraudulent acts by individuals.  It is used by an association to insure losses caused by the dishonest acts of the association’s employees, board members or officers.

Associations Must Purchase Fidelity Bond Coverage
Civil Code Section 5806 requires associations to purchase fidelity bond coverage.  Unless the governing documents require greater amounts, an association must maintain fidelity bond coverage for the following (Civ Code. § 5806.):

• Directors, Officers and Employees. Fidelity bond coverage for its directors, officers and employees in an amount that equal to at least the combined amount of the associations reserves and total assessments for three (3) months;
• Computer Fraud and Funds Transfer Fraud. The fidelity bond must also include computer fraud and funds transfer fraud.
• Coverage for Managing Agent or Management Company. If the association uses a managing agent or management company, the fidelity bond coverage must also include dishonest acts by the managing agent or the management company and its employees.

Board Candidate Qualification
An association’s election rules or bylaws may disqualify a person from nomination to the board if that person discloses, or if the association is aware or becomes aware of, a past criminal conviction that would, if the person was elected, either prevent the association from purchasing fidelity bond coverage  or terminate the association’s existing fidelity bond coverage. (Civ. Code § 5105(c)(4); See also “Candidate Qualifications.”)

Share: