Taking Control: How to Fight Crime and Employee Dishonesty Claims
As much as we’d like to believe everyone is telling the truth, we have to be realistic, especially when insurance claims are involved. Companies often make the mistake of assuming that Crime or Employee Dishonesty coverage is a substitute for solid risk management practices. While this coverage is a critical consideration in an insurance portfolio by itself, there can be some downfalls if the intent of the insurance carriers isn’t understood.
For example, let’s imagine your business involves loaning equipment to clients and having it either returned to your storage yard or having employees pick up the equipment at your client locations. Keeping this equipment accounted for is a critical part of your operations, so you designate an employee who not only runs this division but is also responsible for all of the inventory monitoring.
After having the trusted employee in this position for an extended period of time, as well as his/her record of remaining profitable, you receive notification from the local police department that they’ve recovered a piece of your equipment and suspect a crime ring. This discovery leads to an internal investigation, where it's uncovered there are several pieces of equipment that can no longer be accounted for. Immediately, you should:
- Pull your last inventory records
- Find the discrepancy
- Submit a claim under your crime policy
This is only the beginning of your internal investigation. Understanding the proof of loss requirements in your crime policy, as well as some of the common exclusions, will be critical to ensuring your coverage will respond.
The initial burden falls on the insured to prove a crime has been committed. There are some specific exclusions impacting whether a loss is considered a “covered claim”. Exclusions include:
- Inventory shortages
- Indirect loss
- Voluntary parting
- Poor business practices
To get past the above exclusions, you'll need to submit evidence of your risk management practices and sufficiently demonstrate how this loss was committed to the governing authorities. In a lot of instances, the local authorities will actually participate and assist in the investigation, possibly even prosecute on behalf of the insured. However, as with a lot of government agencies, resources can be limited. Priorities in these instances go to the more severe crimes, as well as those with sufficient evidence to ensure a successful prosecution.
Defining authority levels, having safeguards and auditing procedures are some critical pieces of your proof of loss and risk mitigation. Some policies go as far as excluding losses where sufficient safeguards were not in place (e.g. exclusion for financial loss due to checks where there's single signer authority). In the scenario above, one of our very own clients was able to show through recordkeeping and witnesses when the equipment was taken. Each piece of equipment was recorded at specific times when it left the yard, as well as when and how it was returned. The evidence was pivotal in demonstrating a crime loss under the policy resulting in the policy responding.
Crime or Employee Dishonesty coverage partnered with solid risk management practices won’t only reduce the likelihood of a loss, but also increase the recovery potential, if there is, in fact, a need to submit a loss.
Our team of experts is ready to help you minimize risk. Contact us.
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