What triggers the payout of a fidelity bond?

The payout of a fidelity bond is specifically triggered by the conviction of fraud by specified individuals within the organization. Fidelity bonds are designed to protect a company from losses caused by fraudulent acts of its employees or specific individuals. When these individuals are convicted of fraud, it confirms that their actions resulted in a loss, thus activating the bond for compensation for the insured entity.

This mechanism is crucial because it ensures that the bond is only utilized in cases of confirmed wrongdoing, maintaining the integrity of the insurance coverage while giving companies a financial safety net in instances of employee dishonesty. Understanding this can help clarify the purpose and function of fidelity bonds within the broader scope of business insurance.