Employee dishonesty insurance

Employee dishonesty coverage can refer to two different types of protection against theft by your staff:

1. First-party coverage: This protects your own business from employee theft. You can add this coverage to a business owner's policy (BOP) as an endorsement to commercial property insurance.
2. Third-party coverage: This protects your clients from dishonest acts committed by employees at your business. It's usually called a fidelity bond or a business service bond.

You may see both kinds of protection referred to more broadly as commercial crime insurance or employee theft coverage.

While most employers want to trust the people they hire, there is always risk involved. Small businesses are especially vulnerable to employee theft and other dishonest acts, as they may lack the internal controls and systems needed to prevent crime.

Employee fraud and theft cost U.S. organizations billions of dollars annually. Employee theft can come in many forms:

• Someone stealing merchandise, office equipment, or taking cash from the register may be easy to spot.
• An employee diverting company checks or wiring funds to their personal bank account could be harder to track.
• More complex schemes involve an employee accepting kickbacks from a vendor to secure a business deal.

Employee theft and dishonesty insurance covers various financial losses caused by dishonest employees. This coverage typically includes:

• Stolen property, such as inventory and office equipment
• Theft of cash, securities, checks, money orders, and other financial instruments
• Forgery, fraud, and embezzlement
• Unauthorized wire transfers
• Credit card fraud by an employee
• Theft by all workers for your company, including seasonal, temporary, and full-time employees

Employee dishonesty insurance excludes claims that relate to your commercial property insurance, errors and omissions insurance (E&O), and other types of business insurance. Exclusions often include:

• Criminal acts by individuals outside your business
• Theft committed by a company’s owner
• Losses caused by an employee when you knew, prior to the loss, that the employee had committed theft against any previous employer or your business
• Any wages and benefits the employee received
• Your loss of future income from the theft
• Indirect losses, such as business interruption
• Accounting errors
• Data breaches and computer fraud from outside the company

The critical distinction:

• Commercial crime insurance is designed to cover the direct financial loss of your tangible assets like cash, securities, and inventory – whether it's stolen by an employee or fraudulently transferred.
• Cyber insurance is designed to cover the costs and legal liabilities that arise from a digital attack. This includes hiring IT forensic teams, notifying affected customers after a data breach, and covering legal fees from lawsuits related to a security failure.

You need both because an exclusion in one policy often places coverage within the other. For example, your crime policy typically excludes losses related to data breaches, which is exactly what a cyber policy covers.