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Fidelity insurance

Fidelity insurance protects community schemes against the loss of funds through any act of fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the scheme who has control over its financial affairs.

A community scheme must be insured for an amount that - as a minimum - is equal to the sum of its - 

a) investments and reserves at the end of the previous financial year; and

b) its operational expenses as budgeted for the current financial year.

Some insurers offer 36 months' retroactive cover from the date of policy inception.

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What's covered

The following acts of fraud or dishonesty are typically covered:

  • Employee dishonesty

  • Fraudulent transfer instruction

  • Extortion 

  • Computer fraud

  • Third-party computer fraud

  • Electronic data loss

  • Contractual penalties

  • Unidentifiable employees

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What the law says about Fidelity insurance

STSM Regulation 23(7) prescribes that a body corporate must take out insurance for an amount determined by members in general meeting to cover the risk of loss of funds belonging to the body corporate or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by a trustee, managing agent, employee or other agent of the body corporate.

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CSOS Regulation 15 further specifies that -

  • (1) Subject to sub-regulation (5), every community scheme must insure against the risk of loss of money belonging to the community scheme or for which it is responsible, sustained as a result of any act of fraud or dishonesty committed by any insurable person.

  • (2) For the purposes of sub-regulation (1), "insurable person" means any-

    • (a) scheme executive;

    • (b) employee or agent of a community scheme who has control over the money of a community scheme;

    • (c) managing agent; or

    • (d) contractor, employee or other person acting on behalf of or under the direction of a managing agent,

      who in the normal course of the community scheme's affairs has access to or control over the monies of the community scheme.

  • (3) The minimum amount of the fidelity insurance cover required in terms of sub-regulation (1) is the total value of-

    • (a) the community scheme's investments and reserves at the end of its last financial year; and

    • (b) 25 per cent of the community scheme's operational budget for its current financial year.

  • (4) The insurance cover referred to in sub-regulation (1) must-

    • (a) provide for payment of a loss by the insurer to the community scheme within a reasonable period after reasonably satisfactory proof of the loss has been furnished to the insurer; and

    • (b) not require that criminal or civil proceedings be taken or completed against the insured person before payment is made under the insurance policy.

  • (5) A community scheme is not obliged to obtain fidelity cover for an insurable person if that person has delivered to the community schemes written proof that -

    • (a) the monies of the community scheme are covered by fidelity insurance that complies with the 'requirements of sub -regulations (3) and (4); and

    • (b) the insurer concerned has noted the community scheme's interest in the application of the proceeds of the policy and undertaken not to cancel or withdraw cover without giving the community scheme at least 30 days written notice.

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