The Employee Dishonesty Coverage Most Shops Do Not Carry

Why this matters

Ask an owner whether they are covered for employee theft and most say yes, because they carry general liability, property, auto and workers comp, and because their trucks say bonded and insured. Then something goes and they find out that the word for what they have is "uninsured", at the precise moment they are least able to absorb it.

This card is mostly about absence: what your existing policies deliberately do not do, what the one that does it is called, and the two fields inside it that decide whether a real claim pays. It is the rare piece of insurance content where the useful part is the gap rather than the product.

What the policies you already have say about employee theft

General liability says no, twice. A GL form responds to bodily injury and property damage caused by an occurrence, which is an accident. Deliberately taking something is not an accident, and even if you got past that, the care-custody-or-control exclusion removes property in your custody from the property-damage grant. So the single most common assumption in the trades, that the liability policy covers a tech who takes something from a customer, fails at both gates.

Commercial property says no by name. A property form covers your building and contents, and the standard forms exclude dishonest or criminal acts by you, your partners, members, officers or employees. The exclusion is explicit; this is not a coverage question that turns on argument.

Commercial auto is answering a different question. It covers the vehicle and liability arising out of its use, not what somebody does with the company's money or a customer's property.

The bond on your truck is probably not insurance for you. A contractor licence bond, a bid bond and a performance bond are surety, which is a three-party guarantee of your performance to somebody else. If the surety pays, it seeks reimbursement from you, because the bond protects the other party rather than the shop. "Bonded and insured" in a phone-book sense almost always means a licence bond and says nothing about employee theft. See related: Bonding: What It Is and When a Job Requires It.

The ERISA bond, if you have one, protects the plan. Where the shop runs a retirement plan, ERISA section 412 requires every person who handles plan funds to be bonded, generally for 10 percent of the funds handled subject to a statutory minimum and maximum. That bond exists for the plan's participants. It does nothing for the shop's own loss.

Cyber is close and is not the same. Cyber and fraud forms are built around an outsider deceiving you, and employee dishonesty is commonly excluded or handled elsewhere. Where a fraudulent payment instruction is involved, ask your agent in writing which of your forms responds, because that edge is where two policies each point at the other.

The coverage that does exist, and its three names

You are looking for a commercial crime policy, or the employee theft insuring agreement inside one. It is sold standalone and as an endorsement to a package or business owner's policy, and the same thing goes by fidelity bond, crime coverage, or employee dishonesty coverage depending on who is talking and how old the paperwork is.

A crime policy is a set of separate insuring agreements, each with its own limit, and you buy the ones you need: employee theft, forgery or alteration, money and securities on and off premises, computer fraud, funds transfer fraud. Only the first is the subject of this card.

Read the definition of "employee" before anything else, because it is where a small shop gets a surprise. The forms extend it in ways you want, to temporary workers and leased employees in most cases, and restrict it in ways you may not expect: theft by an owner, partner or LLC member is typically excluded, since an owner cannot insure against their own dishonesty and a co-owner's theft is usually treated as a partnership dispute rather than a claim. If your shop's money passes through the hands of a family member who is also an owner on paper, ask the question explicitly.

The exposure a service business actually has, and the agreement that answers it

Here is the part that makes this card worth reading rather than filing. The base employee theft agreement covers money, securities and other property that you own or hold for others in a stated capacity. Your actual exposure is different: your people are inside other people's houses and businesses every working hour, and the claim that will arrive is a customer's property, not yours.

Theft of a customer's property by your employee generally needs a separate agreement, sold as clients' property or third-party coverage, and it is not on most small-shop crime policies unless somebody asked for it. That is the single most important sentence here. A shop can buy crime coverage, feel covered, and still be bare on the only loss its business model reliably produces.

Two related facts. The customer's own homeowner policy may respond, subject to their deductible and to the sublimit most homeowner forms apply to jewellery and cash, and their insurer can then come after you for what it paid. And a clients' property claim usually requires the client to have made a claim against you, so the file you need is the one described in the sequence card, not a private conclusion.

Discovery or loss sustained: the trigger that decides a late claim

Internal theft is discovered long after it starts, which puts a great deal of weight on a form term most owners have never looked at.

A discovery form responds to loss you discover during the policy period, whenever the acts occurred, subject to any retroactive date the policy carries. A loss sustained form responds to loss that occurred during the policy period and is discovered within a stated window after it ends, commonly a year, which is where a shop that changed carriers gets caught: the acts fall under the old policy and the discovery falls under the new one, and neither wants it.

The practical rule is short. If you change carriers, ask in writing how loss occurring under the prior policy and discovered under the new one is handled, and get the answer before you sign. A discovery form with a retroactive date matching your prior coverage is the clean version; a loss sustained form with a short discovery window is the version that produces an orphaned claim.

What the form requires from you

The conditions are not decoration. In the common forms they run roughly like this, and the exact wording in yours controls.

• Prompt notice to the insurer, and, where you have reason to believe a law was violated, notice to the police. Where that condition exists, choosing not to report is choosing not to be paid.
• A sworn, detailed proof of loss, which the standard crime forms require within 120 days of discovery. That is a working deadline, not a formality, and it is short if you start assembling on day 100.
• Records and cooperation, including making the books available and, in some forms, submitting to examination under oath.
• The inventory computation limitation. You generally may not prove the amount of a loss solely by an inventory computation or a profit-and-loss computation. This is why the evidence discipline in Before You Accuse Anyone: The Sequence has a second payoff: a claim built on transaction-level documents pays, and one built on "the count is short" does not.
• Coverage ends as to an employee on knowledge of a dishonest act by them. Once you or an owner or officer knows, the policy stops covering that person going forward, whether the act you learned of happened at your shop or before you hired them. The quiet repayment plan is therefore an uninsured position.
• One occurrence, usually. A continuing series of acts by the same employee is normally treated as a single occurrence, which means one deductible and, less happily, one limit across fourteen months of takings.

A worked claim, and the two fields that decided it

A nine-person maintenance shop works under a property-management contract. A tech takes jewellery from an occupied unit across four visits over two months. It surfaces three months after he has left, when a tenant reconciles a move-out inventory and the management company traces attendance to the shop's own dispatch records. The tenant's claim comes to about two weeks of the shop's payroll.

The shop carries a crime policy, so the owner reports it with some confidence. Two fields decide the outcome and neither is about whether the tech did it.

The insuring agreement. Employee theft covers property the insured owns or holds. The jewellery belongs to a tenant of a client, and the policy carries no clients' property agreement, so the denial rests on the grant rather than on the facts. The shop's evidence was never the problem.

The trigger. The shop moved carriers eight months earlier on a loss sustained form. The acts fall inside the prior policy period and the discovery falls inside the current one, so even with the right agreement in place the claim would have needed sorting between two carriers, against a discovery window the owner had never read.

What the shop pays instead comes out of operating cash, because the management contract's indemnity clause makes the loss the shop's regardless of insurance. Two things would have changed it, both available at a renewal conversation: the clients' property agreement at the limit the contract already required, and a discovery trigger with a retroactive date reaching back to the prior policy. Ask your agent to quote both, and to state in the quote which trigger is being offered.

One thing the shop did do right, and it is the only reason the amount was bounded at all: the dispatch record established which visits were theirs and which were not. Had cover existed, that same record would have been the spine of the proof of loss.

When a contract makes this non-optional

Crime coverage stops being a judgement call the moment somebody else's paperwork requires it, and in field service that happens more often than owners expect: property management and institutional portfolios, facilities contracts, financial-institution sites, government work, and almost anything involving key-holding or unescorted access. The requirement usually arrives as a limit plus third-party coverage plus the client named as loss payee as their interest may appear.

Read the clause against your policy rather than against your memory, because a certificate that says "crime" does not tell the client, or you, whether the clients' property agreement is on it. See related: The Certificate of Insurance and What It Has to Say.

The reason to do this before you need it is not the premium. It is that a crime policy bought after a discovery does nothing about the loss you already have, and the coverage-ends-on-knowledge condition means the shop is least insurable exactly when it has learned the most.

References

• ERISA section 412, requiring a fidelity bond for persons handling plan funds, generally at 10 percent of funds handled with a statutory minimum and maximum, for the benefit of the plan
• Your commercial crime policy or crime endorsement: the employee theft insuring agreement, the definition of employee, the clients' property agreement if present, the trigger, and the duties in the event of loss
• Standard commercial property forms exclude dishonest acts by the insured's employees; general liability responds to an occurrence and applies a care, custody or control exclusion
• See related: Business Insurance for Service Businesses; Bonding: What It Is and When a Job Requires It; The Certificate of Insurance and What It Has to Say
• See related: Before You Accuse Anyone: The Sequence; Prosecute or Handle It Internally