When corruption leads to public official bond claims…
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Recently, Guardian Group’s surety bond claim investigations team received a call from one of our clients, a leading provider of all manner of commercial surety and fidelity bonds. The company had written a Public Official bond for the treasurer of a mid-size community in the Southwest… and there was trouble brewing. If you are unfamiliar with all of the various bond types, the purpose of a public official bond is to guarantee the faithful performance and honesty of the principal (the incumbent) in performing his or her duties, in this case in that individual’s service as city treasurer.

The bond had originally been issued many years prior and was renewed several times in the intervening years. But it recently had been discovered that the principal had been embezzling funds for the preceding 36-48 months from the city’s sewer and water accounts, as well as issuing checks to fictitious companies and then cashing those checks. Moreover, the principal was also charging personal items on the city’s credit card. The total loss was two hundred thousand dollars in excess of the penal limit of the bond.

With plenty of experience performing, reviewing and analyzing financial audits as well as evaluating Public Official Bond exposure and applicable statutes, Guardian Group’s experts assessed the situation on behalf of our longstanding surety client.

Guardian reviewed the forensic audit and relevant supporting documents. This bond had “Claims Made” language. This means the obligee must make its claim during the term of the bond. Guardian’s surety claim investigations professionals were able to cite a state Supreme Court decision that clearly establishes: if the bond is continually renewed then the policy term is continuous until the term expires or the bond is cancelled. That said, the Court specifically did not allow the penal limits of the bond to be stacked for each renewal period… thus limiting the surety’s exposure to its penal limit of seventy-five thousand dollars.

Moreover, the bond included a rider that required that city to perform annual audits of the treasurer’s accounts. It further stipulated that all checks in excess of one thousand dollars be signed by two authorized officials. Our personnel determined that the obligee breached its own protocol both by failing to audit the treasurer/principal’s accounts and by not obtaining co-signatures on the checks.

As a result of our claim investigation diligence, the surety was able to resolve the claim for thirty-eight thousand dollars. Moreover, Guardian Group was able to obtain a restitution order in the principal’s criminal plea.

Expedient and equitable settlement of all manner of surety bond claims requires broad and deep experience across all of the various bonds. It is our privilege to support sureties of every size with claims of every size and type. Please call us to discuss how outsourcing many of these files can result in increased efficiency and profitability, as well greater capacity for your in-house team.

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