FIDELITY

Guarantee
Insurance
 MEANS......
 ......one agrees to indemnify another against the
loss arising from
 want of honesty , integrity , faithfulness or
loyalty of an employee or other person holding
the position of trust
 ....does not guarantee the employees honesty
 .... guarantees that the employer suffers any
direct financial loss arising out of the
employees dishonesty
 the insurers share indemnify the said loss to the
employer within the limitations prescribed by the
contract.
 Acc to S.C...

o Supreme Court in the case of the......

o Food Corporation of India v. New Indian Assurance
Company and Ors.
o (1994) 3 SCC 324
o that the nature of fidelity insurance is intended to protect
the assured against the contingency of a breach of
fidelity on the part of a person in whom confidence had
been reposed
 cont....
 .....policies indemnifying employers against
pecuniary losses
 on account of forgery,
 defalcation (misappropriation of money),
 embezzlement (diversion of money to one’s
use)
 and fraudulent conversion by employees.
 .... to provide protection against losses arising
out of the default of an individual acting in
some capacity ......
 such as cashier, Accountant and Store-keeper,
etc.
 Scope ......

 The policy covers the loss sustained by the employer .....

 ..... on the part of the employee insured
 ...... committed on or after the date of commencement of
the policy
 during uninterrupted service with the employer.
 The loss should be detected during the continuance of
the policy
 Cont....

 The cover may be required

 ......in respect of a single employee
 ......or a group of employees.
 There are three types of policies normally issued by the
insurer for this clause of business namely “Collective
Policy” and Floating Policy”.
 Can be divided....

- Commercial Fidelity Guarantee

- Court Bonds & Government Bonds
• Types of FGI policy :
a. Individual policy : where one individual is to be
guaranteed
b. Collective policy: where the entire staff or selected
individuals are to be covered
c. Floating policy : an extension to collective policy—
instead of individual sums of guarantee a specified
sum of guarantee is floated for the whole group
 Cont....

d. Positions policy : Similar to CP – instead of names,

the positions are guaranteed for specified sum –
so that the change in the person does not affect the
cover
e. Blanket policy : Covers the entire staff without
showing names or positions – no enquiries about
the employees are made by the insurers
f. Excess Floating policy : is a combination of
collective policy & floating policy
 Cont...

 In case of the policy is required to be issued

without mentioning the name of the employee/s
 i.e. on unnamed basis........
 then in such circumstances all the employees
dealing with the cash/goods,
 whether permanently or temporarily or by
rotation must be covered.
 Cont....

• Further the limit can be fixed ..........

• for each employee separately or for the group of the
employees as the case may be
• and the liability of the Insurer in case of the loss will be
restricted to the same limit irrespective of the sum
insured.
• However, the wider limit in the line of the sum insured
can be considered by the insurer depending upon the
requirement of the insured after taking into account
other relevant factors

11
 Cont....
• Proposal Form: (Employer’s Form )
- An employer has to complete his statement
- It is similar to proposal form as it becomes the basis of FGI
between the employer & the insurer
• Applicant’s form :
The employee to be guaranteed has to fill in an A F
- It requires , the name , age , status , & address
- the position to be covered by guarantee
- Salary & other remuneration to be received
- The extent of debts , private income & assets
- Details of life insurance etc.
- Particulars of the previous employers for the past 5 yrs-for proof of
employees honesty & integrity
 Risks......
• Hazardous Risks :
- Not all risks proposed for FGI are accepted at normal
terms
- Certain risks are considered not good for FGI because of
high degree of risk associated & high incidence of claims
- Ex. Collection agents , jewellery travelers , cashiers in
shops , cinema houses , treasurers , employees of bullion
merchants etc.
• Service security policy : .....Guaranteeing a minimum
period of service an employee has agreed to render
after training .
 MAIN FACTORS CONSIDERED
......
 The extent of control over the work of the person to be
guaranteed
 necessarily to form the relationship of master and
servant.
 The record, standing and reputation of the employee.
 The “bonafides” of the employer.
 The system of checking of the accounts and general
supervision of the employee.
 It is essential to obtain the private reference and/or former
employer’s report forms in addition to completed employer
and employees application form as appropriate.
 Cont...

 It should be noted that:-

 The cover granted is against a direct pecuniary loss and not a
consequential one;
 The loss should be in respect of money or good of the insured;
 The act should be committed in the course of the duties specified;
 If the employee guaranteed under the policy and left the services
of the employer and was re-engaged by him, no liability attaches to
the policy, unless the consent of the insurers was obtained.
 No loss that may have been caused by bad accountancy is
payable:
 the loss must be supported by evidence of any of the specified
acts of dishonesty.
 Claim Procedure
• Insured should take immediate steps
• against the defaulting employee
• for the recovery of cash/good as the case may be
• and also other disciplinary action required,
depending on the case.
• Insured must establish the “act of infidelity”
committed by the particular employee covered
under the policy.
• In many cases, the loss noticed at the time of
stock taking in case of stock is not covered.
 Cont.....

• The insurer shall not be liable, if at the

time of any loss, any other Security
Guarantee or insurance existing covering
the same loss.
• The policyholder must submit a “proof of
loss” to the insurance company detailing
the amount of its claim
 Cont...

• The requirements to establish the

• “act of infidelity” and
• submit a “proof of loss” means a forensic
audit is essential.
• Ordinarily the cover is extended to Forensic
Auditors fees incurred and substantiating
the amount of loss.
• Clients’ in-house expenses and overhead
are not covered.
 burden of proof

• squarely upon the policyholder,

• who also bears the burden of investigation,
• audit and accounting,
• as well as submission of conclusive
documentation
• and evidence to the insurer in the form of formal
proof of loss.
 Cont.....

• The following services/skills are therefore

imperative for a successful Fidelity
Guarantee Insurance Claim:
• Investigation
• Interrogation
• Documentation
• Proof of loss
• Law enforcement liaison
• Forensic Accounting
 Case-law

Amravati Dist. Central Co-Op Bank Ltd.

V.
United India Fire & genl. Insurance Co.ltd
[2010] 5 SCC 294
 Facts…….

 `Insurer’ issued an Insurance Policy to the

bank
 covering the period 1.7.1976 to 1.7.1977.
 The policy indemnified and insured
 the Bank against losses caused by acts or
omission of the Bank's employees
 ……. to a limit of Rs.6 lacs (Basic cover) plus
Rs. 9 lacs (cash in safe).
22
 Cont…

• The Bank furnished

• a list of its branches to be covered by the
insurance which included Dhamangaon Branch
• and the names of the employees working in
those branches.
• Acc to policy conditions & Terms
• ………..the company will indemnify the Insured
in respect of all such direct losses…
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 Cont…..

• Not exceeding the total sum insured

• in respect of any loss or losses caused by
acts or omissions of any one person whether
• Officer, Clerk or Employee of the Insured or
acts or omissions in which such person is
concerned
• or implicated or in respect of any one
casualty or event irrespective of the total
amount of such loss. 24
 Cont….
• Excess clause in the policy refers to "that
part of the amount of loss, under each
claim, which is not covered by the policy"
or the "amount that the policy holder has,
by agreement, to bear or contribute to
each insurance claim
• Insured shall bear 25% of the amount of
the loss or the amount of excess stipulated
in the Schedule
 Cont…..

• An employee of the Bank by name Lodaya working

in its Dhamangaon Branch committed a series of
embezzlements.
• On receiving a report dated 28.2.1977 from its
Special Auditor about the same,
• the Bank reported the matter to the police and also
to the Insurer.
• The employee concerned was suspended on
16.3.1977
• and eventually dismissed from service on 19.3.1978.
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 Cont…..
• The Bank claimed indemnity from the Insurer
• in terms of the policy in respect of Rs.3,58,000/-
embezzled by the said employee.
• After prolonged correspondence,
• the Insurer informed the Bank that its assessors
had assessed the reimbursable loss as Rs.29,000/-
• and offered the said sum in full settlement of the
claim subject to payment of premium of Rs.538/-.
• The Bank was not agreeable and that gave rise to
a dispute.
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 Arbitrator …..

• ……..found that there were a series of

embezzlements by Lodaya,
• which were connected together by a
common modus operandi.
• The Arbitrator held that in all a sum of
Rs.3,44,449/86 was embezzled from the
various accounts of Bank's constituents
with the Bank,www.brainybetty.com
12/05/2020
by resorting
Template copyright
2005
to forgery 28
 Cont……

• held that these losses were covered under policy.

• He noted that the policy used the words "each and every
loss“
• Therefore, the Arbitrator held that the insurer could not
apply the Excess clause to each and every loss
separately; that having regard to the terms of the policy,
the amounts embezzled had to be aggregated;
• the insurer was liable to pay the balance.
• The Arbitrator therefore deducted 25% from
Rs.3,44,449/86 and made an award directing the insurer to
pay Rs.2,58,337/40 to the Bank.
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 Cont…..

• Feeling aggrieved, the Insurer filed an

appeal in the High Court of Bombay.
• By Judgment dated 18.2.2008 the appeal
was allowed, the judgment of the Civil
Court
• and the award of the Arbitrator were set
aside
• and the matter was remitted to the
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Arbitrator for www.brainybetty.com
deciding 2005 the claim afresh,
 Bank pre. appeal

• It was therefore submitted that

• the High Court ought not to have set aside
the well-reasoned award of the Arbitrator
nor remitted the matter for fresh
consideration, after nearly a quarter
century.
12/05/2020 31
 S.No. Name of the Account-holders Amount embezzled

• 1. Purohit 44,615.84
• 2. Bhutada 60,751.80
• 3. Mohata 38,483.84
• 4. Kothari 46,293.24
• 5. Roy 8,423.01
• 6. Bhat 57,506.92
• 7. Jasraj Mundhada 1,916.35
• 8. Radhabai Mundhada 1,911.00
• 9. M.Darda 1,105.15
• 10. Kamlabai Darda 2,216.25
• 11. G.H. Darda 3,210.15
 S.C ……

 The employer committed several acts of fraud

 and defalcation
 and each such separate act caused loss
 and gave distinct and separate cause of action to the Bank.
 It is true that all these acts of defalcation were discovered
only on one day
 but the fact of discovery on one day would not enable the
Bank to claim that several acts of defalcation constitute one
single or composite loss...........
33
 Cont…..

• In accordance with the objects and interpretation of the

terms and conditions of the policy,
• each loss sustained by each set of defalcation by its
employee,
• and it is not permissible to aggregate the total loss for
working out of Excess Clause.
• the Bank is liable to be considered as co-insurer to the
extent of 25%

12/05/2020 34
 Cont…..

• The award of the arbitrator is liable to be set aside as

there is a clear error apparent on the face of the award.
• It extracts the relevant clauses of the insurance policy
including the excess clause.
• It then proceeds to put an interpretation thereon which is
contrary to the express words of the contract
• and opposed to the well recognized insurance practices
and principles.
• Hence the award was rightly set aside by the High Court.
 Finally…..

• In view of the above,

• uphold the decision of the High Court
• and dismiss the appeal.
• If however the appellant is not interested in
proceeding afresh before the arbitrator after all
these years, and is willing to accept the sum of
Rs.29,000/-, offered by the insurer
THANK YOU
BODY PARTS
INSURANCE
 Ben Ameri Jimm
Lata Keith Dani David
Turp ca y
Mange Richar el Beck
shkar
in Ferrer
ds ham
Dura
Craig
voice Eye a nte
Hands Body Legs
s Smile Nose
 ????

Who are they? What is their specialty?

 Today’s lifestyle and elaborate financial world

 ……making more prone to risks
 ……that were not even assumed
 General segment of the insurance sector
 ……..offers a plethora of options to choose from to
insure a person or his needs from head-to-toe.
 Assets..?

 What is the meaning of Assets?

 What is your assets?
 Do you have any other assets?
 Do you know some people thought that body
part is a biggest asset?
 Some people wants to insure some of their body
parts as they are their biggest asset
 Did you know......

• …………….that you can be sued if you

mimic Rajni?
• The superstar has had his voice insured
and copyrighted,
• so no one can imitate him without his
consent!
 Cont.....

 Is it new phenomena ......?

 No.......
 .....Started in the 1920s, the concept of
insuring body parts with an actor
 Cont.....
 Ben Turpin who insured his famously crossed
eyes,
 upon which he based his career as an actor in
silent movies;
 the trend seems to be spreading far and wide.
 David Beckham the soccer sensation has
insured $70 million for legs
 Cont....
 Up until recent years...
 it was only Hollywood stars who reached into their
pockets to pay steep premiums
 that kept their assets financially covered.
 Of late several Indian stars have jumped on the
bandwagon
 Musician Bruce Springsteen has his husky voice
covered for 3.5 million pounds with Lloyd's of
London.
 Are you aware..in India...

• Lata Mangeshkar has insured her voice

• Sania Mirza - the famous tennis star,
• bronze medallist boxer - Vijender Singh,
• .... has insured their arms?
 INTRODUCTION

• .......possible to insure any manner of things which if lost

will have a financial implication on the life of that
individual.
• The insurance of body parts is something which may
sound unusual……
• It does make sense to protect assets ...if they're
.....bread and butter
• but is perfectly legal and is steadily on the increase.
 Cont.....
• It is a form of insurance …..
• which can offer financial cover and protect an
individual’s livelihood
• if they rely on a specific part of their body to earn
a living.
• Body parts insurance is a type of insurance which
is most commonly related to the celebrity field
• but it is not something which is strictly limited to
that industry.
 The purpose

• ....... is in paying out financial compensation for

any accidental damage or
• disfigurement caused to the insured body part.
• key point ...... the insurance policy will only pay
out
• if the damage to that body part results……
• in a loss of work and thus income.
 Cont....

• ........ is available to anyone who requires a specific part

of their body to be able to carry out the job which they
make their living from
• Accordingly the following individuals are likely to take
out body parts insurance:
• Performers –
• .....this can include musicians, singers and actors,
Artists, Athletes and other sports people
 ???????????

Does body parts insurance apply to the

whole body?
 No ….why?
Body parts insurance is not designed to
insure the whole entire body of a particular
individual.
The intention behind it is to cover only
selected body parts.
If an individual wishes to insure their whole
body
it may be more suitable for them to take out a
comprehensive life insurance policy.
 Cont....
 Body part insurance is usually relatively
expensive;
 it is often bought by experts in their field, or
celebrities:
 some of whom even use it as a promotional
gimmick.
 However, it is not only celebrities who may need
protection in case of disability or loss of use of a
vital limb.
 …..
 Models for example,
 have a career based almost entirely on
appearance, and could lose out on significant
income if disability prevented them from winning
future contracts.
 Specialist insurers …..
 may offer policies for stunt professionals,
subject to a thorough medical examination
and, in all probability, very high premiums
 Recently…
• During 2010 a Formula 1 motor racing driver had
his thumbs insured for a total of £9 million.
• The insurance policy was paid for by one of his
sponsors which has a banking and financial
sector.
• Clearly thumbs are essential for an individual to
drive a car meaning that if the individual was
unfortunate enough to lose one or both he would
no longer be able to carry on his profession and
his loss of income would be covered by the
insurance policy.
 Cont….
celebrities can afford to pay the astronomical
insurance premiums on these kinds of policies
because
they are wealthy and the insured body parts are
essential to their work.
The general insurance arm looks into this type of
insurance and,
usually, the policy is for a year and renewed
thereafter.
 Cont......

 Though this kind of insurance is still in its nascent stages

in India
 and insurance companies do not normally have ready
policies for such insurance requests,
 this kind of insurance has been available in the West for
a very long time.
 The insurance scene there is dominated by movie stars
and singers and the foremost among insurance
companies has been Lloyd's of London.
 Cont…..
• $70 million for footballer David Beckham's legs and feet
• $1 billion for American singer-songwriter Mariah Carey's
legs
• $6 million covering Bruce Springsteen's voice
• $5 million for German super model Claudia Schiffer's
face
• $10 million for America Ferrera's smile (she plays Ugly
Betty on a television show)
• Little is known about a wine taster who insured his nose
for $8 million
 Other examples
• when stars like Dolly Parton, Gene
Simmons, Jennifer Lopez and Michael
Flatley take out insurance policies........
• Sachin Tendulkar
• Actor….Sunil….
• Mallika sherawath…..