The term "loyalty" often carries with it the connotation that it is unconditional. For this reason, loyalty is an overrated and sometimes dangerous virtue.
Loyalty is better viewed as a phenomenon of other traits and virtues: trustworthiness, empathy for fellow humans, investing in a relationship in good times and bad, variations of the golden rule, etc. These are constitutive virtues of loyalty. For example, fidelity is its own virtue. You should be faithful in a relationship. To describe this concept, I say use the word "fidelity" and not "loyalty."
The Bush Administration was criticized for prizing loyalty over competence. You had a place at the table so long as you were strongly loyal to the President. Ron Suskind wrote a book about Paul O'Neill and the Bush administration titled The Price of Loyalty which documented the uncurious and unquestioning habits of a loyal cabinet.
Nor should loyalty trump independent moral judgment. I do not believe in unconditional love or sticking with someone through thick and thin to an indefinite point. If my brother started raping and murdering people, I would call the police.
Bottom Line: Better to employ more precise words to describe the positive virtues in a person than the broad and potentially dangerous "loyal."
(thanks Dave Jilk, Ben Abram, and Cal Newport for their feedback on this idea.)
I first started thinking about "overrated virtues" when I read Alec Baldwin tell Vanity Fair that the most overrated virtue is patience.