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Bruce Sackrison

Bruce Sackrison is a Napa Valley Register columnist who will write about property and casualty insurance matters.

Your employees are the most honest people in the world. Until one day... one of them isn’t. Your heart is broken.

But what about your insurance?

Today, as part of the series I began two weeks ago, I’d like to explore another part of business insurance that’s often neglected: employee theft coverage.

The parable of the naughty employee

Nelson the Naughty Employee was background checked. He passed with flying colors.

Unfortunately, Nelson had gone by other names in the past. This “new and improved” Nelson was a recent invention. The background check didn’t catch his true history of fraud in another state, under another name.

The new and improved Nelson may have been new... but he was not improved.

The old temptations caught up with Nelson. He was experienced, so it took two years before he was finally get caught.

He had crafted an elaborate scheme that stole more than $100,000 from the company’s customers. Eventually, like most evil schemes, his house of cards fell.

Naughty Nelson was fired, arrested, and plead guilty in exchange for a reduced sentence.

Meanwhile, his employer was on the hook for all of it. Those harmed, the customers, came after his employer aggressively. And who could blame them?

What is employee dishonesty coverage?

Employee dishonesty coverage protects a business when they suffer a monetary loss caused by fraud or theft by an employee (or employees) of either the employer’s property or money, or the property or money of a third-party (like a customer or vendor).

Short version: if your employee steals from you or a third party, this protects the company.

The coverage can go by several names, including employee theft coverage. And there are other coverages that can be bundled with it or sold separately. Two of those other coverages are computer fraud, and funds transfer fraud.

Whatever it’s called, and whether it’s bundled in your commercial insurance policy automatically or not, in many cases, the default coverage levels are not enough.

The typical employee theft insurance claim is over $100,000, yet the default coverage limit is often far less than that.

Why do you need employee dishonesty coverage?

Employee theft is on the rise. A survey conducted in 2017 by the Association of Certified Fraud Examiners found that 75 percent of employees in the U.S. admitted to stealing at least once from their employer. Maybe that’s mostly pencils and pens. Maybe even an occasional three-ring binder.

But often it’s much more.

That same study found that more than $50 billion a year is stolen from employers by their employees. That’s a lot of pens and pencils and three-ring binders.

Employee theft is not unusual. It’s not something that happens only to other businesses. It can happen to anyone with employees. It’s often just a matter of time.

What you should know about employee dishonesty coverage

Like a lot of commercial coverages, you need an experienced professional to walk through this with you. There are unique “ins and outs” of this coverage, including obligations you have.

One of those obligations is critically important to remember:

If you discover that an employee is guilty of theft or fraud, and you don’t immediately report it, or begin an official (and documented) investigation... any theft after discovery will not be covered.

In simple words... there is no coverage after discovery if you delay.

My advice

Many, maybe most, business owners do not have high enough limits for employee theft. They may even be risking bankruptcy if the theft or fraud goes on long enough (an average length of time before large theft is caught is 18 months).

Call an experienced business insurance agent to review your coverage. As always, contact me if you do not currently have a local business insurance agent.

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Bruce Sackrison is an insurance property and casualty broker affiliated with Professional Insurance Associates. He is at 707-931-0186 or bruces@sackifs.com.

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