Insurance Coverage for Employee Theft: Your Business Needs It More Than You Know


Employee theft costs U.S. businesses about $50 billion a year, according to the Statistic Brain Research Institute. Theft by employees can take many forms, from pilfering goods, tools or construction materials to writing fake checks to a vendor or making wrongful deposits into an improper account.

A whopping 75 percent of employees have stolen at least once from their employer, and half that amount have stolen at least twice, according to the Institute, which estimates that a third of business bankruptcies are caused by employee theft. This problem is compounded by the fact that it often takes two years or more for acts of employee fraud to be detected, and losses from the crimes, which are typically perpetrated through technology, can be quite significant. 

Accounting and investment fraud claims

Theft claims resulting from accounting and investment embezzlement or fraud can run into the millions of dollars. Many of these acts are committed by previously trusted employees who would never have been suspected of such conduct. The median accounting theft claim is $150,000, with the fraud going undetected for 18 months on average. The most frequent crimes involve billing and check tampering schemes, but theft of money, securities and other tangible assets is also common. 

Employee theft insurance coverage

Employee theft coverage may be purchased as a stand-alone policy or in combination with other coverages. There are two types of employee theft coverage: loss sustained coverage and discovery coverage. 

A loss sustained policy covers specific acts of theft that occur during the policy period. Generally speaking, the crime must also be discovered during the policy period for coverage to be provided; however, many loss sustained policies will allow for a loss to be discovered and reported up to a year after the end of the policy period. 

A discovery policy covers losses from thefts that are discovered during the policy period. The thefts themselves could have occurred before the coverage period began. However, it’s important to note that discovery policies often have a retroactive date, which means coverage will not be provided if the crime occurred before that date. With many discovery policies, losses can be discovered and reported within a 60-day window after the policy ends. 

Some losses are not covered

Employee theft coverage applies whether or not the employee committing the theft is identified or whether the perpetrator colluded on the crime with others. However, certain losses are not covered by employee theft coverage. These include thefts by a business owner, partner or other principal, or crimes by third parties having no relation to the business. Losses stemming from an employee who was known to commit theft or other dishonest acts by a company principal prior to the policy inception date are also excluded from coverage. Other common exclusions are trading losses, inventory shortages, lost income from reasons other than theft, losses involving virtual currency, losses stemming from data security breaches, loss of future income, salary and/or benefits paid to the perpetrator during the time the theft was committed, and legal fees and expenses. 

Other important policy provisions

Coverage for any employee is canceled upon a company principal learning that the employee has committed a dishonest act. Further, it’s important to note there will be set limits of coverage for each occurrence of employee theft. Under a typical policy, two or more instances of embezzlement by the same employee would be counted as a single occurrence. 

If you experiencing a problem with employee theft coverage or have question regarding it, do not hesitate to give of call.  We make insurance companies keep the promises they make to you and your business. Contact us today for a free consultation.


Evan S. Schwartz
Founder of Schwartz, Conroy & Hack