Employee dishonesty coverage

Employee dishonesty coverage can refer to two different types of coverage that protect against dishonest employees.

The first type 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.

The second type of coverage protects your clients from dishonest 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 as commercial crime insurance or employee theft coverage.

If your employees can access your company's finances, issue checks, or handle valuable business property, you should consider adding employee dishonesty coverage to your commercial property insurance coverage or BOP.

If an employee forges a check or steals from the cash register, this coverage will pay you back for the loss up to your policy limits. This includes the theft of property or cash, along with illegal electronic funds transfers.

Note that general liability insurance won't protect your business against employee dishonesty. However, it's likely the first policy you need for its broad protection against third-party accidents.

Fidelity bonds protect your clients from employee theft. If one of your employees steals from a client, a fidelity bond will compensate the client for the amount that was stolen.

A fidelity bond is not like a typical insurance policy. It reimburses the client directly for their loss, and you must then pay that amount back to the insurance company.

Fidelity bonds are most common in the tech industry, where clients often request them in the terms of a contract. Independent contractors may also need this coverage to work with certain clients.

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 practices and systems needed to prevent crime.

Businesses lose an estimated $50 billion per year from employee theft, according to the U.S. Department of Commerce. This government agency also estimates that employee theft causes 30 percent of business failures.

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, as would an employee who accepted 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 seasonal employees, temporary employees, full-time employees, and all others who work for your company

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 include:

• Criminal acts by individuals outside your business
• Theft committed by a company’s owner
• Any employees with a known record of stealing from an employer
• 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