By  on August 6, 2007

Employee theft can have a huge effect on a business' bottom line. Companies need to take proactive steps to protect themselves against employee-related losses, but they don't always understand what is required to adequately protect themselves. WWD spoke with David Weinstein, chair of the employment and labor practice at Wildman Harrold in Chicago, about how companies should approach insurance coverage for employee theft.

WWD: What does fidelity and crime loss insurance cover?

David Weinstein: As with all insurance, the scope of coverage provided by this type of insurance depends on the exact terms and conditions of the insurance policy that an employer purchases. Generally, this type of insurance covers certain financial losses that employers incur due to criminal or dishonest conduct by employees.

WWD: What is the biggest mistake companies make in this area?

D.W.: The most common mistakes include: (1) failing to understand exactly what is covered under the policy purchased and what is not; (2) failing to report the loss to the insurer within the time frame required under the policy; (3) failing to thoroughly document the way in which the loss occurred and the precise amount of the loss caused by the employee's dishonesty, and (4) assuming that the insurer will automatically pay a dishonesty-related claim merely because the employer bought the policy.

WWD: How does fidelity and crime loss insurance help businesses manage their human resources?

D.W.: The terms and conditions of the insurance policy are one of the important factors that can help employers structure risk management programs and personnel policies that most effectively protect the company's interests.

WWD: How should a company decide what insurance best fits its needs?

D.W.: They should evaluate factors such as the company's history of dishonesty-related losses; the aspects of the company's business that increase or decrease the opportunities for dishonesty-related losses; the steps, apart from insurance, that the company has taken and could take to proactively prevent such losses, and carefully examining the company's culture and approach to managing its employee relations.WWD: From a legal perspective, what are the biggest benefits of this type of insurance? What about from a human resources perspective?

D.W.: The legal and h.r. benefits tend to overlap. These benefits include the insurance providing the company with at least a potential source of recovery for some portion of certain dishonesty-related losses, and helping the employer take a more systematic and rigorous look at its policies and practices that increase or decrease the potential for dishonesty-related losses.

WWD: What are the steps taken to purchase the right policy?

D.W.: The steps include completing the evaluation described above, working with an insurance broker experienced in this type of insurance policy, obtaining at least three quotes for coverage and then scrutinizing the [different] policies of those insurers offering acceptable coverage limits and premiums, and negotiating with the insurer to obtain the most material improvements in the carrier's policy.

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