A dishonesty bond for a nonprofit organization does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees to be bonded/insured to cover misuse and embezzlement by officers and employees.

Question Presented

You asked us to review Kids In-need of Supportive Services’s (KISS’s) Western Surety Company Dishonesty Bond (Bond), executed September 13, 2016. In particular, you asked whether KISS’s Bond satisfies the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. Specifically, you asked whether KISS’s Bond meets SSA’s requirement that bonding/insurance coverage for employee theft include officers.

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that KISS’s Bond does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees to be bonded/insured to cover misuse and embezzlement by officers and employees.^[1] Specifically, we believe the agency may reasonably conclude that the Bond does not adequately cover financial losses due to the action or inaction of all of KISS’s officers, both compensated and non-compensated, given the definition of “Employee.” Therefore, we believe that there is legal support for the agency to find that KISS’s Bond does not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105. At the conclusion of our legal opinion, we are providing recommended language to assist with responding to KISS regarding the specifics of their deficient coverage.

BACKGROUND

The New Mexico Secretary of State’s online information shows that “Kids in Need Supportive Services” is registered with the New Mexico Secretary of State as a non-profit domestic corporation that was incorporated in New Mexico.^[2] See N.M. Stat. Ann. §§ 53-8-1 – 53-8-99 (New Mexico Nonprofit Corporation Act). The Secretary of State online information lists four designated officer positions—president, vice president, secretary, and treasurer—with three individuals performing the four designated officer positions.

The information you provided shows that on September 13, 2016, KISS obtained the Bond from Western Surety Company (Western Surety) effective September 13, 2016. The Bond identifies KISS as the Insured Party and states that Western Surety agrees to indemnify KISS against any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscriber of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured acting alone or in Collusion with others…

Bond, ¶1.

The Bond defines “Employee” as

one or more of the natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the term of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…

Bond, § 4.

The Bond also limits the definition of a “fraudulent or dishonest act” to crimes for which an employee is tried and convicted by a court exercising proper jurisdiction. See Bond § 5.

The Bond originally indemnified KISS in the amount of $10,000.00. See Bond ¶ 1. A subsequent rider to the Bond executed on June 18, 2019, increased the penalty amount to $50,000.

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”^[3] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny state or local government agency with fiduciary responsibilities or whose mission is to carry out income maintenance, social service, or health care-related activities;

or

(2) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA authorization is required before an organization can begin collecting a fee from a beneficiary or recipient’s monthly payments. See 20 C.F.R. §§ 404.2040a(a), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that KISS falls into the second category of qualified organizations as a community-based nonprofit social service organization, also referred to in the POMS as a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether KISS is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, nor whether the amount of coverage under the bond or policy is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether KISS’s Bond meets SSA’s requirement for bonding or insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I) (requiring the community-based nonprofit social service organization be “bonded”); 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (requiring that the community-based nonprofit social service organization be “bonded/insured”); POMS GN 00506.105(A)-(C) (explaining that “bonding” means a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 42 U.S.C. §§ 405(j)(10), 1383(a)(2)(I); 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C), GN 00506.105(A).^[4] The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instructs that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A). POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4). KISS’s Bond is labeled as a “dishonesty bond.” The POMS explains that an employee dishonesty bond is usually a blanket bond covering all company employees except officers. POMS GN 00506.105(C)(3), (4)(b). A separate rider or clause is often required to provide coverage for officers. Id . Further, when such additional coverage for officers is provided, a “conviction clause” is often required, which means that in order for the bond or insurance company to be required to pay, the officer or employee must be convicted of a crime. POMS GN 00506.105(C)(3). We turn next to the specific provisions of KISS’s Bond to determine if it is sufficient under SSA’s requirements.

B. Review of KISS’s Bond to Determine if it Complies with Federal Law and SSA Policy^[5]

1. Named

As an initial matter, we noticed that the Bond, through a rider executed September 14, 2016, names “Kids In-need of Supportive Services” as the Insured. However, the New Mexico Secretary of State’s online corporate records reflect KISS’s official name as “Kids In Need Supportive Services.”^[6] We also note that the September 14, 2016 rider reflects an updated address for KISS as 2340 Hwy 180 E #280, Silver City, New Mexico 88061, which is also the mailing address provided for the entity on the New Mexico Secretary of State’s online corporate records. Thus, we note this minor name discrepancy, but believe is unlikely that Western Surety would argue that KISS is not the named insured on the Bond. Therefore, we believe the agency could find that this minor name discrepancy does not impact the consideration of the sufficiency of KISS’s Bond sufficiency under SSA’s requirements.

2. Coverage for Financial Loss Due to Misuse and Embezzlement by KISS’s Employees and Officers

We next considered whether the Bond satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by the organization’s employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

a. “Misuse and Embezzlement”

Here, the introductory paragraph of the Bond provides coverage for “any loss of money or other property which the Insured shall sustain or for which the Insured shall incur liability to any Customer or Subscribers of the Insured through any fraudulent or dishonest act or acts committed by any Employee or Employees of the Insured.” See Bond, ¶1. This language appears to sufficiently cover misuse and embezzlement, and therefore, the agency could reasonably find that such language satisfies SSA’s requirement that the bond or insurance policy cover financial loss attributable to such acts. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(C)(4)(d).

We note that the Bond limits recovery for fraudulent or dishonest acts to crimes for which an employee is tried and convicted (a so-called conviction clause). See Bond § 5 (defining a fraudulent or dishonest act to mean “an act which is punishable under the criminal code within which act occurred, for which said employee is tried and convicted by a court of proper jurisdiction”); POMS GN 00506.105(C)(3). SSA’s bonding and insurance requirements do not prohibit a conviction clause. See POMS GN 00506.105(C)(3). Accordingly, the presence of that clause does not make the Bond insufficient. However, we note the concern that such clause leaves open the possibility for Western Surety to deny payment where a loss occurs, but an employee is not charged with and convicted of a crime for the dishonest or fraudulent acts. See POMS GN 00506.105(C)(3).

b. Officer Coverage

More importantly, however, we believe that the agency may reasonably conclude that the Bond, providing coverage for loss due to acts of the Insured’s “Employees” is deficient because it does not provide sufficient coverage against financial losses caused by KISS’s compensated and non-compensated officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees”); POMS GN 00506.105(A)-(B) (explaining that a bond or insurance contract must cover the non-governmental FFS representative payee organization’s employees and officers). Rather, it states that coverage is provided for financial losses incurred through any fraudulent or dishonest acts committed by “any Employee or Employees of the Insured.” Bond, ¶1. The Bond defines an “Employee” as “one or more natural persons (except directors or trustees of the Insured, if a corporation, who are not also officers or employees thereof in some other capacity) while in the regular service of the Insured in the ordinary course of the Insured’s business during the terms of this bond, and whom the Insured compensates by salary, or wages and has the right to govern and direct in the performance of such service…” Bond § 4. The Bond’s limitation of an “Employee” to an individual whom KISS “has the right to govern and direct in the performance of such service” and “compensates,” arguably excludes KISS’s officers (both compensated and non-compensated). Thus, it is not clear whether Western Surety contemplated coverage for compensated and non-compensated officers under this definition of “Employee.” Per the online corporate registration filed with the New Mexico Secretary of State, KISS has the following officers: Juanita Escobedo, president and treasurer; Susanne Kee, vice president; and Barbara Duffy, secretary. See N.M. Stat. Ann. §§ 53-8-2, 53-8-11, 53-8-17, 53-8-23 (a nonprofit corporation shall have officers and a board of directors and may have members). All three individuals are also designated as KISS’s directors. The Secretary of State’s online corporate records for KISS therefore confirm that KISS has officers.

KISS has presented no evidence that it obtained a rider or endorsement that specifies that the Bond’s coverage extends its officers. Therefore, we believe the agency may reasonably conclude that the Bond’s definition of “Employee” does not clearly include KISS’s officers and therefore, the Bond’s coverage is deficient under SSA’s requirements. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) (the FFS representative payee organization must be bonded/insured to cover misuse and embezzlement byall of the organization’s officers and employees); POMS GN 00506.105(A)-(B) (same ).

In summary, as explained above, both the regulations and the POMS require that a bond or insurance policy provide coverage for all of the organization’s employees and officers^[7] . 20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.105(A). In the absence of policy language that unambiguously covers all of KISS’s employees and officers, we believe that the agency could reasonably conclude that the Bond does not provide sufficient coverage for loss resulting from misuse and embezzlement committed by all of KISS’s employees and officers.

CONCLUSION

Based on the information provided, we believe that the agency may reasonably conclude that KISS’s Bond does not sufficiently comply with SSA’s bonding requirement for coverage of financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically and of most concern, given the definition of “Employee,” the Bond does not clearly cover financial losses due to the action or inaction of all of KISS’s officers. Therefore, we believe the agency may reasonably find that KISS’s Bond does not meet SSA’s bonding requirements set out in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.

The Crime Protection Policy for a nonprofit organization does not comply with SSA’s bonding requirement for non-governmental FFS organizational representative payees for coverage for financial loss due to misuse and embezzlement by both employees and officers.

Question Presented

You asked us to review C~ Base Camp’s (C~) Crime Protection Policy (Crime Policy), Policy No. #, issued by the Ohio Casualty Insurance Company, effective February 28, 2019, for our opinion as to whether the policy provisions satisfy the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. We understand your specific question to concern whether Charlie’s Crime Policy meets SSA’s requirement that bonding/insurance coverage for financial loss due to employee misuse and embezzlement includes officers.

ANSWER

Based on the information provided, we believe that the agency could reasonably conclude that C~ Crime Policy does not comply with SSA’s bonding requirement for non-governmental FFS organizational representative payees for coverage for financial loss due to misuse and embezzlement by both employees and officers. The Crime Policy covers losses due to “employee dishonesty,” which is sufficient to encompass financial loss due to misuse and embezzlement by employees; however, it is not sufficient to encompass financial loss due to embezzlement by officers since the definition of “employee” does not include officers. Therefore, as the Crime Policy extends coverage for loss due to employee dishonesty, it is significant to SSA’s bonding/insurance requirement that the definition of “employee” does not clearly include C~s officers. We also have concerns regarding the broad exclusions from coverage for loss due to dishonest acts by “You” (C~). Thus, there is legal support for the agency to find that C~ Crime Policy does not satisfy SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105 as it relates specifically to coverage for financial loss due to misuse and embezzlement of employees and officers.

BACKGROUND

C~ is a New Mexico Nonprofit Corporation

The New Mexico Office of the Attorney General’s on-line information shows that C~ has been registered since September 2018 with the New Mexico Secretary of State as a non-profit domestic corporation that was first incorporated in 2015 under New Mexico’s Nonprofit Corporation Act, N.M. Stat. Ann. §§ 53-8-1 – 53-8-99.^[8] The New Mexico Secretary of State’s on-line information confirms the same and lists two officers, Charles Gates as the Executive Director and Cynthia Gates as the Treasurer.^[9]

C~ Crime Policy^[10]

The information you provided shows that C~ obtained a Crime Policy from the Ohio Casualty Insurance Company for C~ Base Camp, as the Insured. We were provided with Crime Policy Number #, effective February 28, 2019 to “continuous.” Below are the policy provisions most relevant to SSA’s bonding requirement for coverage as to misuse and embezzlement by employees and officers and the issue you have presented.

Part B: Relevant Insuring Agreement

As to the Insuring Agreement itself, the Crime Policy provides coverage as to “Employee Dishonesty” as follows:

We will pay for loss resulting directly from dishonest acts committed by an employee, whether identified or not, acting alone or in collusion with other persons, with the manifest intent to

1. a. 

   Cause you to sustain loss; and

2. b. 

   Obtain an improper financial benefit for:

   • •

     The employee ; or

   • •

     Any person or organization intended by the employee to receive that benefit

Crime Policy, Part B.1, Insuring Agreements, Employee Dishonesty (Adobe PDF Reader p. 4). As this provision refers to certain specifically defined terms (including employee), we next review the relevant definitions.

Part C: Relevant Definitions

In relevant part, C~ Crime Policy defines an “Employee” as

(a) Any natural person:

(1) While in your service or for 30 days after termination of service; and

(2) Whom you compensate directly by salary, wages or commissions; and

(3) Whom you have the right to direct and control while performing services for you.

. . .

(c) Any natural person who is:

(1) A trustee, officer, employee, administrator or manager, except an administrator or manager who is an independent contractor, of any employee benefit plan(s) insured under this insurance; and

(2) Your director or trustee while that person is handling funds or other property of any “employee benefit plan(s) insured under this insurance.

 

(d) Employee does not mean any

. . .

(2) Director or trustee except while performing acts within the scope of the usual duties of an employee.

 

Crime Policy, Part C.5, Definitions, Employee (Adobe PDF Reader pp. 5).

Part D: Relevant Exclusions

In addition to the scope of coverage provided for in the Insuring Agreement and the definitions of certain terms, the policy’s exclusions from coverage are also of relevance to this legal opinion. The Crime Policy specifically excludes coverage for losses caused by any dishonest act committed by “You” (C~), or C~ partners. See Crime Policy, Part D.1, Exclusions, Acts Committed by You or Your Partners (Adobe PDF Reader p. 7). The Crime Policy also excludes coverage for losses caused by any dishonest act committed by C~ employees, directors, trustees or authorized representatives unless covered under section B.1. See Crime Policy, Part D.2, Exclusions, Acts of Employees, Directors, Trustees or Representatives (Adobe PDF Reader p. 7).

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”^[11] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny state or local government agency with fiduciary responsibilities or whose mission is to carry out income maintenance, social service, or health care-related activities;

or

(2) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

 

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA authorization is required before an organization can begin collecting a fee from a beneficiary or recipient’s monthly payments. See 20 C.F.R. §§ 404.2040a(a), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that Charlie is a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether Charlie is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, or whether the amount of coverage under the bond is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, our focus is upon whether the Crime Policy meets SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C) (explaining that bonding constitutes a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A)^[12] . The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instruct that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A). POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

C~ Crime Policy is titled “Crime Protection Policy” (Adobe PDF Reader page 1). The POMS describes an insurance policy as a document “intended to protect the employer from financial loss due to the fraudulent activities of an employee or group of employees,” such as a simplified crime policy covering employee theft and dishonesty. POMS GN 00506.105(C)(4)(d). Although most employee theft and dishonesty policies include employees, the agency must also determine whether all officers are covered under the policy. Seeid.We turn next to the specific provisions of Charlie’s Crime Policy to determine if it is sufficient to satisfy SSA’s bonding requirement for non-governmental FFS representative payee organizations.

B. Review of C~ Crime Policy to Determine If It Complies with Federal Law and SSA Policy^[13]

As stated, we must determine whether C~ Crime Policy satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement by all employees and officers. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

1. The Crime Policy’s Coverage under the Insuring Agreements for Loss Due to “Employee Dishonesty” Does Not Sufficiently Cover for Loss of Social Security Benefits Due to “Misuse and Embezzlement”

We first considered whether the Crime Policy’s insuring agreement for employee dishonesty covers loss for an employee’s theft/misuse/embezzlement of SSA beneficiaries’ funds (Social Security benefits) held by Charlie as the beneficiaries’ representative payee. Insuring Agreement B.1 broadly covers losses resulting from an employee’s dishonest acts committed with the intent to cause C~ to sustain loss and to obtain an improper financial benefit. See Crime Policy, Part B.1, Insuring Agreements, Employee Dishonesty and Part A. Consideration Clause (A dobe PDF Reader, p. 4). In considering what is meant by losses C~ sustains, we note that some commercial crime policies will explicitly include coverage for losses to money or property that the insured holds for others or coverage for losses to the insured’s client’s money or property. This Crime Policy does not make this additional distinction. However, because C~, as an organizational representative payee, would be liable for misused Social Security benefits, we believe that the agency may reasonably conclude that an employee’s theft (as a dishonest act) of SSA beneficiaries’ funds that C~ is holding as the representative payee would be a covered loss C~ sustains under this broad insuring agreement.

2. The Crime Policy’s Definition of “Employee” Is Unclear and Does Not Appear to Include C~ Officers

As noted in the background, C~ is registered as a domestic nonprofit corporation incorporated in New Mexico under the New Mexico Domestic Nonprofit Corporation Act, N.M. Stat. Ann. §§ 53-8-1 – 53-8-99. The New Mexico Secretary of State’s on-line information lists two officers, C~ as the Executive Director and C~ as the Treasurer. Thus, it is our understanding that C~ has officers. See N.M. Stat. Ann. § 53-8-23(A) (“Every corporation organized under the Nonprofit Corporation Act shall have officers . . . .”).

While the Crime Policy’s “Employee Dishonesty” Insuring Agreement generally appears to adequately cover loss due to an employee’s theft (dishonest act) of SSA beneficiaries’ funds, we consider the most relevant sections (a) and (c) defining “employee” below to determine whether the “Employee Dishonesty” Insuring Agreement would include losses due to dishonest acts by officers. See Crime Policy, Part C.5, Definitions, Employee (Adobe PDF Reader, p. 5).

Section 5(a) of the “employee” definition does not clearly include all of C~ officers (both compensated and non-compensated). See Crime Policy, Part C.5, Definitions, Employee (Adobe PDF Reader, p. 5). First, this provision limits the term “employee” to compensated individuals, indicating that dishonest acts committed by non-compensated officers would not be covered under this provision. Second, this provision limits an “employee” to an individual whom Charlie “has the right to direct and control,” which arguably excludes officers.

Section 5(c) of the “employee” definition also does not sufficiently cover all of C~ officers, as it is limited to officers of an employee benefit plan insured under the policy while the officer handles funds or other property of an employee benefit plan. See Crime Policy, Part C.5, Definitions, Employee (Adobe PDF Reader, p. 5). The SSA beneficiaries’ funds entrusted to C~ as representative payee are not part of any employee benefit plan Charlie might have for its employees. Thus, section 5(c) of the employee definition does not adequately cover all of C~ officers. See Crime Policy, Part C.5, Definitions, Employee (Adobe PDF Reader, p.5).

We therefore believe that the agency could reasonably conclude that the definition of “employee” in C~ Policy does not sufficiently include all of Charlie’s officers. Therefore, as the Crime Policy’s Insuring Agreement for Employee Dishonesty extends coverage for loss due to employee dishonest acts, it is significant to SSA’s bonding/insurance requirement that the definition of “employee” does not clearly include C~ officers.

3. The Crime Policy’s Coverage Exclusions Are Unclear and May Encompass C~ Officers

Finally, as we previously explained in prior opinions, it is unclear whether C~ officers would fall within the Crime Policy’s broad exclusion for loss resulting from dishonest acts committed by “You.” See Crime Policy, Part D.1, Exclusions (Adobe PDF Reader, p. 7). The introduction to the Crime Policy states that “You” means C~ as the named insured, and as a non-profit corporation, officers act as agents for Charlie. See Bourgeous v. Horizon Healthcare Corp., 872 P.2d 852, 855 (N.M. 1994) (“A corporation can act only through its officers and employees, and any act or omission of an officer or an employee of a corporation, within the scope or course of his or her employment, is an act or omission of the corporation.”) (citation omitted). Thus, this exclusion could be interpreted as encompassing dishonest acts by C~ officers.

In sum, given the definitions of “employee,” uncertainties exist as to whether officers are included in the Insuring Agreement for liability for “Employee Dishonesty.” Moreover, because of our additional concerns with the broad exclusions from coverage addressed above, we believe the agency could conclude that C~ Crime Policy does not provide sufficient coverage for loss resulting from misuse and embezzlement committed by all of C~ employees and officers. As such, we believe that there is legal support for the agency to determine that the Crime Policy does not comply with SSA’s bonding requirements for non-governmental FFS representative payee organizations. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B).

CONCLUSION

We believe that the agency may reasonably conclude that C~ Crime Policy does not sufficiently comply with SSA’s requirement that a bond or insurance policy cover financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically, the Crime Policy appears to cover for loss due to employees’ dishonest acts (i.e., misuse and embezzlement), but given the definition of employee, the Crime Policy does not appear to cover for loss due to officers’ dishonest acts. Therefore, we believe the agency may reasonably find that C~ Crime Policy does not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.

The insurance policy submitted by a nonprofit organization, which includes a Crime XC Expanded Coverage Part, does not meet SSA's bonding requirements.

Question Presented

You asked us to review The ARC of New Mexico’s (ARC’s) Cincinnati Insurance Company Insurance PolicyNumber *, which includes a Crime XC Expanded Coverage Part (Expanded Crime Policy) (Adobe PDF Reader pages 124-136); a Crime and Fidelity Coverage Part, Commercial Crime Coverage Form (Commercial Crime Policy) (Adobe PDF Reader pages 137-150); and three associated endorsements (Adobe PDF Reader pages 151-153) (collectively the Crime Policy), effective June 14, 2017, through June 14, 2020 (Adobe PDF Reader pages 124-153).^[14] In particular, you asked whether ARC’s Crime Policy provisions satisfy the Social Security Administration’s (SSA’s or agency’s) bonding requirements for non-governmental fee-for-service (FFS) organizations, as set forth in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2) and the Program Operations Manual Systems (POMS) GN 00506.105. Specifically, you asked whether ARC’s Crime Policy meets SSA’s requirement that bonding/insurance coverage for employee theft include officers.

ANSWER

Based on the information provided pertaining to Policy Number #, we believe that the agency could reasonably conclude that ARC’s Crime Policy, consisting of both the Expanded Crime Policy and the Commercial Crime Policy, does not comply with SSA’s bonding requirements for non-governmental FFS organizational representative payees to be bonded/insured to cover misuse and embezzlement by officers and employees.^[15] Specifically, we believe the agency may reasonably conclude that the Crime Policy does not adequately cover financial losses due to the action or inaction of all of ARC’s officers given the definition of “Employee.” In addition, we believe the Crime Policy is insufficient because the policy’s exclusion for losses resulting from theft or any other dishonest act committed by ARC could encompass ARC’s officers.

Therefore, we believe that there is legal support for the agency to find that ARC’s Crime Policy does not meet SSA’s bonding requirements of 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.

 

BACKGROUND

The New Mexico Secretary of State’s registry shows that ARC is registered with the New Mexico Secretary of State as a non-profit domestic corporation incorporated in New Mexico under the New Mexico Domestic Nonprofit Corporation Act, N.M. Stat. Ann. §§ 53-8-1 – 53-8-99.^[16] The Secretary of State registry identifies nine officer positions consisting of a Chief Executive Officer, Senior Vice President, President, Immediate Past President, Chief Operating Officer, Secretary, and three Vice Presidents.^[17]

The 173-page PDF insurance package you submitted shows that ARC obtained Insurance Policy Number # from The Cincinnati Insurance Company, which includes a Crime XC Expanded Coverage Part (Expanded Crime Policy); a Crime and Fidelity Coverage Part, Commercial Crime Coverage Form (Commercial Crime Policy); and three associated endorsements, effective June 14, 2017, through June 14, 2020 (collectively the Crime Policy) (Adobe PDF Reader pages 124-153).^[18] The Common Policy Declarations page lists ARC as the Named Insured, and shows that policy number # is effective from June 14, 2017, through June 14, 2020 (Adobe PDF Reader pages 1-2). Below, we have set forth what we believe are the provisions of the Crime Policy most relevant to SSA’s bonding requirements and your legal opinion request.

Section A: Insuring Agreement Covering Employee Theft

We believe the most relevant of the Insuring Agreements of Section A of both the Expanded Crime Policy and Commercial Crime Policy relates to employee theft.

Section A.1 of both the Expanded Crime Policy and Commercial Crime Policy, along with an endorsement for clients’ property, provides the following Insuring Agreement as to Employee Theft:

We will pay for loss of or damage to “money”, “securities” and “other property” resulting directly from “ theft” committed by an “ employee”, whether identified or not, acting alone or in collusion with other persons.

For purposes of this Insuring Agreement, “theft” shall also include forgery.

We will pay for loss of or damage to "money", "securities" and "other property" sustained by your "client" resulting directly from "theft" committed by an identified "employee", acting alone or in collusion with other persons.

Crime Policy, Insuring Agreements, Part A.1, Employee Theft (Adobe PDF Reader pages 125, 138), Crime Policy Endorsement, Clients’ Property (Adobe PDF Reader p. 153).

Relevant to this coverage, Section II of the Crime Policy provides specific definitions for “theft,” “client,” and “employee,” as noted next.

Section F: Relevant Definitions

The Expanded Crime Policy and Commercial Crime Policy both define “theft” as “the unlawful taking of property to the deprivation of the Insured.” Crime Policy, Part F.18, Definitions, Theft (Adobe PDF Reader page 136, 150).

With respect to the endorsement for Clients’ Property, “theft” is defined as “the unlawful taking of property to the deprivation of your ‘client’.” Crime Policy Endorsement, Clients’ Property (Adobe PDF Reader p. 153).

“‘Client’ means any entity for whom you perform services under a written contract.” Crime Policy Endorsement, Clients’ Property (Adobe PDF Reader p. 153).

In relevant part, the Expanded Crime Policy and Commercial Crime Policy both define an “employee” as

(1) Any natural person:

(a) While in your service and for the first 30 days immediately after termination of service, unless such termination is due to “theft” or any other dishonest act committed by the “employee”;

(b) Who you compensate directly by salary, wages or commissions; and

(c) Who you have the right to direct and control while performing services for you;

. . .

(4) Any natural person who is:

(a) A trustee, officer, employee, administrator or manager, except an administrator or manager who is an independent contractor, of any “employee benefit plan”; and

(2) A director or trustee of yours while that person is engaged in handling “funds” or “other property” of any “employee benefit plan”

. . .

(8) Any of your “managers”, directors or trustees while:

(a) Performing acts within the scope of the usual duties of an “employee”; or

(2) Acting as a member of any committee duly elected or appointed by resolution of your board of directors or board of trustees to perform specific, as distinguished from general, directorial acts on your behalf.

Crime Policy, Part F.6, Definitions, Employee (Adobe PDF Reader page 135, 148).

 

Section D: Relevant Coverage Exclusions

Section D of both the Expanded Crime Policy and Commercial Crime Policy sets out exclusions from coverage and of relevance here, specifically excludes coverage for loss resulting from “theft” or any other dishonest acts committed by “You” (ARC), or any of your partners or “members” (defined as an owner of a limited liability company). See Crime Policy, Part D.1.a, Exclusions (Adobe PDF Reader page 126, 139).

The Crime Policy also broadly excludes coverage for loss resulting from an employee’s “theft” or dishonest acts except when covered under Insuring Agreement A.1. See Crime Policy, Part D.1.c, Exclusions (Adobe PDF Reader pages 126, 139).

 

Section E: Relevant Coverage Conditions

Section E of both the Expanded Crime Policy and Commercial Crime Policy sets out conditions applicable to the insuring agreements, and of relevance here, states that property covered under the policy is limited to property

• •

  That you own or lease; or

• •

  That you hold for others whether or not you are legally liable for the loss of such property.

Crime Policy, Part E.1.l, Conditions Applicable to All Insuring Agreements; Ownership of Property; Interests Covered (Adobe PDF Reader page 131, 144).

With respect to coverage of clients’ property, property covered under the policy is limited to property

a. That your “client” owns or leases; or

b. That your “client” holds for others whether or not your "client" is legally liable for the loss of such property.

Crime Policy Endorsement, Clients’ Property, Part E.2 (Adobe PDF Reader p. 153).

ANALYSIS

A. Federal Law and SSA Policy: FFS Organizational Representative Payees

The Social Security Act permits “qualified organizations”^[19] to collect a monthly fee from payments to a Social Security beneficiary or recipient for expenses the organization incurs in providing representative payee services for the beneficiary or recipient. See 42 U.S.C. §§ 405(j)(4)(A)(i), 1383(a)(2)(D)(i); 20 C.F.R. §§ 404.2040a(a), 416.640a(a). A “qualified organization” consists of either:

(1) [a]ny state or local government agency with fiduciary responsibilities or whose mission is to carry out income maintenance, social service, or health care-related activities;

or

(2) [a]ny community-based nonprofit social service organization founded for religious, charitable, or social welfare purposes, which is tax exempt under section 501(c) of the Internal Revenue Code and which is bonded/insured to cover misuse and embezzlement by officers and employees, and which is licensed in each State in which it serves as representative payee (if licensing is available in the State).

20 C.F.R. §§ 404.2040a(a), 416.640a(a); POMS GN 00506.001(C). SSA authorization is required before an organization can begin collecting a fee from a beneficiary or recipient’s monthly payments. See 20 C.F.R. §§ 404.2040a(a), (d), 416.640a(a), (d); POMS GN 00506.001(B).

Here, you have indicated that ARC is a non-governmental FFS representative payee organization. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2). We do not otherwise address whether ARC is a “qualified organization” meeting all of the regulatory requirements. See 20 C.F.R. §§ 404.2040a(a)-(d), 416.640a(a)-(d); POMS GN 00506.001(C), GN 00506.100(B)(3). Further, we do not address its section 501(c)(3) tax-exempt status, whether it is licensed in the state in which it serves, nor whether the amount of coverage under the bond or policy is sufficient. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.001(C), GN 00506.105(B), GN 00506.010(B)(2), GN 00506.100(B)(2), GN 00506.105(C)(5), (D). Rather, pursuant to your legal opinion request, our focus is upon whether ARC’s Crime Policy meets SSA’s requirement for bonding/insurance coverage for financial loss due to misuse and embezzlement by both officers and employees, as we discuss in the next section. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C) (explaining that bonding constitutes a bond or insurance contract).

A non-governmental FFS representative payee organization must be adequately bonded or insured before the agency will authorize the organization to collect a fee. See 20 C.F.R. §§ 404.2040a(a)(2), (d), 416.640a(a)(2), (d); POMS GN 00506.001(C); POMS GN 00506.105(A). ^[20] The regulations instruct that the FFS representative payee organization must be “bonded/insured to cover misuse and embezzlement by officers and employees.” 20 C.F.R. §§ 404.2040a(a), 416.640a(a). Although the regulations require coverage for “misuse and embezzlement,” SSA law and policy do not specify what insurance or bonding product the FFS representative payee should use or the exact wording of the insurance or bonding contract. 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C). SSA’s POMS instructs that the bond or insurance contract must protect the FFS representative payee organization “from financial loss caused by the action or inaction of the organization, or officer(s), or an employee of the organization.” POMS GN 00506.105(A). POMS GN 00506.105(B) and (C) discuss in general terms various types of bonds and insurance policies that protect from financial loss due to such things as theft, dishonest acts, or fraudulent acts by employees and officers. The POMS states that the bond or insurance contract should provide coverage for financial loss from an organization’s employee’s or officer’s theft. See POMS GN 00506.105(B). Therefore, the bond or insurance contract must provide coverage for financial loss caused by the misuse of benefits and embezzlement of both the FFS representative payee organization’s employees and officers, and the POMS indicates that coverage for loss due to theft, dishonest acts, and fraudulent acts would suffice. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(B), (C)(3), (4).

B. Review of ARC’s Crime Policy to Determine if it Complies with Federal Law and SSA Policy ^[21]

1. ARC’s Crime Policy is Insufficient Because the Definition of “Employee” Does Not Provide Sufficient Coverage for Misuse and Embezzlement by all Officers and Because the Crime Policy Excludes from Coverage Loss Resulting from Theft or Any Other Dishonest Act Committed by ARC

As stated, we must determine whether ARC’s Crime Policy (consisting of both the Expanded Crime Policy and Commercial Crime Policy with endorsements) satisfies SSA’s requirement that a non-governmental FFS representative payee organization be bonded to cover financial loss due to misuse and embezzlement (Adobe PDF Reader pages 124-153). See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(C).

a. The Crime Policy’s Coverage under the Insuring Agreements for Loss due to “Employee Theft” Sufficiently Covers for Loss of Social Security Benefits Due to “Misuse and Embezzlement”

As noted in the background, the Crime Policy, as modified by the Crime Policy Endorsement, Clients’ Property, provides for the following Insuring Agreement as to “employee theft”:

We will pay for loss of or damage to “money”, “securities”, and “other property” resulting directly from “ theft” committed by an “ employee”, whether identified or not, acting alone or in collusion with other persons.

We will pay for loss of or damage to “money”, “securities” and “other property” sustained by your “client” resulting directly from “theft” committed by an identified “employee”, acting alone or in collusion with other persons.

(Adobe PDF Reader pages 125, 138, 153).

We considered whether the Crime Policy’s insuring agreements for employee theft covers loss for an employee’s theft/misuse/embezzlement of SSA beneficiaries’ funds (Social Security benefits) held by ARC as the representative payee for the beneficiaries (Adobe PDF Reader page 125, 138). Insuring Agreement A.1 covers losses resulting from an employee’s theft of money, securities, and other property, and the Crime Policy expressly defines “theft” as the “unlawful taking of property to the deprivation of the Insured” (Adobe PDF Reader pages 125, 136, 138, 150). The Crime Policy, under the common policy conditions, specifies that coverage applies to property that the Insured holds for others, whether or not the Insured is legally liable for the loss of such property (Adobe PDF Reader page 131, 144). Once a misuse determination has been made, the agency holds organizational representative payees liable for the misused benefits. Because the Crime Policy covers property that ARC holds for others, and because an organizational representative payee would be liable for misused benefits, we believe that the agency may reasonably conclude that an employee’s theft of SSA beneficiaries’ funds would be to the deprivation of ARC.

 

The Crime Policy Endorsement, Clients’ Property, could also be construed to adequately cover theft of SSA beneficiaries’ funds (Social Security benefits) held by ARC (Adobe PDF Reader pages 125, 138, 153). This endorsement expressly covers direct losses of ARC’s clients’ money (and securities and other property) due to theft by an employee of ARC (Adobe PDF Reader pages 125, 138, 153). Employee theft is specifically designated as to the deprivation of the client, not the Insured (Adobe PDF Reader pages 153). We note that a “client” is defined as “an entity for which [ARC] perform[s] services under a written contract” (Adobe PDF Reader page 153). The money (Social Security benefits) belongs to the beneficiaries. See POMS GN 00506.002(A) (defining the terms beneficiary, benefit, and conserved funds for purposes of representative payees). It is somewhat unclear whether it is the Social Security beneficiary or SSA that is ARC’s client under this definition where SSA has selected ARC to serve as the beneficiary’s representative payee through a written authorization process between SSA and ARC. See 20 C.F.R. §§ 404.2040a(d)-(g), 416.640a(d)-(g). But if coverage for a loss of money sustained by ARC’s client means a loss of Social Security benefits sustained by a Social Security beneficiary , then this insuring agreement would appear to provide adequate coverage for theft/misuse/embezzlement. Regardless, as discussed, we believe that the agency may reasonably conclude that Insuring Agreement A.1 provides adequate coverage of theft of SSA beneficiaries’ funds.

b. The Crime Policy’s Definition of “Employee” is Unclear and Does Not Appear to Include Coverage for Loss Caused by ARC’s Officers

As noted in the background, a search of the New Mexico Secretary of State registry confirms that ARC is registered as a domestic nonprofit corporation incorporated in New Mexico under the New Mexico Domestic Nonprofit Corporation Act, N.M. Stat. Ann. §§ 53-8-1 – 53-8-99. The Secretary of State registry identifies ARC’s directors and designates nine officer positions, consisting of a Chief Executive Officer, Senior Vice President, President, Immediate Past President, Chief Operating Officer, Secretary, and three Vice Presidents. Thus, it is our understanding that ARC has officers. See N.M. Stat. Ann. § 53-8-23(A) (“Every corporation organized under the Nonprofit Corporation Act shall have officers . . . .”).

Assuming that the Crime Policy’s Insuring Agreement A.1, as discussed above, adequately covers an employee’s theft of SSA beneficiaries’ funds, the policy is deficient because it does not provide adequate coverage against financial loss caused by all of ARC’s employees and officers given the definitions of “employee” (Adobe PDF Reader pages 125, 135-36, 138, 148, 153). Insuring Agreement A.1 of the Crime Policy provides coverage for losses resulting from theft committed by ARC’s “employee” (Adobe PDF Reader pages 125, 135-36). Thus, whether ARC’s Crime Policy covers the organization against theft committed by an officer depends on whether ARC’s officers fall under the Crime Policy’s definition of “employee” (Adobe PDF Reader pages 135, 148). We consider the most relevant sections (1), (4), and (8), defining “employee,” below to determine whether it would include all of ARC’s officers as well and believe that the agency could reasonably conclude that it does not (Adobe PDF Reader pages 135, 148).^[22]

Section (1) of the “employee” definition does not clearly include all of ARC’s officers (both compensated and non-compensated) (Adobe PDF Reader pages 135, 148). First, this provision limits the term “employee” to compensated individuals, indicating that dishonest or fraudulent acts committed by non-compensated officers would not be covered under this provision (Adobe PDF Reader pages 135, 148). Second, this provision limits an “employee” to an individual whom ARC “has the right to direct and control,” which arguably excludes officers (Adobe PDF Reader pages 135, 148).

Section (4) of the “employee” definition also does not sufficiently cover all of ARC’s officers, as it is limited to officers of an employee benefit plan while the officer handles funds or other property of an employee benefit plan (Adobe PDF Reader pages 135, 148). The SSA beneficiaries’ funds entrusted to ARC as representative payee are not part of an employee benefit plan. Thus, section (4) of the employee definition does not adequately cover all of ARC’s officers (Adobe PDF Reader pages 135, 148).

Section (8) of the “employee” definition as to “‘managers’, directors, or trustees” does not include ARC’s officers (Adobe PDF Reader pages 135, 148). The Crime Policy specifically defines the term “manager” as “a person serving in a directorial capacity for a limited liability company” (Adobe PDF Reader pages 135, 148). As noted above, a search of the New Mexico Secretary of State registry confirms that ARC is registered as a domestic nonprofit corporation incorporated in New Mexico. The Secretary of State registry identifies ARC’s directors and designates nine officer positions. Additionally, section (8) provides coverage for managers, directors, or trustees only while performing acts usual to an employee or when a committee member performs specific, directorial acts (Adobe PDF Reader pages 135, 148). Misuse of SSA beneficiary funds is not a usual part of a manager’s duties. Nor is misuse of benefits a valid, specific directorial act for a committee member. As such, the inclusion of “managers” within the definition of “employee” does not sufficiently cover ARC’s officers. We therefore believe that the agency could reasonably conclude that the definition of “employee” in ARC’s Policy does not sufficiently cover all of ARC’s officers.

Therefore, as the Crime Policy’s Insuring Agreement extends coverage for loss due to employee theft, it is significant to SSA’s bonding/insurance requirement that the definition of “employee” does not clearly include ARC’s officers.

 

c. The Crime Policy’s Coverage Exclusions are Unclear and May Encompass ARC’s Officers

Even if we could reasonably conclude that the Crime Policy’s definition of “employee” sufficiently covered all of ARC’s employees and officers, it remains unclear whether ARC’s officers would fall under the broad exclusions from coverage. The policy excludes coverage for loss resulting from theft or dishonest acts committed by “You” (ARC) , or any of your partners or “members” (defined as an owner of a limited liability company) (Adobe PDF Reader pages 126, 139). The Crime Policy also broadly excludes coverage for loss resulting from an employee’s “theft” or dishonest acts except when covered under Insuring Agreement A.1 (Adobe PDF Reader pages 126, 139). As a non-profit corporation, officers act as agents for ARC. See Bourgeous v. Horizon Healthcare Corp., 872 P.2d 852, 855 (N.M. 1994) (“A corporation can act only through its officers and employees, and any act or omission of an officer or an employee of a corporation, within the scope or course of his or her employment, is an act or omission of the corporation.”) (citation omitted).Thus, these broad exclusions from coverage would seem to apply to loss resulting from theft or any other dishonest act committed by ARC’s officers.

In sum, in light of the uncertainties as to the definition of “employee” and the broad exclusions from coverage addressed above, we believe the agency could conclude that ARC’s Crime Policy does not provide sufficient coverage for loss resulting from misuse and embezzlement committed by all of ARC’s employees and officers. As such, we believe that there is legal support for the agency to determine that the Crime Policy does not comply with SSA’s bonding requirements for non-governmental FFS representative payee organizations. See 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2); POMS GN 00506.105(A)-(B).

 

CONCLUSION

Based on the information provided, we believe that the agency may reasonably conclude that ARC’s Crime Policy does not sufficiently comply with SSA’s bonding requirement for coverage of financial loss incurred due to the misuse and embezzlement by all employees and officers of the non-governmental FFS representative payee organization. Specifically, given the definitions and exclusions, the Crime Policy does not clearly cover financial losses due to the action or inaction of all of ARC’s officers. Therefore, we believe the agency may reasonably find that ARC’s Crime Policy does not meet SSA’s bonding requirements set out in 20 C.F.R. §§ 404.2040a(a)(2), 416.640a(a)(2), and POMS GN 00506.105.