Proof of employee theft
Question. My client has a business covered by a standard commercial crime policy, which includes coverage form A, employee dishonesty, and coverage form C, theft, disappearance and destruction.
Not long ago an employee was "tricked" into giving a large sum of money — the daily deposits — to a supposed security guard. No witnesses saw the guard, and no other businesses in the area had such a loss. The employee has since refused to take a lie detector test. She has also filed a workers' comp claim, citing stress from this incident. She told the doctor a gun was involved, but has later denied there was a gun.
We feel this loss should be covered, but are unsure how to proceed. How does my client prove there has been a loss? Explanatory material accompanying the policy states "loss which results from an insured…being induced by any dishonest act to voluntarily part with title to or possession of money or securities is not covered. This implies employee dishonesty which is not within the scope of this form."
What are your thoughts? If the explanatory material is correct, then shouldn't the carrier have to prove the employee took part in the loss under form A?
— California Subscriber
Answer. In the case you describe, the burden of proving the loss falls on the insured. The explanatory material is simply that — explanatory material — and should not be considered part of the contract. The explanatory material alludes to "trick or device" whereby an employee is induced to part with property; it can't always be deduced that the employee therefore was a willing participant. The effect of the exclusion, however, is to preclude coverage for the loss under form C.
The insured may make a claim under coverage part A, but must establish the loss through filing charges, or some similar action. If nothing is done other than to report a loss, the insurer could suspect collusion.
The policy makes the requirement that the insured must cooperate with the insurer in event of a loss. It appears that proof of the loss will lie in full investigation.
Stolen credit card numbers
Question. An employee or an outsider (the cleaning crew, perhaps) stole credit card information from several patrons of a restaurant. More than $15,000 in charges were made against the cards. The credit card company has requested reimbursement from the restaurant.
Is this covered under the employee dishonesty coverage or another coverage under crime policy? What if an outsider committed the theft? If not, would the general liability policy respond if the restaurant was sued by the credit card company?
— Pennsylvania Subscriber
Answer. Let's start with an employee stealing the information, then we'll look at an outsider. The crime policy provides coverage for loss or damage to money, securities or other property resulting directly from theft by an employee. These are defined terms: Money includes currency, coins and bank notes. Securities are negotiable and nonnegotiable instruments that represent money and include tokens, tickets and evidences of debt issued in connection with credit cards. Other property is tangible property other than money and securities, and excludes electronic data. Theft is the unlawful taking of property to the deprivation of the insured.
In this situation money has not been stolen, nor have securities. The credit card numbers themselves aren't evidences of debt; however, they allow access to the holder's account, which may have credit available, but may not as well. So the credit card numbers are really electronic data that is excluded under other property. Also, the insured hasn't been deprived; the credit card companies have, so this isn't covered under the employee theft insuring agreement or any of the other agreements in the crime policy.
The CGL policy provides coverage for sums the insured becomes legally liable to pay for bodily injury or property damage. Bodily injury is defined as bodily injury, sickness or disease sustained by a person. Property damage is physical injury to tangible property, including loss of use of that property and loss of use of tangible property that is not physically injured. Again, electronic data is not tangible property.
There is certainly no bodily injury involved, and likewise there is no property damage. The credit card company extended credit to an unauthorized person using a valid number, but that is not property damage. Legal liability is a legal issue that we can't really address, but because there is no injury or property damage, it's a moot point.
However, you asked whether there was coverage under the CGL if the insured was sued for the loss. The policy states that the company has a duty to defend if the suit is seeking damages that are covered by this policy. Because we have determined that there is no coverage under this policy for such loss, then there is no duty to defend.
Thus, there is no coverage for this loss if an employee stole the numbers. The same applies for an outsider: There was no tangible property stolen, and no one was physically injured. Even if the restaurant hired the cleaning crew, the cleaning company is responsible for their employees, not the restaurant.
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