If I didn’t take it, why do I have to pay it back? |
Malissa was a very agreeable property manager. Even though Masur-Dean Properties' policy was to never accept cash rental payments from its tenants, Malissa was more than willing to do so. What the cash-paying tenants didn’t know was that Malissa kept the cash and their apartments were shown as vacant units.
Everything was going along smoothly until Masur-Dean’s CPA noticed some irregularities and the subsequent investigation revealed the truth. The loss was reported to Lafayette insurance Company. Lafayette paid its $50,000 limit to Masur-Dean and then subrogated against Malissa and her husband, Benny. Benny argued that he didn’t know anything about Malissa’s stealing and shouldn’t be responsible for her debts. However, the court ruled that since the stolen money was considered community property, Benny was just as responsible for paying it back as Malissa.
Click here for more details on this court case. |
Since Malissa took money over a period of three years, shouldn’t the limit available be three times the $50,000 policy limit? |
In this case, while the entire employee dishonesty limit was paid, it probably did not equal the total amount of loss. Malissa was responsible for collecting rents for 85 properties and did so over a period of three years. Since the employee dishonesty coverage treats all of Malissa’s thefts as a single act, only the one year’s policy limit is available, even though the losses occurred over a three-year period.
Click here to review the PF&M analysis
of the ISO Employee Dishonesty Coverage Form. |
Why did Malissa (and Benny) have to pay back the insurance loss? |
Employee dishonesty coverage is more of a surety bond than an insurance coverage. The insurance company operates as a surety guaranteeing the honesty of employees. If an employee steals from the employer, the insurance company pays the employer, but then has the right to subrogate against the dishonest employee in the same way a surety has the right to collect from the party whose performance it guarantees.
Click here to review the difference between surety and insurance coverage. |
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Do your clients carry sufficiently high employee dishonesty coverage limits to protect them if a valued employee steals from them over a period of years? The employee dishonesty coverage limits all too often remain unchanged even as the business regularly increases its building and business personal property limits.
Click here for a letter you could send
suggesting your client consider increasing its employee dishonesty coverage limits. |
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ISO is introducing mandatory water exclusion endorsements on most commercial and personal lines property coverages. These exclusions replace the current water exclusions in those coverages. The Commercial Property section of the PF&M provides an explanation and analysis of this significant change.
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