How many times have you heard the phrase, "crime doesn't pay"? In many cases dealers feel that phrase could apply to crime insurance as well as the criminal act. A crime insurance claim can be one of the most difficult claims to prove your actual loss, especially when employee dishonesty is involved. We will cover in this article a number of the exclusions and definitions in crime coverage that can prevent your being fully compensated for your loss, if you get compensated at all.
The problem with much of the crime loss is that proving it is often difficult. We are not talking about the stolen car or the break-in. These losses are usually easy to prove and the value is easily determined. The big problem comes with employee theft. These claims usually occur over a long period of time. Quite often the perpetrator is a trusted long-term employee. Many times the deception starts harmlessly enough. Sometimes the person needs money for an emergency and has all intentions of paying it back, but of course does not and often the amount grows. Sometimes you just hire a thief.
The problem with valuing these claims is multi-faceted. First, unless you get a full confession, it's hard to know when the crime started. Second, if the loss involves inventory (such as parts), it can be hard to prove which parts were stolen, which were misplaced, how much was inventory shortage, etc. Third, if the cover-up is good enough, you may be able to prove only a small portion of the loss. Your CPA or insurance agent should be able to supply you with a list of checks you can perform randomly to reduce the possibility of this happening.
We all know about these types of situations. However, I am hearing more and more about the incidents when an employee commits a dishonest act in order to close a sale. Insurance claims involving these types of acts are often not covered and the manufacturer or a lender can hold the dealer responsible. We have seen a variety of these types of claims become more prevalent in recent times. The employee may defraud a manufacturer to get a deal under a special offer. The buyer may not even be aware that this is happening. The employee may also mislead a lender to get poor paper bought at a good rate. In all these cases the employee is performing dishonest acts only to get his "day's pay". As you will see, this can be a big stumbling block toward getting your claim paid.
Here are the keys to coverage for a crime related claim. They must all be met.
· The employee may work alone or in collusion with others as long as the others are not the dealer, partners, etc.
· The insured dealer/dealership must suffer a financial loss.
· The employee must obtain financial benefits other than those earned in the normal course of employment. (salaries, commissions, fees, bonuses, etc.) This is the exclusion that keeps many claims from being paid.
· The financial benefit must accrue to the employee or any others that the employee intended to receive the benefit.
While it is true that some of these particular types of employee dishonesty claims are excluded and others are hard to prove, please do not be misled. Crime and employee dishonesty coverage are very valuable. I know of more than one instance where a dealer was kept in business because an employee dishonesty claim was paid. Standard insured employee dishonesty can be devastating. Under these circumstances, the coverage is invaluable; however, it is important to remember that this coverage has its exclusions, too. It is not a replacement for sound management and proper supervision.