Appeals has ruled that a financial institution's fidelity
bond provides for coverage for losses beyond those of the bank, and
includes losses of customer funds. In First Defiance Financial
Corporation v. Progressive Casualty Insurance Company, three
financial institutions sought to recover nearly $1-million (all
figures U.S.) stolen by an employee from client brokerage accounts,
thereby seemingly extending the reach of coverage under a fidelity
bond beyond losses sustained by the financial institution
itself.
The employee in question, Jeffrey Hunt, was a dual employee of
First Defiance and a third-party broker-dealer. He managed
discretionary brokerage accounts for First Defiance and traded
securities on behalf of clients through the third-party brokerage.
Eventually, it was discovered that Hunt stole about $860,000 from
his clients' brokerage accounts. First Defiance reimbursed the
stolen money and an additional $73,000 to cover lost interest and
foregone gains in
