James White was a senior vice president at Capital Bank & Trust. He used his skill at forging to steal over $1,700,000 from his bank. Gulf Insurance Company refused to pay the loss when it discovered that the president of the bank knew about James' skill at forging documents. He had reprimanded him for using it to forge a credit renewal but did not take any other action.

The Bank argued that the forged credit renewal was not a dishonest act and that coverage should continue to apply for James' subsequent dishonest actions. Gulf argued that any forgery is fraudulent and, when the Bank discovered that James had used his forgery skills and still continued to employ him, it also assumed any exposure to the results of his forgeries.

Click here to see how the New York Supreme court decided.

Employee dishonesty coverage is unusual in many ways. One of the most unusual is the employee termination condition. As soon as a person in authority (as the policy defines) discovers that an employee has committed a dishonest or fraudulent action, subsequent dishonest acts that employee commits are not covered. Termination is immediate and continues throughout future renewals unless the insurance company issues an endorsement to the contrary. The termination continues even if the bank changes carriers.

Click here to review the PF&M analysis of the ISO Commercial Crime employee termination condition.

When you take over an account, how can you know if an employee is subject to the employee termination condition? You cannot discover it by reviewing the policy because it does not require an endorsement to that effect.

Asking the question is the only way for you to know. It is also a way to alert the applicant that this condition exists.

Click here to review the Employee Dishonesty Questionnaire from the Producer's Commercial Lines Risk Evaluation System.

Employee dishonesty losses can be the most devastating losses that a business sustains. These significant losses can destroy a business and ruin the fortunes and reputations of many people. It also causes significant personal grief and anger because any employee dishonesty loss involves personal betrayal.

Click her for a Business Building Letter you could use in a prospect campaign, especially when the local news highlights a current embezzlement case.

Click her for a Business Building Letter you could use in a prospect campaign, especially when the local news highlights a current embezzlement case.