by Bill Petro & Mike Ugljesa, Ohio School Plan
In school business, managing financial risk isn’t optional, it’s essential. Whether protecting physical assets, defending against legal claims, or ensuring the faithful performance of key duties, school districts rely on a combination of risk financing mechanisms to stay secure.
There are three distinct types of protection that districts should understand: property insurance, casualty insurance, and surety bonds. Each plays a unique role and is designed specifically for that role—and they don’t overlap.
Three Buckets of Protection
- Property Coverage (First-Party Damages)
This covers losses to district-owned property like buildings, vehicles, and equipment due to events like fire, theft, or weather damage.
- Casualty Coverage (Third-Party Damages)
This covers liability for harm caused to others—like a visitor slipping on ice, or a civil rights complaint under FAPE. If the district’s actions (or inaction) result in actual or alleged third-party injuries or damage, this coverage applies.
- Bonds (Not Insurance)
Bonds guarantee that certain individuals, such as the treasurer, will perform their duties as required by law. Unlike insurance, bonds protect the district—not the individual employee. If there’s a financial loss due to a failure in duty, the surety (bond provider) will pay the district—and the treasurer will be expected to repay the surety.
What About Treasurer Bonds?
Until 2019, Treasurer position bonds were required under Ohio law to protect public funds. These bonds create a legal agreement between three parties:
- The Principal (e.g., the treasurer),
- The Obligee (the school district), and
- The Surety (the bonding company).
If a Finding for Recovery (FFR) is issued due to negligence or wrongdoing, the surety pays the district (the obligee) —then seeks reimbursement from the treasurer (the principal). That’s right: the treasurer is still on the hook, regardless of the origin of the mistake.
More Options for Protection: Insurance in lieu of Bond
Thanks to ORC 3.061, districts can now purchase insurance in lieu of a position bond. This insurance policy provides similar protection while shielding the treasurer from personal liability.
Here’s the difference in practice:
If a district only has a position bond, and an error occurs (e.g., payroll contributions to STRS were miscalculated), the bond will cover the district’s loss—but the treasurer will be expected to reimburse the bond provider (surety), regardless of who made the mistake.
If a district opts for insurance instead, the policy will pay for the loss—and the treasurer won’t be personally liable, even if they made the error.
This shift allows districts to not only protect public funds but also fairly protect the professionals entrusted to manage them.
The Ohio Auditor of State has a Frequently Asked Questions document about insurance in lieu of bond.
How to Make the Change
Insurance in lieu of a bond is becoming standard practice. If districts determine that it makes sense to utilize insurance in lieu of bonds, there is a process to follow:
- The district must first adopt a policy, by ordinance or resolution, to allow for use of insurance in lieu of bond
- The district’s insurance policy should remove the bonded employee exclusion and should determine which instrument is primary: bond or insurance coverage (if both instruments are utilized).
- This change can be made during an individual’s contract; it does not need to wait until contract renewal.
- As always, consulting legal counsel and an insurance professional is advised.
As the legal and financial environment grows more complex, being proactive in your risk management strategy is the best way to safeguard your district—and the people who serve it.