Crime Coverage and What Is a Financial Loss

Our insured is a hospital that maintains Employee Dishonesty Coverage at a limit of $2,000,000. Recently, three employees conspired to change the employment status of an employee from per diem to part-time in order to make an employee eligible for medical benefits. They falsified time sheet information which enabled him to receive medical coverage benefits. The insured maintains a self-insured medical benefit program and paid over $275,000 for medical benefits to the employee that would not have been paid had the time sheet records not been falsified. The insurer is declining the claim by indicating that theft is defined as the “intentional unlawful taking of money, securities and other property to your deprivation” and that “we will pay for your direct loss of, or direct loss from damage to, Money, Securities and Other Property directly caused by Theft or Forgery. Further they point out the following exclusions:

-damages of any type, except your direct compensatory damages resulting form a loss covered under the policy.