California Code of Regulations
Title 10 - Investment
Chapter 3 - Commissioner of Financial Protection and Innovation
Subchapter 9 - Escrow Agents
Article 3 - Bonds
Section 1723 - Form and Amount of Fidelity Bond

Universal Citation: 10 CA Code of Regs 1723

Current through Register 2024 Notice Reg. No. 38, September 20, 2024

(a) Applicants for an escrow agent's license and licensees that are not required to be members of Escrow Agents' Fidelity Corporation pursuant to Section 17312 of the Financial Code or that will engage in or are engaged in the business of receiving escrows for deposit or delivery of the types of transactions not specified in subdivision (c) of Section 17312 of the Financial Code shall do the following:

(1) File with the Department a fidelity bond, providing fidelity coverage on each officer, director, trustee, and employee of not less than $125,000, for the purpose of indemnifying the escrow agent, or the escrow agent's successor in interest, for loss of trust obligations held by the escrow agent as a result of the fraudulent or dishonest abstraction, misappropriation, or embezzlement of trust obligations by an officer, director, trustee, or employee of the escrow agent. The fidelity bond may be either a primary commercial blanket bond or a blanket position bond, but shall be written by an insurer who has been licensed by the Department of Insurance of the State of California. The fidelity bond shall contain a rider as set forth in subsection (b). Section 1725 of these rules shall not apply to a bond required under this section.

(2) The licensee shall maintain minimum fidelity coverage in accordance with the following schedule:

Monthly average escrow liability Minimum coverage
Up to $125,000 ...................................................................................... $ 125,000
$125,001 to $250,000 ....................................................................................... $ 250,000
$250,001 to $500,000 ....................................................................................... $ 500,000
$500,001 to $750,000 ....................................................................................... $ 750,000
$750,001 to $1,000,000 ....................................................................................... $1,000,000
$1,000,001 to $3,000,000 ....................................................................................... $2,000,000
$3,000,001 to $5,000,000 ....................................................................................... $3,000,000
$5,000,001 to $7,500,000 ....................................................................................... $4,000,000
$7,500,001 to $10,000,000 ....................................................................................... $5,000,000

and additional coverage at the rate of $1.00 for every $3.00 of average escrow liability in excess of $10,000,000.

The foregoing schedule is a guide for the determination of the minimum fidelity coverage required of a licensee and shall not limit the Department in requiring any additional fidelity coverage that may be required under the circumstances.

(b) The rider shall:

(1) Provide that the coverage of the bond extends to all officers, directors, trustees, and employees of the insured whether or not such officers, directors, trustees, and employees are compensated by the insured.

(2) Provide that "employee" shall include:
(A) The Commissioner of Business Oversight, State of California, during the time said Commissioner, including his or her authorized representative, has possession of the property and business of the insured as provided in Chapter 6 (commencing with Section 17621) of Division 6 of the Financial Code.

(B) Any individual or individuals assigned to perform employee duties for the insured within any premises of the insured by any agency furnishing temporary personnel on a contingent or part-time basis; provided, however, that the policy does not cover any loss caused by such individual if such loss is also covered by any insurance or suretyship held by the agency furnishing such temporary personnel to the insured.

(C) An independent contractor working in any office of the insured. Independent contractor shall be understood to mean any natural person while performing escrow duties in the service of the insured, and whose performance in such service, the insured has a right to govern and direct, but whom the insured compensates by other than salary or wages.

(3) Contain a provision that the bond shall not be cancelled by the insurer in whole or in part without 30 days prior written notice to the Commissioner.

(c) A fidelity bond required under this section may contain a deductible; however, the escrow agent shall deposit with the Commissioner a surety bond satisfactory to the Commissioner in the amount of the deductible. The surety bond required by this subsection is in addition to the surety bond required by Section 17202 of the Financial Code. The amount of the surety bond shall always be maintained at the same amount as the deductible, thereby reflecting any increase or decrease in the amount of the deductible. The surety bond shall run to the state for the use of the state to cover any loss of trust obligations that the escrow agent's fidelity bond does not cover due to the fidelity bond's deductible. The surety under the bond may pay the amount of its liability thereunder to the Commissioner or a conservator appointed by the Commissioner or a receiver or other designated fiduciary or officer of the court appointed by the court pursuant to Chapter 6 (commencing with Section 17621) of Division 6 of the Financial Code in lieu of payment to the state.

1. Amendment filed 11-13-58; effective thirtieth day thereafter (Register 58, No. 21).
2. Amendment filed 6-27-74; effective thirtieth day thereafter (Register 74, No. 26).
3. Editorial correction of NOTE filed 4-6-83 (Register 83, No. 15).
4. Amendment of section and NOTE filed 12-23-99 as an emergency; operative 1-1-2000 (Register 99, No. 52). A Certificate of Compliance must be transmitted to OAL by 5-1-2000 or emergency language will be repealed by operation of law on the following day.
5. Reinstatement of section as it existed prior to 12-23-99 emergency amendment by operation of Government Code section 11346.1(f) (Register 2000, No. 18).
6. Amendment of section and NOTE filed 5-1-2000 as an emergency; operative 5-1-2000 (Register 2000, No. 18). A Certificate of Compliance must be transmitted to OAL by 8-29-2000 or emergency language will be repealed by operation of law on the following day.
7. Reinstatement of section as it existed prior to 5-1-2000 emergency amendment by operation of Government Code Section 11346.1(f) (Register 2000, No. 35).
8. Amendment of section and NOTE filed 8-30-2000 as an emergency; operative 8-30-2000 (Register 2000, No. 35). A Certificate of Compliance must be transmitted to OAL by 12-28-2000 or emergency language will be repealed by operation of law on the following day.
9. Certificate of Compliance as to 8-30-2000 order transmitted to OAL 11-30-2000 and filed 1-10-2001 (Register 2001, No. 2).
10. Change without regulatory effect amending subsection (b)(2)(A) filed 8-13-2014 pursuant to section 100, title 1, California Code of Regulations (Register 2014, No. 33).

Note: Authority cited: Section 17400, Financial Code. Reference: Sections 17203.1, 17312, 17621, 17628, 17629, 17630, 17631, 17635, 17636, 17637, 17638 and 17640, Financial Code.

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