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Employee theft in the United States costs employers approximately $40 billion every year. Most businesses tend to overlook the dishonest and criminal acts of their employees because some of them can take at least two years to detect.
With employee crime on the rise, it’s even more important for businesses to protect themselves and their assets. Employee dishonesty insurance can help minimize the damage caused by employees committing illegal and dishonest acts.
What Is Employee Dishonesty Insurance?
Employee dishonesty insurance serves to protect businesses against financial losses caused by the adverse actions of their employees. It can help employers recover revenue and inventory that has been lost.
It’s also known as:
- Crime Coverage
- Fidelity Bond
- Crime Fidelity Insurance
- Commercial Crime Insurance
Is Employee Dishonesty the Same as Employee Theft?
Yes. In insurance terms, the terms employee dishonesty coverage and employee theft both refer to the same acts. They’re used interchangeably.
Is Employee Dishonesty the Same as a Fidelity Bond?
The terms are used interchangeably. However, employee dishonesty policies are technically a type of fidelity bond. Fidelity bonds are insurance policies that protect businesses and their clients from financial losses caused by employee fraud or theft.
There are three types of fidelity bonds:
| Type of Fidelity Bond | Coverage |
| Employee Dishonesty Bond | These are meant to protect the business and the business owner from the illegal actions of their employees. |
| Business Service Bonds | These are intended to protect the clients of the business from theft by the employees. These are commonly used by landscapers, pet sitters, residential cleaners, and maintenance services. |
| ERISA Bonds | An ERISA (Employee Retirement Income Security Act of 1974) bond is a special type of insurance policy that protects beneficiaries and participants from the dishonest actions of a fiduciary that handles pensions plans or employee benefits. |
What Does Employee Dishonesty Insurance Cover?
Seventy-five percent of employees have admitted to stealing from their employers, and at least one in three bankruptcies filed every year can be linked to employee crime. Even with ample preventative measures and policies in place to discourage employees from fraudulent and illegal activities, small businesses are still at risk. Employee dishonesty insurance minimizes the level of that risk.
Here are some of the activities covered by an employee dishonesty insurance policy:
- Theft or embezzlement of money or money securities
- Forgery, alterations, and tampering of checks, invoices, receipts, and other similar instruments
- Burglaries of safes
- Credit card fraud
- Counterfeiting of inventory, money order, etc.
- Vendor kickbacks
- Credit card fraud
- Computer fraud and data theft, including hacking to obtain sensitive company or customer information
- Unauthorized electronic fund transfers
- Shoplifting
The policy protects against the actions of all current, seasonal, and former employees. The actions of managers, independent contractors, and volunteers may also be covered. However, acts committed by partners, trustees, directors, and other officers may not be covered because they’re company principals and aren’t considered employees per se.
What Is NOT Covered by Employee Dishonesty Insurance?
Employee dishonesty insurance typically does not cover the following:
- Government destruction or seizure of business property
- Theft by the employer or policyholder
- Loss of income that would have been realized if the property, money, or security had not been stolen or lost
- Calculation errors or omissions (this is typically covered by an errors and omissions insurance policy)
- Vandalism (this is typically covered by a commercial property insurance policy)
- Data security breach (this is typically covered by a cyber liability insurance policy)
- Legal costs (this is typically covered by a general liability insurance policy)
- Loss of virtual assets or currencies such as Bitcoin
- Trading losses or poor investment decisions
- Inventory shortages or losses unless there is proof (such as a video of the employee stealing inventory) to support the claim
If the insurance company later finds out that the employer decided to keep an employee on their payroll despite knowledge of their dishonest actions, the losses incurred thereafter may not be covered. Insurance companies rarely pay for theft committed by a known thief.
It’s important to read the terms of the employee dishonesty insurance policy to identify which acts are and aren’t covered. There are also some special provisions that employers need to be aware of.
For instance, some policies may contain a discovery period. This means that the policy will only cover losses that are discovered within the stated period. Most policies grant employers a 60-day extension from the expiry of the policy to discover loss.
Some policies may also limit coverage to each occurrence. This means that two acts of theft committed by the same employee may be considered by the insurance company as a single occurrence and not two separate ones.