Rules
Employee Theft Coverage Limits: How Per-Loss Limits Work
Employee theft coverage limits apply per loss, not per employee. Learn how a continuing scheme counts as one loss, how deductibles and limits apply, and what ERISA bond limits are.
What to take away
- Employee theft coverage limits apply per loss, not per employee, on the standard commercial crime form.
- The ISO commercial crime form covers theft of money, securities and other property by an employee, capped at the limit you bought.
- A discovery form covers losses found during the policy period. A loss sustained form covers losses that occur during the period and are found within one year after it ends.
- ERISA requires a plan bond of at least 10 percent of plan assets, within statutory floor and ceiling amounts.
- The timing and content of a proof of loss decide most disputed fidelity claims.
How the limit and deductible apply
The limit is the most the insurer pays for one loss. The deductible comes off the covered loss first, and the limit caps what is left. Everything above the limit stays with the employer, and the loss does not move to another policy.
For example, take a $250,000 limit with a $10,000 deductible and a single $400,000 theft (illustrative figures). The covered loss is $400,000 less $10,000, or $390,000. The insurer pays the $250,000 limit, and the employer keeps $150,000.
Buyers sometimes assume a liability policy absorbs the overage, but stolen money sits outside general liability forms. Employee theft is a crime-form question, not a liability one.
Who decides a fidelity dispute
State insurance departments approve the forms carriers sell, and state courts hear most disputes over a denial. The paper matters more than the marketing name: a fidelity bond and a commercial crime policy often describe the same insuring agreement, so read the form, not the label.
The Employee Retirement Income Security Act (ERISA) requires a bond covering every fiduciary and anyone who handles plan funds. The Department of Labor enforces that requirement.
What a compliant proof of loss contains
Proof of Loss Contents
- Date of discovery
- Amount claimed
- Employees involved
- Description of property taken
- Police report number
- Ownership records
- Proof property left control
A typical proof of loss is a sworn statement that gives the date of discovery, the employee or employees involved, a description of the loss, the amount claimed and how it was calculated, the supporting documents, and any other insurance that may apply. Check your form for the exact list, because the form controls.
The ownership schedule is the same evidence a commercial property claim turns on. A partial answer invites a reservation of rights letter. That letter means the carrier is still deciding whether to cover you, and it keeps the denial option open while it investigates.
Count the losses before you apply the limit
The form counts losses by occurrence, and the policy's definition of occurrence decides how many losses a scheme counts as. Read that definition in your own form before you assume how a scheme will be treated.
Take two employees who run one fake-vendor scheme for a year. If the carrier treats it as one continuing scheme, one limit and one deductible apply. If the two schemes are separate and each counts as its own loss, each loss has its own limit and deductible. The number of losses is a question of fact that your records must define, so keep the dates, the accounts and the people involved for each transaction.
One Scheme vs Two Schemes
One continuing scheme
- Loss count
- Single loss
- Limit applied
- One limit
- Deductible
- One deductible
- Overage
- Stays with employer
Two separate schemes
- Loss count
- Two losses
- Limit applied
- Same annual limit
- Deductible
- Deductible each loss
- Overage
- Stays with employer
Records that support an employee dishonesty claim
The adjuster has to verify ownership, value and the fact of the taking. Ask what the carrier wants before you hand over files, because a crime claim is document driven.
- Bank statements covering the full period of the scheme
- Reconciliation reports that show where the balance broke
- Payroll and vendor files the employee could edit
- Signed statements from whoever found the discrepancy
What the ERISA bond requires
ERISA plans must carry a bond of at least 10 percent of plan assets. The statute sets a minimum and a maximum bond amount, $1,000 and $500,000 for most plans and $1,000,000 for plans that hold employer securities, under 29 U.S.C. 1112. Confirm the current amounts in the statute before you set the bond.
A fidelity bond of this kind is a three-party instrument that protects the plan rather than the employer. Underwriters weigh financial strength and experience when they price it.
A missing bond does not shrink the theft. It moves the loss onto the fiduciaries who should have bought the bond.
A fiduciary who lets a plan loss happen while no bond is in place can be personally liable to restore the money under 29 U.S.C. 1109.
Timing and state rules
Timing rules vary by state. Some states set a clock for how quickly an insurer must respond to a claim, and several allow extensions when the insurer needs more time. Check your state's rule before you assume a deadline.
Late or incomplete proof is a common ground for denial. Courts usually enforce the proof of loss clause unless state law or the insurer's own conduct excuses the delay.
If the stolen item is equipment rather than cash, state law and the form decide which policy answers. Tools taken from a jobsite raise that split, and Contractors Equipment Insurance versus general liability works through which form responds.
